Bridging TradFi and DeFi: RWA-Backed Stables (Panel)

hello everyone good afternoon I'm nma from stable lab um welcome to this discussion on one of the most dynamic intersections of finance and blockchain um that is real world asset backed yield bearing stable coins quite a mouthful right um I'm joined here by my fellow panelist to discuss this topic that really sits at the heart of the intersection of trafi and defi stable coins are the backbone of crypto markets today and the conversation has shifted more from just mayor stability and more so to yield value acral and governance and today we're going to be touching on a couple themes how this yield is um captured and distributed whether these instruments are actually serving to onboard more institutions or just providing more sophisticated tools for existing crypto users so degens and power users alike and how the design of these stable coins um are serving the needs of both Defi and trafi participants so I think we could kick off with a few intros just across the stage just a couple lines about what you do before we kick off maybe I'll start hi everyone Emanuel Ros here uh I lead sales and Business Development Mountain protocol very briefly mon protocol is the issuer of the first regulated permissionless yield barri ing digital dollar called usdm uh the idea behind usdm is very simple we've taken the ble tested approach of stable coin issuance Pion pioneered by many centralized players uh fully reserved over collateralized by treasuries we've announc it through bankruptcy remoteness and Prudential regulation we've kept the same type of integration dynamics that we are all familiar with and that we all love about crypto permissionless rc20 tokens and we then enhanced it through the yield component meaning that holders of our digital dollar not only have access to a dollar but one that pays daily rewards simply by holding it directly in your wallet there is no staking no lockups no claiming of the yield you simply hold usdm you get rewards paid out in your wallet uh our goal is very simple to build a safe Financial product that can be used by anyone in the world whether you're a sophisticated financial institution or uh Josh Mo in the middle of nowhere looking to save a few Buck bucks while earning some interest on it nice to be here hey everyone my name is Jen sanaji I lead uh BD and growth at chronicle chronicle is at Oracle protocol um it started back in 2017 within maker Dow so it's actually the first Oracle built on ethereum we spun out of Maker Now Sky uh almost two years ago and our two main products are crypto price feed so any type of crypto asset that needs pricing information for protocols um our infrastructure supports that and then we also have a product called verified asset Oracle which is servicing the tokenized asset space so um offchain funds who are tokenizing assets like t- bills um can bring them on chain in a manner that's very transparent and verifiable through our Oracle infrastructure hi I'm wearing Oracle Socks today even though we're Oracle sorry Chronicle and Oracle um yeah I'm yanis I'm the managing director of the Franken coin Association uh I'm Swiss um yeah but Franken coin is a completely decentralized Swiss frank stable coin and that's really what we're doing you know we're uh building that alternative to the US dollar because we believe that there's a pretty big space especially for store of value for the Swiss rank uh on chain um now that's just kind of the value prop but behind that there's a bunch of really interesting stuff so while I'm wearing chronical lab Socks today we're actually orac l so we are having a liquidation mechanism that is completely working without oracles and that allows us to have a wide set of different uh types of collaterals such as real world assets we have some Swiss Equity actually which is issued onchain uh you know that's a small small part of uh our protocol and just you know we solve kind of bunch of those issues uh which decentralized stable coins have with that design and uh you know scaling it up and you know putting the SS Frank on the map really I'm Jacob uh Chief growth officer at mzero uh we are building a platform for uh developers entrepreneurs really any application to spin up a robust stable coin to embed into their application um our thesis is really that any financial application uh and distribution platform or next 5 to 10 years is going to embed stable coins and we are helping those developers um do do just that um all stable coins that are built on top of them we call them extensions um benefit from uh uh our wholesale stable coin M um and they maintain interoperability and all the liquidity we build for that Network um and you can think of M as this wholesale atomized um you know collateral proof of reserve and sophisticated yield distribution mechanism thank you all for those intros um let's Jump Right In um Emanuel well usdm has quickly become one of the most notable treasury backed stable coins and we'll dive more into the aspects of yield and how it's being distributed but I think it's really important to set the broader landscape if you could quickly give us a primer on yield bearing instruments that exist in the market today and how they compare in terms of risk um integration Dynamics and adoption overall yeah so I think uh there has been so much focus and attention over stable coin the last few years because they are very profitable business uh it's not a secret that tether and circle are making a lot of money by running these these operations and you know the incentives the rewards that are generated by this profit this these businesses traditionally go back in the pocket of the issuers uh there is nothing bad with that it's just a business model decision uh but we're reaching at a point where we have the ability and the technology to start basically redistributing economic incentives to the potion to Holders of the stable coins and that's the approach that usdm has taken uh with building our own product in terms of the landscape the Jour or the transformation I would call it a V1 a tether type of stable coin a V2 a circle or other type of stable coins where there are strategic agreements for sharing the underlying interest with certain Distributors and so forth we think about mon protocol as a V3 where every single holder of the network is incentivized the same way uh to hold the asset in terms of the rest of the market yeld bearing assets I think there is a lot of noise clearly there is a ton of product and that's also the beauty of blockchain the ability for people to launch products very seamlessly but there also a lot of unknowns in terms of what you're actually dealing them dealing with generally speaking uh I categorize them in a few different buckets there are Fiat back stable coin traditional centralized stable coins like a tether like a circle like a mountain you then have tokenized Securities they could be tokenized funds such as Beetle bu secuti and black rock or Benji by Flank In templon and then the last bucket the last category I would call it synthetic dollars and this could be a product for example such as atina e USD now in terms of what it means for the ecosystem integration Dynamics and so forth um people love stable coins because other characteristics their ability to integrate seamlessly the composability between D CI and everything between and now more and more fintech new Banks and so forth uh for tokenized security specifically there is a little bit more friction and some folks from Franklin Templeton spoke about this earlier these assets can usually only be transferred between wh listed wallets so it makes it a little bit more difficult to get integrated deeply across the crypto Network and then you have these synthetic dollars that carry the characteristics of traditional stable coins but might have other uh tradeoffs for example maybe transparency or risk and so forth so there is a lot of products in the market it's ultimately up to us to educate the community we're seeing also more and more traditional institutions such as S&P which was also here earlier discussing about credit rating risk rating and so forth and I'm confident that as time goes by there is going to be more transparency and the community is going to get more and more educated about these different products and what they mean for their opportunities and their businesses absolutely really good note there on educating the broader community on the Dynamics of of these instruments I want to pose a question to you johanes um about the role of USD on the stable coin landscape um we could call it um dominance of USD in the stable coin landscape and I know you've voiced your concerns about this a couple times um could you share with us a little bit about those concerns and more importantly any viable Alternatives that you see gaining Traction in the space sure um you know the dollar now talking about not necessarily defi but the traditional world the dollar is quite a dominant uh currency for international trade but it still is I mean I I don't have the numbers in my head but it's probably below 50% even like globally speaking um now in defi that is you know 99% plus um and I I differentiate here between Val like currency for transactions and something uh where you you look at the currency ass value as a transaction it makes a or transactional currency makes a lot of sense to have as few as possible just makes everything more efficient the issue then becomes um if everything is only held in that currency because that creates very kind of risks which are connected to one economy you know which is let's one or if not the biggest economy in the world we have but it still is an you know play ball of politics there's often a lot more um internal politics involved in you know how St or currency behaves rather than external one I can give you a good example with the Swiss rank I'm I'm always talking about the Swiss rank um all over the world because that's what I'm doing like I'm obviously posing that Swiss rank as the alternative to the US doar but thinking a bit back of the strength of the Swiss frank actually the strength of the Swiss frank for the Swiss you know domestic policies is a problem because Switzerland becomes more expensive is an export Nation now what happened um and they've stopped I think in 2014 over a couple of years the demand for Swiss frank from the Euro space was extremely high and that caused exactly those problems it was not an issue you know in in terms of like for us as holders of this currencies but for for the domestic industry and the Swiss National Bank um actually held that uh PEC so that Euro uh the Euro Swiss frank P was at 120 so they basically set over several years um we are at whatever it takes we're going to defend that pack we're going to make sure that the you know the Swiss frank will never be more expensive uh sorry the other way around the Euro will will never be cheaper than 120 um you know Swiss Franks uh obviously now it changed it's uh it's substantially lower but that means that is something which is a purely domestic decision it is purely in like you know National politics and if you're looking at something like defi which is I'd say not necessarily defined by borders but is is a global phenomena and it's a global market and we're all I think you know Global Citizens to some extent um only having you know currency of one part of the world dominating everything is quite risky so yeah so what I'm saying is as transactional currency perfect you know if it's that high it's great we're all thinking the same prices but then as a story of value um there's Alternatives and the Swiss frank obviously is one if you if you look at numbers if you look at you know the M2 so the money supply against GDP the Swiss frank is almost double the size of the US dollar and that is that just shows an indicator for that okay well people are actually in trafi holding that Swiss frank as a store of value to hatch against geopolitical risk and um we just believe we should have these diversity as well in Defi and that's why I'm I'm you know traveling around the world and telling everyone hey look at Alternatives like you know you have the US dollar okay but what else is there and what else can we use and what else can we build on absolutely and that um diversification I think really um I think it's really relevant to the overarching theme of institutional adoption and displaying that sense of diversity in the landscape of stable coins I think could really boost um what we're looking for in terms of um institutional integration I want to switch gears a bit to the infrastructure aspect and um POS this question question to Jen from your Vantage Point at Chronicle and the services you serve up in terms of Oracle based verification we know that trust and credibility is a really huge factor in terms of Institutions really feeling comfortable with this space and adopting it to the level that we would like to see so from your Vantage Point how are you seeing infrastructure are playing a role in achieving this level of trust are there any gaps that you think can be filled or are already being filled in that regard yeah I think like zooming back um like to 2008 right the 2008 financial crisis was you know a crisis in many things but a crisis um from a lack of transparency and um a lot of the people that are now working in crypto and block chain you know live through that maybe you know maybe they were in high school maybe they were just getting out of college trying to get a job and the job market was awful um and and they you know were impacted in that from the the financial crisis in some way and they looked at this alternative um blockchainbased economy as a way to improve upon this opaqueness that existed in traditional Finance so um I think looking at kind of like the foundation of what you know a stable coin or any crypto asset brings um within defi is this level of transparency that is just not available with uh traditional Financial assets offchain and so I think um you know the institutional Community sees um sees that value but they also see the opportunity to increase um you know distribute more product increase their um customer base and offer products at lower price points so it's it is a tech technological um you know advantage that is you know helping to drive and convince um these in institutions to look within the world of defi but I think you know from a practical perspective it's it's like the gains in um you know in their business and their growth so with that on the infrastructure side what we're doing um you know from an oracle perspective and a verification perspective is allowing that um kind of third-party neutral attestation that value that exists anywhere whether it's offchain in a you know in a fund that's being tokenized and brought on chain and and and then being portal through all these lending protocols that we use that we're not just relying on the isers um reports right um because we saw that happen with the 2008 financial crisis right we we we we believed in the big Banks um and we didn't have the view into the types of loans they were doing and kind of The Reckless um kind of and R risky practices that were going on now can we change everything no but with um infrastructure that provides this additional verification we're improving upon what has existed so I think that adds to institutional confidence that adds to um the users confidence when they're actually transacting with maybe a tokenized stable coin or some other asset in their favorite lending protocol it's providing um Regulators with more tools they could look to to say this is a way where we can understand what is taking place which is good to protect consumers which is important to their job um so I think for all the stakeholders that are involved within you know this economy the issuers the users the protocols The Regulators transparency is is like just you know the the engine that builds that confidence absolutely and I I did want to touch a little bit on on the decentralized aspect of issuance of the MZ protocol I know that you guys have taken a different approach um to stable coin issuance but still maintain institutional grade reserves and I wanted a little bit more insight from you Jacob as to how you're balancing tradeoffs in in designing and running such a protocol how are you balancing you know incentives for mentors and structural stability and so on what are the um design decisions that you think have been made to get to this point yeah it's a great question thank you you know um it's interesting for us the like our focus is really on helping developers right and entrepreneurs and applications embed stable coins as I said before right into their applications of building stable coins on top of M like the M wholesale stable coin um the way I view the the Minter Network right and and the open side of that network is really um an option in terms of um you know regulatory coverage so um it's not necessarily um a function of convincing issuers to come onto the network um and and and issue M as a raw asset um but for us can we um have Geographic diversification of issuers so we can serve customers in different jurisdictions um you know uh and then the other side I think is really important is because m0 is a many to one to many Network and with the protocol being that one this immutable protocol at the center is um giving large Distributors the option but not the obligation to become an issuer so I think it's kind of the best of Both Worlds and that that there really shouldn't be a trade-off here is that if you want to go work with the centralized entity and purchase M right which generates it from the decentralized protocol you have that option and it looks like you know working with circle right directly right but in the future right he talked about mentioned like uh the the economics of Minter um if if minting becomes a very profitable business that is like there's a spread between the underlying collab rate and the rate at which um issuers pay the network uh to issue them well now um if you're dealing with a centralized entity in a single issuer network if I'm on the other side of that and I'm earning yield from the protocol I am locked in I have vendor lock in so these guys can start to squeeze me on the yield that's being um distributed Downstream but if I have an open network and the option to myself become an issuer those economics can never be taken from me so I don't see it really as a trade-off but really as this option for integrators to always recapture the full piece of the pie back for themselves so I think that the incentives are really um are pretty well aligned across the network and it's not too much of a hurdle for us personally that's very interesting and I think that um as someone who deeply participates in governance myself I'm also really interested in how um mzero views the role of governance in this aspect I think it's pretty critical because um governance driven decisions are used to decide on like issuance and rebasing mechanisms and so on um from your perspective do you think that governance is maybe creating a little bit more friction for potential institutional um adoption or do you think that in the long run decentralization always serves like that core benefit yeah it's a really good question uh I do think that it does create initially like extra friction um but that's you know there's a trade-off there clearly right between you know building a decentralized network um where you do have you want to build it as narrow as possible to have the governance control as few parameters as possible right because it's key that if m is a building block you want people to have comfort so it's an immutable asset so that cannot be changed by governance but there are certain parameters like the interest rate paid by issuers to the network or the downstream yield that is distributed by the protocol um those are kind of the two key parameters then of course there's uh the being added as an approved earner in the ecosystem um because M only distributes yield to Whit listed um earners um but those are really narrow parameters so I think there is a little bit of a hurdle getting people comfortable um with this but when you realize that the parameters that are being you know um you know that are governed within the protocol itself are really narrow I think that people can begin to overcome that um and I do think the trade-off is worthwhile to have this like open network and I think over time people will begin to become very comfortable with that absolutely I think you know the the conversations around like where governance minimization is is most relevant here um and having sort of that approach to Progressive decentralization but still making making it approachable to institutions looking to integrate um I wanted to go back to Emanuel and talk a little bit more about usdm and distributing yield to users can you share a little bit more about how usdm has managed to gain so much traction because of that um decision that is quite in contrast to a lot of what the competitors are doing in terms of yield distribution and how this you think potentially serves to increase um the level of tional adoption that we're seeing for stable coins sure so first off the great thing of crypto is that we have all of these interesting models uh coming to the market people can explore play around uh with the right technology until we find product Market fit and product Market fit doesn't need to be one model it could be multiple so um I think we have to appreciate all of these different views and and structures that are being presented here today for us specifically we chose the good old boring centralized route where centralized stable coin issuer we are a regulated one and the view again is just to see mon protocol like a financial institution essentially like a bank whatever you want to call it uh that's how we think about ourself as such we need to make the experience for our customers as seamless as possible because we see again our customers as my mom mom of my friends the common person that is looking to save a few bucks or the sophisticated investors looking to access an easy to use product that is going to add value to their work to the experience uh seamlessly so the design route that we chose uh was basically trickling down from thatb wanting to build a dollar that was simple to use and that added value to anyone that was holding it in terms of the implication of the products well these days Circle tether and other stable coins are embedded across all different parts of the crypto Network whenever I think about the crypto Network to me that's defi it's c and more and more it's fintech banking payments and so forth so for a stable coin to be successful I think rule number one it needs to be able to tackle and integrate deeply and seamlessly across all parts of the crypto network uh tther and circle have been able to build huge modes in terms of liquidity synergies with applications that are part of the crypto Network and more our goal is to basically build a competing Network give an alternative to users so that whenever they running a stable coin based work workflow they have an option to get incentives that ride directly through their stable coin in a very low lift low technical integration type of dynamic uh on that note again it could be working with decentralized applications Landing protocols decentralized exchanges derivatives exchanges in defi markets it could be working in CI with OTC desks exchanges Prime Brokers custodians again anyone touching a digital dollar and more and more we are having conversations and discussions with the fintech Neo Banking and payment space um I think the fintech and Ne banking payment space is very attracted to something like usdm because there are no liquidity restrictions or requirements on their end if they decide to build a product a dollar based product that pays rewards that pays interest to their customers they can do it in a very seamless manner thanks to our stable coin so uh that's how we think about the market that's how we think about economics incentive and how they trickle down to the community across different parts of the ecosystem again in the end wherever you have an unproductive dollar you now have an asset that is productive that is equally safe and that ideally is going to be there for you across all different parts of the crypto Network absolutely I think you know one of the the themes that I'm I'm seeing um sticking out in this conversation is that theme of um making things a little bit more approachable making things more transparent um and also being experimental in approach but still having a sense of um safety for institutional adopters and I wanted to go back to johanes and talk a little bit about collateralization because collateralization is really what gives stable coins their credibility but they could also be a limiting factor in terms of scale um so I wanted to hear from you how you think the landscape of coll ization in CDP backed Stables is going and what could be the more optimal framework for selecting collateral for CDP that's a hard question that last part is a probably a bit in flux um I I think you have to kind of divide that into three parts um for you know thinking about collaterals for for St or cdps and or four even uh and one part is really that liquidity right like how liquid is a market and how deep is a market and how large is a market because that directly um is connected to you know how much you can scale a SC St one because you you know cdps in its original form are not very Capital efficient because you have a capital like over capitalization is and you probably know that very well from the maker makeer Dow times really you know where where that was started um but then there's more to that right and and that's OB like where crypto crypto is the most liquid Market in crypto right now you know talking about Bitcoin ethereum uh a second part is yield you know um how expensive is holding that collateral collateralizing that and and that's where for example that whole discussion regarding eth versus Stak eth comes in where you can actually you know can of reduce as a as a borrower your your costs by being able to use Stak eth as a collateral and then the third part is um and uh this is actually something where I think Stakehouse Finance coin coin this idea um with this you know uh redeeming a stable coin into a higher order currency right where how easily do you turn and and this is actually something which is you know a discussion we're having in the Franklin Association currently uh what is the best way to move uh or to change your staple into Fiat you know in dollar it's it's easier because you can go you know the US T route or use the T route in swis franks you don't have that option because it's the regulatory wise it's it's impossible to to issue a centralized stable coin in Switzerland um so that is a third big big question where which is developing on where you can build ways and that's where know things like tokenized bonds tokenized um rwas and it's like two different types of tokenized rwas one hand side like this very liquid kind of things which allow you to move out and in of the system which allow you to scale quick if you scale slowly I believe uh you know any asset really works but if you have to move you know a billion in like this or out like that that you need very very deep liquidity not on a stable coin but on the way which connects it in some form or the other to to uh the um the underlying Fiat now the last part is the yield and and which is connected to the risk um where I am of the opinion that having a wider variety or wider range of of uh collaterals can add something in terms of both yield and risk and a risk what I mean by that is the Bigg you know this is the panel so I if you don't agree please challenge me on that uh um one of the biggest risks I see with with the traditional cdps is um those flash crashes where if you let's say if you have only Crypt backed Stables that correlation tend to spike up in those environments um I I remember very well March 2020 for the ones here who've already been in the space the fu five years ago uh when everything like crashed I think 60% over the weekend right and everything correlated and that is that is not sure how did maker that do back then we're we're still here yeah solvent Sol all good yep all good amazing amazing but it was I I every caused quite a bit of issues for quite a bit of people um but but basically know like how how do you um uh solve that problem is by by adding non-correlated Assets Now Okay you can AR okay everything is going to be correlating for some reason or in some way in those environments but uh how we how we do it we have this beautiful thing in Switzerland called The Swiss blockchain law which allows you to issue uh equity on chain so it's not tokenization but you really you take a company you make a capital increase and it's as a token and then if you have fairly large smmes which are in you know very boring businesses I mean we had currently in frankon has two one is doing admin for payroll and the other ones they're building IT services for the government nothing nothing to do with crypto right and that is a very very good diversification in in helping you uh make the system more secure in those tropy or extreme environments I would just add I think this um you know goes back to like kind of the great attributes of you know what is the blockchain and having this you know Ledger that everybody has access to 247 we can you know consider any type of asset whether it's like a lot of liquidity low liquidity you know it's it's understanding the risk profile and and understanding you know what the trade-offs are of of that risk and what I mean by that is you know from an oracle perspective um you know creating an Oracle or a price feed for any of the you know major tokens very easy right because there's a lot of liquidity a lot of um exchanges that uh list those tokens so it's quite easy from creating a data model and and informing the price through an oracle when you get into these lower liquidity and kind of newer assets that's where risk increases right because in in a market crash but what risk increases the risk of not knowing to price yeah so the price dislocation could be quite extreme um quickly right and if there's not a lot of exchanges or um you know volume on that asset um it's it's sometimes unclear was there um you know some type of bug a hack or was that price that's being represented accurate in that moment it's why we don't use oracles yeah I mean that's exactly that point right where where you have those extreme environments and and um like frankco solves that by not having him and then instead like you have a reverse Dutch auction you have basically its own price finding which is slow so you can't liquid it immediately but you somehow try to avoid that mispricing because that is what it is right even the underlying asset might be very very solid but because there's no liquidity and you are forced to rely on like a liquid price behaves to very unfavorable outcomes right I mean it is a deeper discussion but like at that point yeah right we have four minutes left but um you know then it then it goes back to um who who is the taking on the the burden of risk right if if you don't have an oracle that's providing a protocol with a price in real time and you have a auction system like yours well then the price might be such where that protocol is taking on a lot of debt and and is and becomes insolvent right because the price was what it was supposed to be and it wasn't getting liquidated in in a quick enough manner to um you know make that protocol solvent so there are two sides of there there are right there are and it's it's uh obviously like only having that part doesn't work it needs to be embedded in a set of things which allow you to actually have that so what do you really need you need to be able to bridge the time until you have a price that is really what it it's all about right either if you have an oracle that need can be very short with the risk of when you have you know when I when I do fees always have this draw this imaginary line where you have to crash which goes down and then a day later Tre comes up again which is what happens in probably 95% of the time and then actually liquidating down here is not optimal so you would have better weight to the day and in that in that sense the oraca basically part like behaves better than the the one with the Oracle but yes you're right if you have an asset which keeps going down and then you want to obviously be able to liquidate as early as possible to avoid what you just said yeah do void that bad depth which you potentially have to carry until you have a price at which you can liquidate I would just toss in there please I mean you know it's maybe a little bit of a spicy I think once you're having this conversation I think it's you've already lost in the sense that it's not suitable collateral for a stable coin um you know in in a scalable manner um those like those types of assets where you could have these massive liquidity dislocations um and and neither Oracle nor an oracle free uh jut auction system will solve that if an asset fundamentally lacks the value and therefore the liquidity to liquidate exactly the promise of you know more diverse types of collateral it is is really attractive talking about like tokenized credit some people talk about real estate um but I know that there are still a lot of technical structural barriers to these actually being more viable um forms of collateral for CDP back stable coins so um yeah I'm really looking forward to how each of us and our respective projects evolve in the coming days weeks months years to meet the growing needs of institutional trust and compliance um I wish we had time for like one audience question if anyone has like a quick fire question or comment I think we have just one minute um to spare but um if not I think that we can wrap it up right here um we've talked a little bit about the dominance of USD in stable coin landscape we've talked about decentralized and centralized issuance we've talked a little bit about um the role of infrastructure and how it's serving to bridge trust gaps for institutional adoption um and we've talked about yield and how that is impacting adoption of stable coins both on the Defi and trafi side um thank you again to our panelists for sharing your expertise today thank you to the audience for listening um I myself I'm very very excited about the promise of you know more extensible applications that as it um refers to stable coins and just seeing more um transparency integrated at every level from the monetary level to infrastructural level and so on um and yeah thank you all for being here and and that wraps up our time [Applause]