153 – Alex Wearn: Decentralized Capital And Government Currencies On Ethereum

Transcript

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Bitcoin and ether go to Jay a double x io and embrace the future of cryptocurrency wallets I welcome to epicenter show us talks about the technologies projects and people driving decentralization and the global blocked in revolution my name is sitting with you and my name is Baron Fabien crane we're here today with Alex weren't Alex furnaces CEO of decentralized capital and he has a long experience of working with software the IBM software management did an MBA and then he started while joined this company called centralized capital so thanks much for joining us today Alex thanks guys great to be here yeah so this is a topic that we've talked about a few times in

different ways to sort of topic of having a fiat currencies on a blockchain stable assets on a blockchain and what and so I look forward to kind of revisiting that especially in the context of a theorem and also what was interesting about decentralize capital is that there a theorem startup that's very focused on on being compliant and doing like kyc and you know compliance of regulation which is something that's kind of a new thing I don't think we've seen that in any of the other theorem project that we have on so yeah we look forward to talking about all of that but maybe you get started Alex you mind sharing how you got interested in involved in blockchain and theorem in

the first place sure yeah thanks um so I guess it started in around 2011-2012 like many people saw this thing called Bitcoin come out and was just just just immediately curious as an economist I was a little skeptical of the idea of a currency that isn't necessarily backed by a government or you know doesn't have kind of a guaranteed Redemption you know an entity kind of issuing and backing it but certainly you can't argue that the technology is fascinating the ability you know to create this distributed ledger that everyone can agree upon the balances without you know having a central authority to manage it so in terms of kind of the genesis of decentralized capital actually have my

brother Phil to thank for that so he was even more involved in the community early on it was actually a co-founder of ether X which was one of the very early etherium projects working on a decentralized exchange so who's working on that for a little over a year and during that time I kind of realized that for a decentralized exchange to be successful you really need a way to represent fiat currency in that environment you know if you want to create the most liquid pairs that exist on centralized exchanges you really need to be able to represent dollars euros you on etc and then when looking at kind of the different options for doing so we chose the route where it's

collateralized by a bank deposit so you know there's other kind of approaches to this this stable coin problem and decentralized capital is taken the approach where we accept deposits from customers hold them in a bank account and then issue back a token that represents them that can be traded anywhere on the etherion blockchain so the core problem you're trying to solve really is that people want to use blocks and applications your theorem applications but they don't want to be tied to a volatile currency exactly yes so the real focus i think you know kind of mentioned the idea of exchanges and decentralize exchanges and creating that that crypto fiat pair it's not possible unless you have a token that actually

represents Fiat that's on the blockchain just because it can't interact with a regular bank account right but then if you kind of take that use case in a expand it further then it's really well suited for all sorts of etherium applications in particular ones where there's a smart contract that's holding assets for an extended period of time so the example that I like to talk to a lot is the idea of a prediction market so there's currently some prediction markets that are live that are focused on the outcome of the u.s. presidential election and some of these have been live for months now and the wagers are currently denominated in ether and you've basically if you purchase one of these prediction tokens you've basically entered into to speculations one the outcome of the presidential election the

other being the price of ether when this event resolves and as you've seen you know certainly that the recent price has been relatively stable but if you happen to have purchased that asset you know the night before the dow event then you would have lost fifty percent of its value and it had nothing to do with the actual event that you were speculating on you know the election itself may have not changed at all but the value of your your prediction token has changed dramatically so just thinking through that you know there's that's a good use case for for our assets where if you have a token that represents dollars or Euros whatever kind of your local traditional currency is is then you can engage in that prediction market without simultaneously speculating on the price

of the particular cryptocurrency that you're using interesting yet that's definitely a one one big issue with prediction markets is that you're as you mentioned you're betting against too speculative sort of events and that's one of the hurdles I guess to making decentralized prediction markets enter sort of common place amongst speculators let's let's talk about the architecture of decentralized capital we've had a few projects on before I guess was one that comes to mind which tried to tackle this problem of pegging or cryptocurrency to

a fiat currency and that was a new coin and I haven't followed that project very closely but I think right after we had them on that whole system sort of fell apart and the peg was no longer maintained well let's let's talk about then the architecture and how perhaps it's different from other markets or sorry other stable coins that are based on this coin and share combination sure so you can essentially there's kind of two sides to the business that we have one is the etherium token side where we are creating and minting these assets

that represent different government currencies so we have D USD deur etc that are tokens that can be freely traded on the etherium blockchain that represent the corresponding government currency and then the question that it kind of raises is how do we know that these tokens have value in this case we've taken I guess a bit of a more conceptually simple approach where the assets the the tokens are actually backed and collateralized by deposits in a traditional bank account so we've partnered or we're working with a financial institution crypto capital that allows us to interface with and store customer funds at large multinational banks so kind of the way

it works as a customer who wants to gain some of our assets to purchase some of our assets would send us funds either via a wire transfer to crypto capital or purchase via Bitcoin once we've received that in the case of Bitcoin it's actually immediately sold on the open market into the currency that the customer is purchasing so if you wanted to buy a hundred d USD you would send us I don't know the price today but you know approximately Oh point one eight or something like that Bitcoin which would immediately be sold on the open market and turned into a one hundred dollar deposit that would be held at by crypto capital at one of their banking partners we then issue the corresponding asset the D USD back to the customer there

then free to use that at any of the etherium applications that's coded to accept them and in most cases that means any athyrium applications so our tokens apply with what's known as the erc 20 token standard which is something that's been adopted by the community to ensure that these different applications and all of these different assets on the network are kind of interoperable so some of the applications currently support them as default tokens and if it's not a default token most applications have made it so that users can add them themselves just by using the contract address the symbol as well as the precision of the token how many decimal places it has so few questions here and well I guess we'll dissect this architecture and the different

components and partners involved the first one is you described this company crypto capital and so essentially from our discussions earlier they provide a solution through which exchanges and companies working in the cryptocurrency space can basically just plug into their existing relationships with banks and allow for that interface with the traditional financial system so if you're an exchange for instance you you you you you subscribe to crypto capital service and they offer a white-label solution that would allow that exchange to very easily accept fiat funds and they will handle the exchange between

the exchange on the open markets on that side and given the fact that your company's called decentralized capital at first glance it seems a bit missed a bit misleading to say decentralized capital when in fact those funds and the Fiat funds and the issuance of those funds are done by a centralized entity can you expand on that sure so I mean that the naming was just coincidental we didn't mean to cause any confusion with the centralized capital and in crypto capital but basically as you described they provide services to existing large exchanges such as crack in fifth and X that do exactly what you just

articulated they help them bring in fiat currency into their ecosystem so they help us with our kyc AML process and then they also have the relationship with the banks that then store the funds of our customers and we've been very transparent about this since day one you know we're a software service provider to crypto capital customers and the assets that they hold so we are experts at the etherium architecture you know creating these assets in such a way that they can be securely transferred on the etherium network and then they are experts in finance so they actually came out of it was a group of former bankers of I guess currently still bankers but they were receiving a lot of applications from different crypto

companies and realized that there was kind of an opportunity for a business model here where they could be the ones that hold the relationships with the banks and do the screening on the unkind of the crypto company side and then help provide those services where it where needed really that fiat integration that you mentioned and so then how does one know what's the trust model here how does one know that those Fiat reserves actually exist a crypto capital sure yes so we've instituted a proof of reserves process on our website such that anyone there's actually a page on our site decentralized capital com / reserves or anyone can go and see in real time both the amount of assets on the Block Shane so we link to the block explorer ether

scan we link to our contract there so anyone can see the number of assets in existence as well as the transactions that have occurred and then there's also a link to a site or choose me to a page on Krypto capitals website that represents the API call for our account balances so that you can see kind of in real time that you know our dollars or euros are fully backed in terms of you know what we've issued and are currently floating around on the ethereum blockchain crypto capital itself is a licensed in a regulated entity and we've also published or currently working to publish the report it's generated monthly that shows that they're in good standing that they kind of have the

funds that they claim to have on their accounting and financial statements but so diving into this a little bit if you guys publish a API response I presume I mean that's not something I can verify that that it actually you know you actually got this response right it's just some text you put on our website or is there any way for me to verify that it's actually sort of a misspoke it's a URL on Krypto capitals website so we actually don't have any control or our impact on on the server that's offering this information so granted you know you are trusting that crypto capital is being honest in the information that they're providing and that's where we

try to take that level of transparency 11 deeper and provide kind of the reports and information that shows that crypto capital is in good standing with the regulators that are responsible for making sure that you know they're operating in compliance with the financial regulations that apply to them but you think I'm all is scalable because because right now you guys are sort of launching and and you see like okay you know that that's that's good that's fine but you know presumably Mingyu Hume is going to actually become a successful a lot of people start using that having you know millions tens of millions what we've seen with crypto currency exchanges you know health by a single entity like cryptic capital that

seems to go you know not so well together with the whole trust model that's really at the heart of off cryptocurrencies so do you think there's going to be better ways of managing that in the future sure so crypto capital does have relationships with multiple different banks so there is kind of a diffusion of the risk if you will on their side where they're actually not holding it with anyone financial partner they're held you know they have accounts at different large firms so that kind of helps separate out some of the risk of default for those firms themselves additionally we are also working to get other financial providers that would be forming performing a similar function as crypto capital recognizing that you know

we'd like to kind of diffuse that risk on our side as well by bringing on board as many entities who are interested in being kind of the custodians of these funds that are backing up the assets that we're issuing on the blockchain and you know we acknowledge that's not going to be for everyone you know if your goal is true decentralization and not reliance on some some third-party that you have to trust then you know we are not the stable point solution and that's where people are looking at things you know they're trying things for example Newton ooh bits and you know we do think that smell potentially some of those problems can be solved but today a lot of them are relying on kind of this over collateralization model you know locking up three times the collateral of a cryptocurrency in order to issue you

know some sort of stable asset you know so if you want ten dollars of USD you have to lock up thirty dollars worth of ether we think that's just a very poor allocation of capital in that case and that if you're you know willing to put your trust into you know these large banks that have been around for a while and have you know kind of these financial insurance systems you know these these systems that are meant to ensure and kind of make depositors hole in the event of any issue then this is a better solution for providing that that stable asset in the etherium network I definitely agree like I mean what i was talking was touching about earlier with the decentralized aspect doesn't necessarily mean that i don't think that

this is an interesting model and that it it has the potential to very sort of easily allow people to on board into athyrium simply i think that it's probably one of the things that you get a lot of you may if not already get a lot of criticism for from some of the some part of the of the cryptic community for not being completely centralized but i guess as you said this is something that is up to everyone to decide whether or not they want to you know use this type of service or something that's completely the centralized i think for a lot of people that are interested in getting into using DAPs that kind of thing this can be a great solution now coming back to the issuing component putting aside a

crypto capital but coming back to your business and decentralized capital can you talk about how those assets are issued yes so we've got kind of a multi-part contract system that serves as a kind of a system of checks and balances that helps ensure that there isn't much risk from our perspective in terms of the fact that we have the abilities abilities to from a central central place you know from from ourselves be able to kind of issue and send out these assets to customers so really there's kind of four different key contract pieces so there's the the name reg contract which basically points people it's a consistent contract address that people can use to interact with our assets and points to the the back end contracts as we call them which allows

us to do updates to functionality without having individuals have to migrate or kind of move and know a new athyrium address additionally we've got the back end contract that's got a couple different pieces so there's the minting piece so this is and I should first add that all of these contracts and all this functionality is controlled via a multi signature approach so no one individual in the company has the ability to issue or generate these commands you know we are in separate locations and these keys are all stored offline on USB such that when we issue these commands we actually send them to a separate athyrium node that's online to have them broadcast to the network so that's one way that we kind of diffuse

the risk of this this approach of generating assets additionally we have kind of the control the powers if you will separated into different key sets different key stores so one of them are the minting contracts so the minting keys which allow us to issue and create new assets so in that example earlier if you want to buy a hundred d USD we would use our minting keys to actually bring that D USD into existence and it's only done after we've received the deposit from the customer in order to ensure that the assets on the blockchain are always less than the amount that we have in reserves once generated they actually are deposited only into one wallet which we term the hot wallet the hot wallet then has a separate set of keys that we

use to then send the assets out to the customer however that can only be done after a third set of keys approves the amount to be transferred from the hot wallet those keys are kind of looking at the crypto capital API as well as our website to understand you know was this deposit real you know was this should we actually approve this amount of assets to be sent to the customer so you can see that kind of you know we have these different layers of control such that you know we don't expect anything to happen because like I said we're storing the keys offline and signing transactions offline but should any of that to be compromised we've got these different gates if you will that kind of ensure that you know that there's the

damage that you know these assets wouldn't actually be out released out into the wild because of course they're the kind of nightmare scenario here would be that somebody hacks you guys and then issues you know a million TUSD where while there's only Fiat reserved for a thousand exactly yeah yeah and we've kind of explored a couple different approaches to this right we've also got that i mentioned that idea of an oversight system that approves the amount that's being sent out from the hot wallet we've also thought of a system that could essentially you know hold a key and if it sees you know a certain amount being created that's just out of the ordinary you know it locks everything down just while we have an

opportunity to investigate you know so that could be used to you know probably touch on this a little later but you know we're performing kind of analytics on where our assets are being used and kind of where we see them moving on the blockchain and that's something else that we could have you know kind of a machine learning approach if it sees something that's out of the ordinary and indicative of a security issue could actually lock down the network while we have an opportunity to investigate so you know we're open to suggestions from from others in the community but this is kind of the system that we've we've architected and I should mention that our contracts are open sourced and an available on github if you're anyone else wants to take a look and see kind of the approach that we've taken to security here let's take a short break

to talk about Jax Jax is a multi coin wallet created by the people at the central now in the past if he had a whole bunch of cryptocurrencies it was a pain to handle them you either had to leave them on an exchange which was insecure or you had to have all these different wallets which was a hassle fortunately now with Jax knows medieval days of darkness misery and suffering are over Jack supports multiple cryptocurrencies and new ones are being added but it's not just storing cryptocurrencies you can do with Jax but you can also exchange them directly from with inside the wallet thanks to their shape-shift integration and since there's only one seed Jax makes it super easy to backup and sync

to your other devices Jax works with Windows Mac OS Linux Android iOS and has browser extensions for Firefox and Chrome so go to jacks I oh that's Jay a double x io to download the wallet and get started today we'd like to thank Jax for the support of epicenter one of the interesting things about about that aspect to like how you managing security is that you have to ability to freeze assets and to confiscate acids which which probably takes off a lot of people when they hear that right sort of lock chain and the ability to freeze and confiscate assets so can you explain first of all how does this work technically in what's the thinking behind this sure so technically we have

different sets of keys that can issue commands that freeze the assets from from moving anywhere on the network I can that can be either a specific target where we target a specific wallet specific address that's holding our assets it can also be a network-wide freeze and then on top of that once the assets are frozen we have the ability to take back those assets and bring them back into our possession and really the reason that we have that is is a legal and regulatory one there's just certain things that you know we could not allow our assets to be used for given that you know we are integrated with a traditional banking system and these assets represent their kind of like a bearer asset on these underlying

deposits so for example if our assets were popping up on you know the often used example of an assassination market or some other sort of dark net market we can't just turn a blind eye to law enforcement if they come to us and say hey we need your help tracking down these individuals we need your help you know getting your funds back from back from these criminals there's a full of use cases on our website that are prohibited but in general it's just you know don't don't break the law if it's a hit it's pretty extreme things you know bribery corruption you know extortion drug trafficking all that sort of stuff and basically our goal there is you know we're not going to use these unless it's

it's kind of you know legally necessary you know we're certainly not trying to prevent users from from using our assets and it's and it's not in our best interest to do so right so this is only in the event that it's that it's truly necessary and it's kind of like I said it's a requirement so that we can operate legally and within the confines of all the existing regulation so are you taking then a sort of proactive approach by white listing services that your act your assets can integrate with or is this a an approach where you would address issues you know and it frees accounts if you know someone were to report your assets being used on say the assassination market as you mentioned

yes so at the moment our assets can move anywhere to any address so we're taking the the Black List approach as you mentioned so I talked a little earlier you know we were building an internal analytics tool that will allow us to see you know different contracts different places that our assets are moving so pretty quickly we'll get an understanding of what these different applications are if they're getting any sort of sort of volume with our assets anything such as like a dark net market you know if that pops up on athyrium we're going to blacklist that immediately just because that's something that we can't support and we have no interest in supporting and the expectation is that you know if you're a customer trying to use something on that site there are plenty of truly decentralized currencies that you know

that you can use in that case so we expect that you know this this ability to enforce these rules will also helped act as a deterrent just because if we you know it's it's a risk that if you know if we catch someone doing this we will absolutely freeze and confiscate those assets that they're being used for legal purposes that puts you in a really delicate position I imagine because for one uh if you look at darknet markets for instance in certain places it's very legal and possible to say by magic mushrooms on the internet in others it wouldn't be or you know if we talk about things like donations to certain political parties some places might see

that as a problem others may not where how are you going to arbitrate that kind of a very delicate decision on whether or not assets should be frozen or not yet so we admit that this is kind of a learning process right this is something that you know is kind of unprecedented and that we're figuring out as we go for something like a darknet market if it pops up it's going to be blacklisted you know we understand that there could be purchases on there that are legal in some specific jurisdiction but basically you know we have to follow the laws of the UK where we are incorporated and in that case you know most most things being most transactions on a darknet market you know we are unable to support and so the easiest approach is for us to

just just blacklist those all together the goal being that you know we think the majority of etherium kind of commerce is going to be perfect perfectly legitimate perfectly legal businesses where people want an alternative to something like either where they want access to the currency that they use in their everyday life and really that's the business that we're focused on right as being that payment processor that representation of Fiat on the etherion blockchain for all the awesome amazing you know legal apps and applications that are that are coming up what about a PDP transfer are you also restricting dose in some ways or are you for example restricting the amount that a person can get off of a certain asset

yes so we're we're going to institute kind of low-level kyc requirements for purchasing the assets which you know if you are not verified kind of limits the amount that you can purchase at any one time in terms of transactions once they're issued and on the network there's actually been some precedents from FinCEN in terms of guidance that once the assets are created they can move freely to third parties without having to do additional KY caml so in that case you know once we we know who the customer is who's buying the assets we issued them to them and then they are freely tradable on the etherium network you know to any other p or any other wallet we acknowledge that if we're successful that could that could

potentially change just because our assets are designed to represent legal tender and if it gets to some point where our assets are you know something that can be used to make a lot of real-world purchases it's certainly possible that we now have more regulation that's required in terms of understanding where our assets are moving but kind of the precedents so far has been that the regulator's want to know when money is moving in and out of the system but that the movement of the virtual currency itself can be done without knowing who the individual is so similar to how you know a Bitcoin wallet provider isn't subject doesn't have to do KY caml on their customer and if you think about what they're trying to prevent in terms of money laundering it makes sense you know their goal is to

prevent people from getting you know ill-gotten cash cash from criminal activity into the the traditional banking system so that it can be used to purchase you know houses cars Education Fund traditional assets and so far virtual currencies haven't really gained that level of adoption such that they can be used to make those those purchases so instead they've taken which i think is a pretty prudent approach of regulating the the entry and exit points really those those gateways where you're converting from fiat currency into crypto or crypto back into Fiat okay very interesting so we've been doing this podcast for quite a while now and it reminds me a lot listening to you speak to a lot of the conversations that

we had you know two years ago where Bitcoin payment processors were grappling with a lot of the same issues I think for here iam this is a new thing so I'm curious what have you conversations been like have you spoken with a lot of regulators is this a topic that comes up a lot and what's the response been yeah absolutely so I think you know I mentioned earlier our decision to incorporate in the UK a lot of that came from their approach to regulating this this activity I think no regulator wants to be the guy that killed innovation in blockchain in their country right the guy that said the internet will never amount to anything and is you know looking back later on

and realizing that he made you know he or she made a mistake so a lot of them are taking what is very kind of a prudent approach of you know kind of do no harm but make sure that they can still operate within the existing legal and regulatory structure that has been created for all of the other products and services that exist today so that's really been a lot of what the UK focus has been and their their approach can kind of boil down simply to do kyc AML on your customers you know when you're when they're getting money in and out of the system and you know and you'll be fine and I think that's kind of a prudent approach right they don't want to kill the innovation and they're kind of letting it grow and kind of see you know see where it see where it all goes

certainly we expect that if this ecosystem develops like we hope it to that regulatory approaches may change like I said we're currently there are DC assets are currently considered a virtual currency but it's very possible that because they represent a claim on cash deposits on legal tender that should we be very successful they actually get reclassified themselves because they essentially become fungible for the cash in your pocket but we think if that happens that's a that's a great problem for us to have because it means we've been enormously successful so he also mentioned the monitoring transactions being in bitcoin as well we've done some episodes but I for example we had chained Alice's on once

that that's doing that kind of thing are those companies already offering this for it here iam this is something that is coming up or you mentioned you were doing some of that stuff internally what's what's the status with that yes so that's something we are pretty much just just starting to explore so um there's some block explorers out there ether scan there was actually one that was just released at yesterday I think it's like I forget the name of it but it just popped up yesterday that's trying to give some more sophisticated kind of offerings in terms of monitoring blockchain transactions and really taking it the next level and using it to gain insights in our case will be interested in you know where our assets

moving who are the large customers what are the large applications you know the largest use cases that will help us one kind of tailor our product you know we can figure out where are these priorities assets really popular are there other services or things that we can be providing that will make them more useful to our customers and to just help us from you know potentially from a regulatory perspective make sure that we're in compliance in terms of where the assets are being used and where they're moving about to ensure that we're complying with all existing laws are you guys also thinking of developing some front and some wallet type things for from managing this we've thought about it it's further down our product

product roadmap just because there's some great tools already out there and they all interact or comply with the etherium token standard which means that individuals who purchase our assets can easily add them to those wallets and manage them through those existing infrastructures so when I gave my my presentation at demo day I actually used my ether wallet as an example so we had the my ether wallet interface up showing a balance of zero d USD went over to our website to make a purchase and then came back you know a minute later in the balance it updated to show that the assets had been sent so it's something that's that's kind of on our radar but at the moment we don't think it's a high priority given that there's a lot

other products in the ecosystem tackling that issue and really that's a large part of why you know we're on athyrium is this whole piece this whole idea of you know integration in synergy where the more applications the more products that that pop up on the network the more valuable our product becomes you know the more places they can be used the more valuable it is that we're providing this stable asset for the ecosystem today's magic word is capital c 8 IE am head over let's talk bitcoin calm to sign in enter the magic word and claim your part of the listener award so what is the reception bin you mentioned that

you showed off at demo day what if what have you had so far as far as reception from the community yet so far it's been awesome I think there were some comments from some of the judges vittala concluded just pointing out that this is a core functionality that other applications and other pieces of the ecosystem can really build and rely upon the idea that if the theorem is ever going to go beyond kind of the early adopters those who are willing to accept the volatility of cryptocurrency you're going to need to incorporate a payment method or a way to represent value that corresponds with the currency that everyone is familiar with and we think our models the best way to do it it

makes sense to most users you know I give them my regular dollars and they give me these digital dollars you know these these digital poker chips that can be used anywhere on the etherium network additionally we've talked with you know quite a few VCS or other DAP creators and again the reception is but has been great that they see kind of the promise of the product or they see a big use case you know with getting getting our assets integrated with their system we talked about the prediction market use case before and I think people are very familiar with that in it makes it kind of obvious that yes if this takes off stable coins are absolutely required but you mentioned some other interesting use cases on your website one of them was a Fiat nominated crowd sales how would

that work yes so you could I do two approaches one would be the individual has to use our assets to buy into the crowd sale in which case during the duration of the crowd sale you're protected from any exchange rate volatility because instead of accepting ether or Bitcoin offer for crowd sale purchases you're actually accepting the fiat asset that the crowd sales are usually denominated in you know most of the recent crowd sales singularity and First Blood come to mind their crowd sale goals weren't a specific number of ether or specific number of bitcoin it was a specific number of dollars and if that's your end goal to raise that amount of dollars you know why not just start with the currency that that you want to hold in the end it does come with some concerns of potentially you're

cutting off you know some individuals from the market who may want to invest in ether so the other possibility is just that you have a smart contract that immediately converts that ether into the DC assets so that could be done kind of in real time such that as soon as you take a donation in ether it's converted into the DC assets to kind of protect the fundraiser from crypto currency volatility through the duration of the crowd Sullivan it also applies you know for these situations where the company is not accessing the funds for a period of time one good example is actually the etherium foundation where they raised their their offering in Bitcoin or largely in Bitcoin and then the price moved against them early on and actually was a large reduction in the amount of

funds available for development and that's an example where you know had they been denominated in a fiat currency you know they wouldn't have been subject to that exchange rate volatility and we think that you know certainly it's kind of been the norm so far in the crypto community to just accept that as a cost of doing business but this if this stuff is really to take off and go mainstream you know it's really hard to manage a business if your revenue or your cash balance you know as in as in a very volatile currency and in that case we think that you know giving people the ability to match their revenue their capital with their expenses and their their operating expenses you know that's going to be a huge benefit to seeing businesses kind of adapt this this type

of network so talking about crowd sale Alex before we talked about about application you know you having a list of use cases that you don't support now crowd sales are you know are they legal or illegal probably depends but often they probably are illegal so is that something you would also look at or would you look at each crowd on their own and say okay that's something where one can use decentralized capital for and that's something where you can't use it for how would you treat that yes so that's actually something that we are currently discussing with councillor actually it's kind of on the agenda if you will for the next for the next call because it's

something we don't know that the perfect answer to right now because you know we definitely think that a lot of these icos are illegal security offerings and in that case there it could be you know putting us at risk if we are the capital that's being used in this case to invest in these companies but you know one could potentially argue that well no they're just acting as a payment processor and then it's up to the ico to be responsible for complying you know with the regulation that applies to the crowd sale that they're offering so we actually aren't sure on what the answer will be but certainly you know if it's a legal crowd sale offering that's kind of you know consulting with there's this firm Mme how to Switzerland that's been doing a lot of the structuring of the

crowd sale approach to make sure that the tokens that are issued have some sort of participation element that ensures they don't get classified as a security in that case we'd absolutely be interested in working with those companies and you know being another way of raising capital for them okay another use case you mentioned there was on chain cash management and sort of using it as an accounting system Oni theorem can you expand a little bit on what that exactly is sure yes so the idea here is that you know our assets could be the representation of your cash account balance for your business so a lot of these you know kind of promised

applications for athyrium are all about improving operational efficiency reducing costs when there's kind of a strict agreement in play between two parties so you could imagine some system where in the future a company that has built themselves as an etherion blockchain based company could actually be holding their cash balances on the etherion blockchain using our assets they could be accepting payments from customers in our assets be paying suppliers employees other operational costs using our assets all through an accounting system that's using etherium smart contracts to kind of manage those that flow of funds so that could be something that makes kind of an operational efficiency improvement on existing accounting systems in which

case our assets are not just a representation in a Ledge or in a balance sheet but they're actually the assets that the actual kind of value themselves that's kind of moving around between these different parties in that Cobb viously reduced cost because you don't have to then settle up on the banking side kind of you know making sure that these transactions have gone through because when they're moved within the accounting system the value itself is actually moved with it yeah so that's kind of talking about the quite a little bit further future where you have entire organizations on the blockchain or on a here iam that all the funds are only formed the kind of governance structure as well with people signing off on payments and all of that kind of

stuff yeah exactly right and we're we're not sure if it will get there right you know that's uh obviously the project is still in its infancy and you know but there's there's tons of development going and that's certainly the kind of the grand vision for a lot of people in the ecosystem and you know we think that in that case it absolutely makes sense as a great use case to actually represent the value within one of these accounting systems so we actually talked with some of the guys at consensus that are working on balance that the triple entry accounting system and they were interested in using our assets for some of their prototype stuff and representing it as as the cash balance that actually is moves around and is used for payment of other assets within the system so taking a step back and looking at say the broader ecosystem

perhaps in its a medium or longer-term where we have a very splock change in a theorem and perhaps some permission block chain networks whether those bees were closed very close networks or because short IAM type networks there could be tremendous potential for a Fiat denominated cryptocurrency in such an ecosystem and you know potentially you we may see other stable crypto currencies emerge that could potentially be competition to the one the assets that you're proposing can you talk about how how you see that ecosystem playing out you know one one

question that comes to mind is could could we have funds ability between say decentralized capital assets and assets issued by another company that has a similar model to yours and also how would these assets interact with say permission blockchains for instance yes sir so that's definitely something that we think about you know kind of like you said the long-term vision for all these different chains with different functionality or kind of different actors that are that are operating on them so to the inner kind of interoperability with with private chains that's absolutely something that you know we kind of have on our radar the idea we actually talked with Dominic Williams of definity or of string labs who's working on definity and they

mentioned they're working on kind of essentially private chain systems that would allow large corporations to bring some of their operations into this blockchain environment but they have a lot of requirements so the biggest one being kind of privacy you know the need to close this system off to outside actors for a lot of various reasons but there could be a reason than that they want to transfer value from one entity to another from one private chained to another and that could be a situation where our assets would be a good use case of transferring that value from one private chained to another via the public athyrium blockchain but we see that is kind of a longer or just further off in the future in terms of the market that we're tackling you know today we're really focused on solving that use case

for athyrium applications so you need a payment processor you need a representation of fiat currency in a lot of these dap's that are coming online and that's really our focus and what we're trying to serve we think there's a lot of synergies there that I mentioned earlier right so as all these things come on and they're all interoperable there's more valuable value to the entire ecosystem and we think that actually could get companies in the future to actually want to operate or interact with the public chain as they see kind of this value coming from from the ecosystem to the fungibility piece that's going to be fascinating to me as an economist I think you know some of these other products may have you no restrictions on where they can be used or they may be focused on different use cases serving a

different customer set we fully expect that all these assets will eventually be traded on exchanges and that you'll actually have a market where you can see what kind of the crowd or what investors think is the value of each of these assets you know we think they'll trade close to parity but it's definitely something that were that were interested in seeing and we've actually heard from I don't remember who I was speaking to but they said that in the past they've actually seen some of these stable assets actually trade above par above one dollar in this case because of the value that it provides to the ecosystem where people are essentially willing to take a little bit of a hit you know coming from a cryptocurrency into these stable assets because it is a stable choice or a stable representation

relative to the cryptocurrency they were coming from so that's certainly something that we're excited at looking at in terms of all the data that's going to be created you know from this more transparent kind of pricing approach now you are at DEFCON recently you made a demo dare one of the news that came out of DEFCON was that this is something that really puzzled me because I was like really was that sandton there is doing something with also putting fiat currency on the theorem blockchain can you share what the news was there what they are doing and how that compares with decentralized capital sure so yeah like you we were kind of surprised at a

bank was taking this step this early on to interact with the public blockchain we actually had a chance to sit down with with john whelan the head of innovation at Santander who's spearheading that project in and talk with him in more detail about kind of what their goals are and really coming out of that was just a confirmation that there's there's absolutely room for both of us to exist in and thrive they're focused on entirely different use cases mainly that of their existing corporate clients so what they gave in their demonstration was the use of micro payments so they showed an example where you know one of their media clients would instead of using advertising or have a subscription-based paywall they'd have a you know donate here type thing where

you know if you read the article and you like it you can give the guy five cents or whatever kind of a different approach to monetizing content for some of their existing you know media corporate corporate customers with that they expect there's probably going to be kind of restrictions in terms of deposit limits you know the amount that anyone address can hold because it's really focused on supporting that micro transaction use case so in that case you know we think there's still plenty of room for us to be successful focusing on exclusively on the etherium applications and the products that are being built on the network that need to represent potentially large stores of value of fiat currency yeah I mean to be honest

it seems like what you guys are doing makes a lot more sense to me than that I here because I mean micropayments has been enough of a challenge with Bitcoin and anyway the PT reham I mean the adoption and usage for payments is 0 at this point so that seems like a somewhat strange use case to pursue to me yeah I think it just it goes back to who or who are your customers you know who's paying the bills and as an existing bank you know a lot of their revenue comes from their big corporate clients so they're looking at solving the needs of those customers and how can they use this technology to serve them we are really focused on serving the needs of DAPs in the etherium community which kind of

manifests itself in those two different go to market strategies ok so we flung quite a lot about your your system but so what's what's the business model here how are you guys going to going to make money so we monetize both on the in and out so when a customer purchases our assets via wire transfer or when they redeem our assets for kind of the underlying cash deposit we charge a point two percent transaction fee if customers are coming in via Bitcoin we actually do not charge any additional fees on top of what's charged by kind of the you can call them the payment processor coin appalled also just to touch on them very briefly coin a poll helps protect us from exchange while it's exchange rate volatility in

Bitcoin prices so if a customer wants to purchase via Bitcoin they get a quote from coin a pulp that basically says send this amount of Bitcoin within the next 10 minutes and as long as we receive it within that time period you're guaranteed this exchange rate for your Bitcoin so that allows us to protect ourselves from any price volatility any slippage there we know that what we get from the customer will be turned into an exact amount of fiat currency in our bank account and coin nepal charges a point seven percent transaction fee for that so the majority of our revenue is going to come from the on chain transaction fees so sending assets anywhere peer-to-peer to applications all of that is free we don't want to discourage our assets

being sent around to to either other potential customers or being sent to applications for use where we charge is on the withdrawal side so if you've been using our assets to engage in a prediction market on auger or gnosis and then you're the lucky winner of the prediction you will need to then withdraw your assets the DC assets back to your wallet and that's when we charge a transaction fee it's a point three percent transaction fee to get them out of the application similarly if you have a business that operates on the network and you want your customers to pay in dollars and euros when you withdraw those assets back to your account that's when you get hit with the transaction fee the idea they're being that you know there are alternative currencies to use in those applications but they come with

price volatility and if you want to you know benefit from the price stability that we offer that's really where we're providing value to the ecosystem and hence that's where we take a very small transaction fee okay no that makes sense that's a that's a nice simple business model now I also read in one of you post where you wrote a little bit about funding you know the approach to funding I know you said some things as some skeptical things about crowd sales it's understandable with the focus you guys are having in being regulatory you know compliant so so what's your approach Tara take it you you aren't pursuing this sort of traditional crowd sale approach that's a very popular at the

moment how do you see this going forward yeah so I should just add we love the enthusiasm we love the fact that people in you know people who hold ether or Bitcoin want to see other opportunities to fund and help make the ecosystem grow I think that's going to be one of the keys to making this thing a success that people are kind of willing to reinvest profits from previous successful ventures and help this whole thing grow and really build on the network of that component that can be so valuable here having said that we are a little concerned especially because of how much regulatory stuff applies to our business about the legality of some of these approaches so we are in the in the future looking to hold a traditional

equity crowd sale so that would be held through you know one of the crowdfunding the equity crowdfunding portals that exists likely something through the UK given our incorporation there and it would give an opportunity for both VCS as well as people in the community to invest in our business and actually gain equity in the company so I wrote a blog post on this but really we think that equity is not only kind of better for the business because if you do the security sale properly you don't have any risk of regulatory issues but it's also better for the investor because you then gain in kind of have an opportunity to participate and benefit from the success of the company regardless of what form that comes in so if they

change their revenue model or if they add a new product or service that ends up being the one that's successful maybe they have to pivot or potentially they exit via acquisition those are situations where an ico investor might not benefit and you might be kind of you know left with tokens that are that are no longer valuable and that's where we think that traditional equity is is better for both the business and and for the investor we also see the ico model adapting to that in the future and we fully expect that the regulation piece will be kind of hammered out such that these icos can can be performed in a compliant way and actually represent a claim on the the business itself such that the investors benefit from from success regardless of what form that comes in so then to just

to pivot from there so we are taking we do want to have a way for for customers to kind of you know have an opportunity to participate with our product so we're offering a membership sale so we're calling it the D VIP token and it allows it's a $300 token that customers can purchase and it gives them free transactions free withdrawals for the next three years so through the end of 2019 that that applies to any transaction that's being done on the network so any of these withdrawals from these applications we would traditionally charge a transaction fee if you are possessing a DVI p token that transaction fee will be waived and there's a couple reasons that we wanted

to take this approach one having built our system you know this membership sale is entirely legal it's a way to essentially package our product and sell it differently rather than the ala carte purchase method of individual transactions and the fee associated with it you can pay an upfront fee that will give you unlimited use of the DC assets for a period of time it helps us bring forward revenue so we can then take some of that revenue and start building out the rest of the business one of the key pieces they're being liquidity so one of the problems that businesses like ours have is there's a big network effect component where the more people who use it and the more ubiquitous it is the more valuable it is to the individuals

who want to participate but it's really hard to start that that network no one wants to be the first guy to the party the first one to try to use these assets when they're there isn't much available in terms of kind of use cases so using that those funds we plan to do some market making on existing exchanges where we'll make our assets available for sale which will help kind of spread them out into the ecosystem so that they're more widely available and then can be used on these different applications and then third is kind of gives customers you know now that they've if they are a member of DC they then have a vested interest in using our assets and helping the network grow so then we have kind of a market of customers you know who've kind of you

know committed if you will to to kind of use our assets and help us help us grow the network so that combined with the funding for liquidity we think will really help us kind of jumpstart the capacity as well as the the functionality of the DC assets yeah perfect and the point you made was I think a very good one and that's a risk people aren't fully appreciating when they participate in these icos today right that you're buying an acid and it's you know its underlying a certain model of making money and of course if you look at startups how often change those models and approaches and down the line you know it goes in different directions and then these can really I mean either the businesses sort of lacks flexibility because they have to stick

with this initial token model or they pivot away and then one is sort of left with nothing I think that's a very very dangerous thing especially when you have I think also business where you have both but you have a an incorporated company with equity that where the tokens may be part of the business model and then they almost have an incentive as well potentially to cut out the token holders so I think that was a very important point you made and I think that's probably a topic that we might unfortunately have to revisit a more down the line especially as these projects mature now you also mentioned to us a new project that you guys are

launching and that I think is still sort of in its very early stages called idx a decentralized exchange what what is I decks and how does it relate to that the decentralized assets that you guys are issuing sure so as I kind of mentioned early on in the interview the the idea for DC came out of a situation when my brother was working on a decentralized exchange we expected that by this point you know these exchanges would be kind of more fully fleshed out and there were be more more offerings but you know we think that it's a great complementary product to the DC assets you know having talked about earlier you know how do

people get these assets if they don't want to do a wire transfer well a decentralized exchange or an exchange operating on a theorem is a great place to do so and really we think that you know as the number of assets on etherium grow as these other icos are held you know as our assets start to get more liquidity really having a place to exchange them is going to be is going to be critical so we're focused on using the power of the etherium network the smart contract system to create an exchange that's more secure than existing exchanges that allows people to you know swap assets with one another without having kind of the the risk that exists with existing centralized exchanges so really trying to beef up

the security side of exchanges while maintaining kind of the speed and you know kind of the functionality and attributes that people are familiar with today kind of the timeline on that so we're done with a smart contract development we've got most of the front incomplete and we're really now in the process of kind of integrating and hooking up those two separate pieces so we hope to be live within probably the next month month and a half and it's worth mentioning that so you know this is obviously a project that's that's still in the works but our intention you know should this project make it to market which we fully expect it will is that d VIP will also be eligible for free trades on our our exchange and really that goes back to the thing I

mentioned earlier where it's a way to jumpstart liquidity in the assets it's also a way to jumpstart a user base so if we have a bunch of people that can now jump on our exchange and get a more affordable way of trading these assets we think it'll really do wonders to kind of jump start the network in the depth of the order books great well thanks so much for coming on and sharing all of this about the essentials capital now if people are curious they want to learn more they want to get involved where should people go yes so come to our website WWD centralized capital com you can join our slack there's a link at the bottom of the website tweeted us tweeted us on Twitter our of course we're often in the subreddits you decentralized capital or

myself Alex Warren and my brother Bill weren't so if you hang around the etherium subreddits at all you'll probably see us comment every once in a while so feel free to interact with us at any of those social platforms and with that we at the end of our episode so epicenter is part of the less subject for networking at this show and many others at my so people.com and well that's it from us for this week and we look forward to be back next week