#194 Eyal Hertzog: Bancor and the Rise of User-Generated Currencies

Transcript

[Music] this episode of epicenter is brought to you by shape-shift I uh the easiest fastest and most secure way to swap your digital asset don't run the risk of leaving your funds on centralized exchange does it shape shift the i/o to get started hello and welcome to African a Jewish star press and technologies projects and startup strategy centralization and a global watching revolution my name is Franz Xavier and crane man man hello today we

talked to Al hexyl who is the product architect and co-founder of Bank on banker has done one of the most successful eyes used this year Deepika participates in beyond 150 million dollars the talk about community currencies and how a protocol can can lead into a world of smart focus that don't need conventional excuse to directly ability yes by competition hi so before we could get away tobacco Dennis a bit about your your world history what have what have you done previous before you enjoyed the proxied space I'm old I was born in 74 to the math and I was seven when I started

programming on computers I was like a hobby I had a lot of fun with it started to sell some software when I was 16 and then join a unit in the Israeli intelligence in the Israeli military and I've been there for four years and by the end of the four years I was like an administrator of like a thousand computer network and you know the one that needs to solve all the problems with no internet so that was a really good school for years of school as a programmer and as a team leader in a computer network transitioning to win and transitioning to SQL servers and M

tcp/ip and I then join a startup and I was sold to Cisco after eighteen months a class data systems and then after ICQ was sold to AOL for four hundred million dollars in cash you know everyone it was an Israeli company and everyone in Israel were like thinking about studying their own internet company so I started the company called contact comm which was a social network there was no web app so that was a downloadable app that would connect to Outlook and Palm Pilot do you remember that and and it was just connecting to all your friends and sharing your information with your friends and status

but that was an actual act for for Windows and then you know it was a hot internet startup we were raised like sixty million dollars but then the internet crashed and then April 2000 the entire market crashed it was impossible to raise more money for internet status and a company just you know died after a while was the end of that and then I started another company called merica fan in Israel and metacafe was also an app for video sharing using peer-to-peer like you know automatically sharing between people using peer-to-peer transfers like the most popular is visiting the world the world the big biggest hits but you know that that was

because the bandwidth was very expensive but then it got cheap so we created the web's you know web website and we released very like like the same time that YouTube did more or less their website and we actually grew much faster than YouTube's to like you know one or two million users per day like 50 million users a month that it was like top hundred websites in the world but you know a biggest mistake was that we we really focus on bringing you the hit videos it was more like a reddit videos or dig videos it was not YouTube it was the greatest hits the most viral because we didn't understand at the time that 99.95

of the traffic would be on the long tail of videos because you know people would see videos like the one that we're making right now people that are into blocks and would spend much more time with this kind of niche content there's a small group of those people but but but you know as much you know it's more a niche it is the more passionate people are about it like a soccer team or something like that and and we didn't we didn't figure that out the whole longtail thing and when I then after Merrick affair you know where it was sold eventually I came back to Israel

and and eventually you know I started to use videos on myself and finding up about Bitcoin because I was watching a podcast in 2011 and when I saw Bitcoin I got excited because very different reasons first of all because I was watching alternative media I heard about all this you know Federal Reserve's Jekyll Island you know kind of stories of how money is created and how central bank works so I had that background before I learned about Bitcoin and I also had a background about decentralized system and and file sharing a decentralized system and file sharing and how it's really hard to kind of deal with those kind of system I mean they're unstoppable in their nature and

and and with that background when I found out about Bitcoin and I saw the first successful user-generated currency and and for me that was like the big aha there is a currency which is traded all around the world that someone no one even know who is made this is like someone making a video all around the world that no one knows who is this is possible only in the world of YouTube it's not possible in the world of TV it is the ability for user-generated anything whether it's user-generated blogs or user-generated videos or user-generated currencies or user-generated discussion groups like

Facebook groups and all those things create long tails because you have those people that can you know create the contract content themselves it's like Wikipedia and that says that there is a long tail of users that will do that and and when it's easy to create a currency and that's the big revolution of of blockchain it made it possible to issue currency for very low cost that's that's an instrument that that that was not possible it was not possible to issue a currency at a very low cost until very very recently you know banks could do that before that royalties did that

would coin it but but blockchain is like the YouTube of money in that sense it brings disability to everyone and that was what I got excited about but you know Bitcoin was one just one single currency so the first company that you know I started with with some some other people was hold up coin and what we did there it's just our own platform for multiple currencies that have their own integrated marketplaces and we deployed those currencies in different communities and like the first communities that we tried on it was it Israeli mom's community with like 30,000 months young moms in Israel and we gave

them this this digital currency and in a wallet and the digital currency was like kind of mentally pegged to the shekel you could not exchange it for the local currency the shekel but it will mentally tag for that and and you would get this currency when you sign up you'll get a little bit it will be issued when you you know kind of publish something that you're selling for the currency when you bring a friend to the systems like event that will work where the countries issued and that grew so fast like all the community like the Hmong used it and we got to a situation where we have a thousand transaction per day in the system for moms buying products and

services from each other using their own currency and we thought ourselves so there's something here I mean he just gave them this tool this monitor to this monetary technology and they did amazing things but over a long period of times I'm talking about year or so we saw that there is a problem with with liquidity and not just in quiddity between the currencies I mean that's nice and everything but more about liquidity to the rest of the world to the real world because as the community matures it requires that that liquidity and that liquidity could not be achieved for small currencies because in order to have liquidity there is a barrier to

liquidity in the world today and liquidity is very important because I mean if you think about every currency as like a network of value transfer which is like like like a local network liquidity is the Internet this is kind of the line that connects between those networks making like one big giant financial network across the globe and and liquidity is like the connective tissue in and there is a barrier to liquidity because if you are a small currency or a small scale asset you're not going to attract for profit market makers in order to create the liquidity that will allow people to buy

your assets or sell your s that when they want to without expecting the price too much I mean how do you measure liquidity how much do you affect the price when you sell or buy some percent of the supply right I mean there's a way to measure it and and and and that was kind of the problem we identify that when we saw years later I mean we were like we didn't have a solution and we winded up a scone and then then when we saw it cerium we we figure out that something else like you know is possible we didn't figure out what exactly but it was like that was a feeling that there

is something there and and and as we started working on a theory we started to kind of think in that way and I think this is a very important thing that people that do not build stuff on a theorem they do not think that way it's like you've never been you know you never build an web app so you only know how to be like desktop software so you know you're not even thinking like browser JavaScript or you don't think this way you know and and and if here is even more extreme because you're kind of renting models to some other computer that you cannot change the whole idea is that that this this this global computer

acts like a trustee that you give a contract to and after you gave the trustee a good contract and you pay him the fee and say you know do what the contract says you cannot ask the trustee to change the contract I mean you can also only act within what the contract says and so it's a whole state of mind and and then we understood that maybe Irian can be the basis for the solution of the liquidity problems that we discovered and the solution was the banker protocol which basically you know in the most simple sense so the liquidity problem and removes completely the liquidity risk makes liquidity something that you just just use you choose what level of liquidity

you want and you're always going to have that level of liquidity as the liquidity is is expressed and in in when you when you have that solution then you don't need to have market makers coming to your market and and providing that you have that on your own within your token and the way that it works is by maintaining reserves of other tokens those results can be compared to the order books in exchange to the market depth and whenever you want to buy a token you just you know you you can pay with a reserve and get the token or it turns the soak in and get the reserve

back and when you whenever you do that the price changes and and then it's kind of six equilibrium over time and then I think it works together with existing exchanges through arbitrage so the prices are always kind of adjusted to the real-world exchanges and if you look at the at B and T they currency that banker has graded it is completely aligned and sings with all the other exchanges through arbitrage so people can buy the currency or sell it through the contract they can buy the token sell it through the contract with either but they can also do that in the exchanges we've already started talking

about banker a little bit now and we want to dive deeper into how exactly bank or worse if you understand that but maybe 2:23 spend for one of these terms that you guys have used a lot or one of these problems is this double coincidence of wands which i think is quite an important term to kind of understand what banker is about so can you just explain to us what is that and why is it where do we see this problem in the world so you know it's very it's very ancient concept and it's a very simple one it's what's money sold for butter I mean you know with butter you

have a problem of double coincidence of one's because I need to have what you want and you need me to have what you want and and and we have this double coincidence that meet in in in certain times certain place and then the transaction can be made but that is a rare event because it needs to kind of match between us and money can solve that problem because I can you know sell what I have for money to anyone at any time and then I can get what I want for money from someone else at some other time so money is like the technology that solves the double coincidence of ones for butter or exchanging stuff it isn't immediately you can think about

writing is the technology that solves that for human communication so before writing they was talking but then it needed the devil considers wants of me kind of talking you listening and you know we are in the same place at the same time doing that but writing has enabled as essential to talk to the paper and you know listen to the paper at different times different places and and and solve the double coincidence of one at that domain but we still have that problem with the asset exchange because whenever you go to an exchange you need to be matched with someone with exactly opposite ones that from you and this is like the orders they you know the market makers

in the market takers the order book and you know and then the incoming order and and and and and the matching that is taking place that through that you you have the ability to to convert one currency to it to another but this ability to convert require labor if you requires those market makers okay aim that are for profit to be there and to work like you know like a car requires a driver but you can have a driverless car so you sir so if you have technology that can replace that labor and the technology is a smarter more advanced token but that's kind of the way that banker addresses the double coincidence

of wanting asset exchange by not requiring to match a buyer and a seller through a technology that called smart token it is an extremely important point like you we are saving on the human labor of market makers and using an automated system in making some form we are so one other concept that I find I find like any other in your lighting your speaking that is his work session or before jumping into bank on it that an and bank on like you espousing this view given through your startup app coin op or could be bank or you a kind of

exposing this view that there is going to be a long tail of currencies right so so let you say like with your started Medicare fit you guys that there is like a long tail of videos which means like if you plot as a graph the most oakland video it might have it mutes the next most of the two billion and then is it not now something like a sentiment has 5000 views on episode and they might be videos is like 500 views so the things that are mainly news and lower that sort of Kadampa in almost numbers of them it like very small number of views and in your talks you say that like this norm videos dislike very small number of views but a

very large numbers of depth so you multiply a very large number of videos multiple a very small cubes that total views is much bigger than the views that the very large videos is very large be generating a ticket right so most of these views are actually I videos less news but huge numbers of them unless you are also taking this concept is sort of oscillating that in the future this is going to be true of cryptocurrency to the currency side tell us about this is long tail and why you think the long tail of cryptocurrency is cooking I've been watching many phenomenas of the longtail in in the internet which is

the age of transfer of information which is different than what we're experiencing now which is the age of transfer of value on the internet but but here in the age you know previously in the age of information the long tail was apparent in videos but not just in videos but also very much in blogs in podcast in discussion groups and subreddit I mean there is such a long tail phenomena developing in so many different spaces online and the the reason that it happens in many of those cases is

because they are three tier ecosystems what with your ecosystem is the concept that we've been kind of evolving in in the recent years when we see platforms that have you know a specific platform and then a specific class of super users that those super users they create spaces and have likes privileges on spaces that end user come to so many of those systems like like Reddit you know you can create your own subreddit and you moderate your subreddit and other users are coming for your subreddit more than they come for reddit as Facebook groups is another example and Wikipedia

is another example you have a whole class of admins in Wikipedia that have more permissions to kind of manage the spaces or other interact and and if you think about it I SEOs is an example because every I CEO is the token generator like the foundation if you will that's kind of create this token and all the users of those of that token so we already see token based businesses happening around us and if we're just talking about this use case of

can base tokens tokens for businesses and we can take just that concept to a very very long sale because there's a very long set of businesses in the world I mean what is what is the business that can benefit from a token maybe it can be even a small coffee shop that has like a small loyalty point and and you know many of them do have loyalty programs and they can do that using a currency and and and that currency can be liquid if you want because because you don't have now a barrier to liquidity you've in automated you know continuous liquidity that is as good as you want it to be so so this is an example we seal

you know just here a long time created and and I think that this is just you know tapping very small part of the potential because because there's there's so much more areas of businesses that have not gone into the crystal space most of the activity we see are you know teams building technology for four blocks chains this is a and and and I think that already there we are seeing the use of currency I mean that's the Keeler app of aetherium think about what people are using if you as a user generated currency platform this is what this is like the killer app there's no

other I mean this is nice you know but but you know the killer app that what what now gives the fear of the prices that he is seeing I think is that that there is a ecosystem of developers and some of them Big Shot developers many of them like in in your shoulders just making the jump and building stuff or this year we developer the adoption is by far the most important measurement of any press platform it's the most important KPI by far by far and that's what it serum hands and and and it has that around creating token for the most part exists at this point so we I think we're seeing it for me and and you know

I've been in this kind of long tail of course his vision for a long time but but you know it took a long time for that to start happening and I think it will see it more and more so I mean like one of the key differences between like videos right and and currencies so evenly like blockchain assets we should differentiate between like currencies and things like shares of a business issue of a proxy all right now we're talking just about currencies not like shares one of the key differences I feel if it'd be like videos that consume that a video doesn't have a network effect a video doesn't become a more useful

because other people are viewing that same video the same time I am but a column C has a network effect like nitrogen C becomes my Bitcoin become more useful be more other people use Bitcoin so does that learning really does that learnings up with video world or the podcast will be any translate into the cryptocurrency world neatly because of this feature of network events so we can take that learning for a very successful site and concept in general which is discussion groups and the very very successful that is reddit where we have a long tail of sub ready to use it generated separated and each of them does have a network effect

benefiting from having more users so you have more content and more curation more feedback so you know it's very hard actually to lift a subreddit to be activated from from the ground so you have the network effect for any specific community but still you have the long tail of communities and and if you think about currencies in this way and I think that you know this there is this very basic tool that is I would call it store of value assets I don't know which name to give it but that tool that very let's call it token you know but that tool can

be applied to very different use cases that are very similar in nature whether its currency whether its loyalty point whether it shares whether its bonds whether its derivatives whether its assets tokenization that represents something in the other world they all share the same property which I can take some of it and send it to you and then you can decide to take some of it to send it to someone else and maybe they have some special right and maybe you haven't get a dividend in email and maybe not it doesn't matter it is the very basic same tool so you know whenever I talk about currencies I'm saying you know many many uses I mean the first successful use is actually

something that no one has imagined which enabled funding and building ecosystems I mean today before before blogging you can only fund and build and profit centers but to fund and build an ecosystem that does not have a single profit Center that has multiple and you know the foundation itself is is nonprofit but there's a like multiple profit center in a ecosystem this is something you couldn't do before you have this invention of ICO and the most successful ICO ever assumed is exactly that model they created an ecosystem their nonprofit foundation they created an ecosystem by the way doesn't mean that they see you creators they do not

profit personally they did so I've heard but it is it is still a nonprofit entity which is being created that is also responsibility is kind of developed the ecosystem of with you and it worked here is an ecosystem it's happening a lot of resources are being diverted to that ecosystem and this is what a currency a token enables you to do Gollum is an ecosystem of software developers of service providers of service consumers if you look at every ICO I mean most of them not all of them some of them are actually for-profit businesses which makes sense because again an ecosystem

is made of for-profit players that are all centralized if you will but the ecosystem is decentralized and there are many for-profit and and because it you know when Facebook and Microsoft tries to create ecosystem around their companies they always failed eventually because you have a profit Center in the middle like Apple you know those companies and you always like competing with your ecosystem for the margins so if someone is like too successful in the ecosystem you acquire them or you're like you know building a competitive service but it's not a good idea to have an ecosystem around a for-profit model so they're the kind of historical model of companies of shares

is is just not suitable for ecosystem we found out but here is a model that works it works well and it's successful at least in one and may perhaps in many more so this is a kind of example of how people can use the ability to issue their own currency it's pretty incredible in my eyes I mean I'm I'm very excited about watching this unfold yeah absolutely i mean i fully fully agree and I think that the network effects that you get from from talking some ideas which is incredible and they are so powerful especially in the startup phases of having any project this episode is brought you by

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wallet just as easily as putting on your slippers whenever you see that good-looking Fox you know that's where shape-shift is so the get started visit shape-shift I owe and start trading and we'd like to thank shape-shift for their support of epicenter let's now talk about Bank or kind of in detail how Banco works so in particular right there is possibility that you create a new token which you guys is called a smart token often that the kind of leverages Bank for and that basically has a reserve of another token that scientific reserve this liquidity is price price stabilizing function so let's let's maybe we can run briefly to

the example of a project that says okay we want to create a new hiriam token and we want to use the banker protocol to make this more powerful and better token so can you explain how would that work and I would ban coin in this context work and interactive this token and what are the benefits of that so bunker essentially function as built in nonprofit automated market maker for the token so it has some capital of another token and with this capital it works as

this market maker and watches market maker because at any point is willing to buy the token from you or sell the token to you in a specific price but as you buy or sell the token the price changes and the price changes is based on how much you bought or sold the token by the way doesn't matter in hand how many transaction just how much you you bought in general or or sold in general that that affects the price and there is no spread essentially there is a there is a slippage which is as you have a larger transaction then your price is increasingly worse but there's no spread

between the buying sale price and and and this is and this is what what is marked token does it's being its own market maker so why would anyone want that so the first thing is that you don't need to be listed in an exchange in order to be liquid to other currencies I mean this is just a you know we're a very straightforward advantage you're always liquid if someone has it easier and wants to buy your token can do it right now just by sending the ITO to an address someone has your token and want to liquidate it back to - it can do it through the helium network at any given time any given moment so that's a good

service for your token hold but you know many people will want and the other thing is that it provides some kind of a stabilizing effect on the token because again there is listen nonprofit market maker in the middle that says you know I'll buy from you also for you um and and M it uses this very simple concept that the price in which the market makers automated in that market maker would buy himself from you it's just going to be the price that maintain that the reserve has a specific ratio to the market cap of the token so if you you

can define a reserve to be 5% it that means that they'll be exactly 5% of another token in your reserves compared to the market cap of your token and then my automatic make market maker which just makes you that this remain the case by using very simple formulas that that are kind of taking taking care of that it's passed independent again doesn't matter if you split your transaction to 10 you're always going to get the best price it did the same price you're always going to end up the same way and this price is is kind of equalized with the market through arbitrage so so if they you

token is actually also traded on some exchanges which you know have their own users and their own integration to other tokens and then you know you obviously you can trade in both places which is very common in this world where the token is traded in many many pairs many many exchanges in parallel and arbitrage is kind of balancing the price between the places so just another place that arbitrage that does that and if you go to cone market cap you can see in Banco one of the markets is the smart contract so it's in the list of the markets that trade B and t2 eater let's run to each example out so let's say we're creating

epicenter coin and we wanna use Bank for and so to you set observe ratio right which we say okay you know there's a certain there's a small contract which manages this epicenter talk and now let's say we want to say that / e so that's in this contract we're going to you know kind of allow a 1000 we want that a backing of one Eastern per 1000 epicenter talk so that means that somebody wants to get an epicenter they can basically send it either there and then the small contract sends to them 1000 yep eternal coin and same thing somebody

else reps anaconda we want to get rid of them you said that person sends this episode a coin to the smart contract and the small contra pays out the ether and then destroys those absent account so that is we again kind of this you have to say equilibrium where you know the reserve goes up the token supply goes up serve goes down talking to blogger son but you have kind of the same backing ratio at all times does that roughly I mean it's like it is accurate we just you know we were occur for using the world backing because backing kind of means that the token does not have a utility that is worth something because it's back and some tokens are like that

like tether is a token that worth something because it is backed by dollars it makes sense for that and then maker is going to be a stable going back by ether perhaps so so those sonars are great but this is less about backing this is about providing a liquidity pool like again the market depth of a market that that gives you kind of the leeway in order to convert one to another so it's more like a liquidity pool and less like as something that gives value to the tokens you only give the quiddity to the token if you're liquid but no one wants you doesn't going to help you do your price go to crash so we have this example of

the EPS and a coin but let's say we want to incentivize people to put money in that we want to do an IPO and we want to have some kind of linkage so that if the project becomes really successful the coin is going to go up in value how can you combine that with banquo because if you have this fixed ratio of you know one Eater 1000 left center point it can easily have both yeah so you know I'll tell you how let's say that the epicenter coin has a reserve in ether and it has a 5% reserve just for the sake of example now you can you know issue that currency and and you know

sell it to everyone that want to be you know promoting is products and sponsorship on epicenter and you tell everyone that you will be giving sponsorship exclusively for that currency so if you want to get to our show you better get a hold of that currency and you can do all kind of neat tricks like saying and whenever someone pays you us with this coin we burn half of the payment in the smart contract you know it just burns that so it's like a deflation that you can do all kind of stuff but but that is your token and people hold your token and if people want sponsorship from you then they'll have to spend that token and they will

have to acquire that token and I will create the demand for a token now that you know that alone is something that is enough to generate some demand for a token because there is a demand for sponsorship on epicenter the just one example now in in this case what the banco particle will do is just make sure that doesn't matter how many people use that token maybe just 100 it is always liquid you can always buy it you can always sell it but when you buy it and set it the price changes so if the token costs $1 right now and I bought a lot of it maybe by the end of that purchase it was 1.2 dollars and if I buy a lot more it will be worth one

point four dollars and and this is how it works just like in exchanges just like in the in in the bid-ask model but in a more predictable way more predictable fashion if you will maybe one question that would be useful to clarify so when you say there is a 5 percent reserve ratio like what does that mean does that mean you would have 5 booster for 1000 epicenter coin or does that mean the value of the Easterwood roughly corresponds to 5 percent of the value of all the episode yes so the duration is between value and when you have a reserving either than your token is denominated in either the price is denominated in either for the

sake of that particular reserve again you can have multiple reserves with different currencies then you will have a price denominated in those other tokens or currencies but if you have a reserve in either your price is denominated in that reserve and and in ether and and then your market cap is the price times you know the supply right this is how you could calculate that so the ratio should be between your reserve balance and your market cap and it is always maintained on 5 5% so if I have a thousand tokens and each one the current price is one Eater so my market cap is a 1000 Eater and if I have 5%

reserve ratio it means that I will have 50 ether in my reserve then that's what it means when we are treating epicenter coin somebody is creating like be smart opens give a choice off like setting we deserve the issue 5% 10% 20% or 30% what I want is to be care if the reserve ratio is higher what disadvantage do not introduce be smaller is adjustable you can you you can adjust it Amina you can even create a small token where you set it like some kind of minimum and maximum reserve that they know sorry the community can vote

anywhere between so you can you can do these kind of things the way you change it is that you slowly change it over time so it has like very minimal effects on the current price but and having more reserve is having higher see are having higher percentage is essentially having higher liquidity which is not always good because the ultimate liquidity is pegging just one to one you never affect the price in any way when you're buying the selling and and when you have a very small reserve let's say 0.01% then almost every attempt to to convert from the reserve token to the small token

would affect the price drastically so you want the price to be affected when when people are buying the token or selling the token and you need to decide by how much so it is really liquidity becomes like a setting rather than you know something that you hope to achieve from market makers it is setting you can set higher liquidity or low one so this is davina understand that is let's let's say that the total value have physical coin is to me and thousand eater let's consider like two scenarios a 91 in which in reserves is 5% so 5% of 10,000 meter would be one 500 right in scenario

two is this 30% 20% of 10,000 is 3000 so epicenter point has a good market cap of 10,000 it might have a million units each worth 0.01 meter when the market cap is ten thousand and then scenario one it's like fire eater finally third it fizzle and scenario is 2013 result so we the difference between these two scenarios is they say I want to go and now get 20 eater worth of epicenter point this might be a push at 4,000 if you sense that ones so Wendy result is 5% the price will increase and 30% advice at all same

piece but in the 30% case the price will increase yes like that has compared to be 5% case exactly right and and the same on the opposite side run times sell epicenter cons the person liquids in both cases if I percent it's been decreasing more open in the 30% case and there's some kind of sensitivity to this right like maybe there is like an optimal point with where you spend less on when you put less least in reserve but you also get less when you also get good the like price volatility price volatility in some cases you want

stability and in other cases it's less important because when you have when we have more volatility then the price can go up or down faster to a target price so it's kind of it would move faster with with the lower liquidity and it will move slower with high liquidity markets and that's kind of the general rule of how it behaves but again this is just making that a setting and and then solving that through the token itself the the mechanism that

which which is which is the reason that we you know we need to issue more token because if you're buying new token you'll bind the token from the token it needs to be able to issue to you by the way it issues in a ratio that let's say with a 10% reserve if the token doubles in value then it would issue like 10% more of the token so that will be the rate of new token issuance if it's doubled in value with 10% reserve it will be around 10% of new issue token so it's not so bad instant so it's like a up round if you will in the startup if you familiar with the term one of the questions to me is because the net when

we say create epicenter coin and it would easily the sizzle how exposed are me to be volatility of Internet I met my Nexus One or either crash inspire and 50% what would happen please enter coins in definitely so if a Fisher the coin is traded only through a smartcard contract and only to eater and either completely crash that obviously will have a big effect but it's very important to kind of look around and see how most token behaves and many of the tokens are traded with different other tokens like

maybe hiriam and Bitcoin and maybe you STD and and there's like those already standard token that mini tokens ready to and and the same goes the same works with smart contracts so you know if you don't want to be exposed to the volatility of either you can for example have a die token make your diet Oken in your reserve or maybe some digits gold token in your reserve and and hold some of that so you can you can create those reserves externally or internally to the token there like different solution for that but I don't provide a stability that is based on several

tokens and arbitrage would do the kind of balancing between them but but if you nose would not rely on a single exchange to a single token essentially in that scenario but let me just clarify something so let's say now we have a you know these 10,000 epicenter coins and we have this or 10,000 to represent of coins and they have a certain price right in dollars they have a certain price equals a certain like fundamental value associated some right certain amounts of ass being sold or reviewers and projections etc and now we have an underlying asset that's basically you

know 5% of the value of a few gypsum jobs in E - right and now you have the surprise collapses but the fundamental Etsy the fundamental value of epsilon coins aren't effective so but then the prices is at the center coins in let's say dollar terms would also crash that right so how is that dynamic yeah I will tell you what will happen is that the price investor will and would actually increase because as either price drops to the dollar it would create an arbitrage and makes it very cheap to buy your token for either and relative to

the price of buying your tokens for for four dollars so it would would encourage people to buy your token for cheap eaters and sell it on full price to the dollars and essentially moving that crash and kind of balancing it with all the other markets that so it will have some effect because one market is crashing but as the market crash you know the you know the the admin you know commit can we can even choose to emergently like shut down this particular exchange between eater and and and and the token because it's just like another market it's not it's not

anything you can have many though some of them can open some of them can close it's very dynamic it's every smart token it's just another market that connects between multiple you know two or more different tokens and allow them to convert between them so so you're free to create your own stability system and and and and that would not allow you're talking to crash if if ether is crashing completely it won't just have you know some temporary effect so even if in other words it's like if epicenter totem were sort of representing the profits of the epicenter enterprise life here environment expects to make money and the epicenter and this money is the

signal to be epicenter total own words then an inter crash so like each of my crash but our audience remains the same the money we make the Mesa saying right so even if little crashes the value of epicenter took an intrinsic value represented opening is the same so in some way like this market will adjust that epicenter token is back like if it was like 187 tokens one ether before it's a crash it would be now like 50 87 tokens to one eater and this would automatically they discovered the harm through the small contractors exactly okay so so we need really cases cases a

banks like when you want to issue a new currency you can like link it to other another currency or basket of currencies in reserve and then that creates like this Automator liquidity or trading system so now in this vision made in PHP 50 so you have this Bank honest book book I think that generally it's important to understand the kind of the scope the context and the context is that banker is a foundation that is created to you know to promote and develop the Bank of protocol and the DES foundation is creating the ecosystem

that uses B and T as it still just like again a Syrian foundation create an ecosystem that uses ether as its token now the ecosystem that Bank operates is very different than the nature because it's a liquidity network what we're creating is not a blockchain it's a liquidity network now liquidity network is a network that you can jump from any type of token to another in minimum hops because every hope cost you more money every conversion cost you more money so you want to get to the minimum hops so as we create the liquidity Network we created with B and T in its center so we create for example we announce that

we're going to create a token changer between DMT and gnosis so everyone can convert between them now since B&T has a very large 10% either reserve and i can explain why why that is considered a big number for us but because of that you can also exchange to ether so now you can exchange for gnosis to eater and and then you'll be able to exchange between gnosis to any other token that has kind of a token changer would be anticipated like the the network token of that particular liquidity network that we are

building and we have funding in order to achieve its goals so you know getting the liquidity putting the initial liquidity in the token changes you need you need to build that so that's that's the goal of the foundation and making that protocol used by by by many can you explain so so what are the kind of network effects on being here or to what extent was going to be linked between you know dmg and the success of the bank or protocol usage because you know for example what why not use ether as the reserved token since you know that's so

much more prevalent and and popular why does gnosis in this case have an advantage of using dnt that is that when you create an ecosystem on blockchain I think we've seen that with every existing wood block with Bitcoin with the cerium and and I think we'll see it with more ecosystem one of the most important properties of those ecosystem is to benefit the early adopters to incentivize the early adopters their loves of Bitcoin you know were more incentivized to use the system and and I think I think that's I mean no very noble concept that you know if you

build a product and you build a show you have the developers you have the people that have contributed funds to that product so you wanna incentivize it stab them so incentivizing the early adopters to kind of you know build that network is done using that currency and when and because it that's the whole and I think structure of building an ecosystem and funding and ecosystem the reason that people are willing to sponsor us and contribute to new ecosystem is because they are incentivized to do that because if the ecosystem is indeed successful proven successful and and provides value to people and you know that that that

would benefit all those groups so I think that everyone that joins being the first one to join P&T he is better to work with B&T because beauty is the not the token that everyone use but it's the token with the most stoking changes so that we're going to build more toking changes for B and T than to any other token because this is our Charter this is our goal and and B until having the most token changes could be exchanged could be the shortest path to exchange to everything else now you can have an additional reserving either you can have only reserve I mean you can do whatever you want essentially I mean just a smart contract but but

we're creating this liquidity network that makes it a you know just the shoulders they're the lowest price the lowest cost to you to convert between point M and B because you have this intermediary currency that connects the other so it's just and just one network of liquidity and maybe there will be more like you know there is a theorem classic you can always kind of take the smart contracts and create your own liquidity Network and you know maybe it would be better but dynamic shows that it you know this is what people that copy the Bitcoin code originally thought oh I'm just going to create my own currency it's going to be great but you know creating the liquidity Network it's hard it's a lot of work so you can

try to do that you can make it successful and you know it's fine and this is the beauty of of this industry that you know people can try that to me seems a very frivolous can select you so so so you know this other ones you play equipment which has to Stoke and xrb and I like the video give a like retinol talks I would except yourself exactly is that they want to make it that exchange penetrate like maybe want to go from the Mexican peso to the Indian rupee on the different ledger you will go through a selfie because they're the market will be next appearing European except II and

the Mexican peso and as long as likely market depth is very high on both sides except in the best British currency that they would have position X appears that as at bridge currency and that is supposed to be utility yeah now what what do you the way I will translate like your answer to you to here is like you're inventing a new exchange technology right you don't need a market maker and human person to exchange between two pairs but you are sort of preserving that same kind of business model right like time to be like whenever you're going from one token to another trying to position these a BLT

as that page right like so token one would have be a deserve it open to WT deserve so it's the shortest part now it could be the case aktobe into ASCII current reserves one and eighty-eight deserve then BNT any colors then BNP having ten reserve so that becomes like three hawks if the end token selected to be indeed make sense or token any plus-one to also connectivity I exactly that would allow the users of token n plus one to easily go to the other end tokens as usual of these first and tokens will go to n plus one so basically you're trying to build the platform of pitch so let s ask less

now now approaching this as an investor's perspective in dat right side so so so alright when I think of it as an investor in dnt suppose I like this market hypothesis what are these like key performance metrics of key performance indicators and investor in being tea or to look at like what must happen in the market for the investor to know this vision is going with and what metric if it feels means in this visit isn't going it's a great question and it's a very simple answer B and T being a network currency is a currency for

currency it's a token for tokens if we don't build it we didn't build it in order to be used by end users we build it to be used by other tokens as reserves I mean this is the whole bank or concept is that money can use money right so the most important metrics is how many other tokens hold B and T in reserve and what is their market cap you can measure it their volume so you can really see what the members in this network what the other tuchus and today it's only the B and T but we have you know a couple of token that will be launched soon with their own smart token

and hopefully nose is going to be one of them and and you know we'll start to see some kind of network between different token through B&T but that that will be the main measurement the most important see you know how much it's used and you know how how the network grows and then the volume is also very important because one of the use cases for banco protocol for existing tokens is something called token changer the token changer is essentially a smart token with two reserves each like 50% CRR 50% reserve and basically it's a place that people

it works in the exact same manner but you just park illiquidity there whether you have gnosis or you have B&T you can park it there and whenever someone is doing conversion between the two some of the conversion will be kept as fee in the reserve so the result will grow at the specific weight according to how many people are converting for each other so it's kind of generate profit for those who are holding this smart token this token change your smart token so this is like a full profit structure to provide liquidity that kind of offer people fees in order to park their

liquidity in a smart token to provide liquidity between two tokens and and and and the built in mechanism that having one or two reserve is kind of the and nonprofit model that you can use to use the banker protocol cool fantastic so we already look running pretty late and there's so much more that we want to talk about today there are I think a few things that we want to be sad rest so first of all the crowd sale so you guys see there or massive crowdfunding campaign which I think it was a just above the doll and I think it was the largest since I guess

now this may be some that have surpassed it with like Hazel's and the eels and stuff but I mean of course any cartel at this point is going to be surprised for equipment but but yeah so so first of all of this cartel there was a lot of controversy around it one of this was that there was this calf which supposed to be one hour and it end up but ended up being a three hours so you guys extended it hey can you get us and talk about this like what was going on there right and you might make this decision I mean what happens is that you know we didn't anticipate a fear and network to not being able to handle the load for so long we thought

that you know within a reasonable period of time the transaction will be cleared but apparently there was is you know very very high load on the network and you know we were talking to many many people that were addressing us and telling us that are not just not able to to get transaction through within within the first hours and and the whole idea of the first hour is just to let and anyone that tries to send funds in the city and if in this in the first hour it's description because it was about to inclusiveness now the inclusiveness was something that was a you know we wanted to let anyone that wanted to participate to do so but we didn't need all all that

money so we had this cap and you know someone to the reserve the cap would was two hundred thousand eater that was the cap was just by the way 30 days before the idea was was 18 million dollars and the price just jumped like crazy but that was the cap and and and and anything above the cap which ended up to be like forty million dollars went to a price floor which is like not ours it's it's a it's just money back your limited money back guarantee to all the investors in the in the ico price that's what it is and and you know what is there is there and it can be run out which which is did

when either plump from four hundred two hundred like thirty it was a very rough and drop and and at that point a lot of money kind of left the crypto industry like the to space and we so we're you know where this this price for slow being used but it's just protecting the investors and you know keeping the kind of minimum price for much longer but by having this kind of price which which is a mechanism to accept more money than you need without taking that money just providing that money is a service to the community and maybe within few years if some of it is not

used you can take it but but it's a mechanism to just allow more to participate which we like we think it's a great it's a great thing to allow anyone that wants to participate and not let them to compete about being the first transaction or put like insane gas fees or we didn't like what we saw on another I feel so so this is what we did here and and people that wanted to end after an hour you know they want I'm sure there were a lot of people like that because a lot of people are making a lot of money from ICS that do not supply the initial demand so there's like the mission initial demand of 100 million and they sale like for 30 minutes and then you know that goes to

the exchanges and the price goes up and you know a lot of to sleepers and scalpers like making tons of money and you know returning their investment Plus and keeping those tokens for free just because they were able to get in the beginning we didn't want that and people that wanted it to end within an hour we're barely anyone could put a transaction in they want to have this manufactured scarcity and it's just not something we believe in something that is done but we didn't believe it it's the best way for us I very much agree I think it's very important that we figure out structures where you know people can put in money and and you know there's not there's not this whole gaming

elements of trying to be first and trying to get in and at the same time that you can still have a cast because I think insane to just say we take whatever money we can get I think that's a very also very poor approach I think it's certainly an innovative interesting way you guys done that and you certainly succeeded also in getting a large number of people to put money in nothing it was over ten thousand I think that's more than actually they were in the Hyrum crowd here back then maybe a similar amount that was in the dollar I don't know if you have that a number of I think I don't but it was one of one of

the largest and we were very happy about having so many yeah yeah nowadays I guess at the point where I'm sort of like wandering about the structure is my feeling would be I mean I don't know how you feel about that but do you think that if you didn't have a price for the price of BNP would be much lower today it could be but if we didn't have price lore it means that either we had that money and maybe the market would kind of price the fact that we have that either and would give us a better price because of that or it means that we had a hard cap which means that we left a lot of

demand which is unsatisfied and that would actually means a much higher price for not having a price lower because all that demand will push up the price when it comes after that hill we actually satisfied 150 million dollars of demand right at the ico so there was no additional demand to push the price up which was our intention we didn't think that our value should change five minutes after the ico which is the same company the mark is just price it yeah I guess what sort of the thing I hired mind although maybe this is getting a little bit too off track to be like let's say you you return to money above the cap maybe one says you returned it

three months later so there's some some cost of putting it in you then may still see but yeah I don't know I mean I'm not I'm not sure that would be any better than what you guys have done so I certainly I certainly think it is from that perspective even though I didn't study it that closely I think it's a reasonable design that you guys chose for the crowd sale yeah I think I think it's important to try new things at this space and see what worker was not and be ready to you know I think that the price low was was was a great thing and and if we would've thought about it before we would not have any one hour limit I mean we probably would give it up for a week but

we didn't think about price limit initially we we kind of we created that because initially the community was like complaining that we'll have too much you know money under our control we didn't think that we'll get so much in the in the cell but because they said it we offer that price so to give that assurance that we don't want too much money we're going to have like price low but that was a good idea maybe the one hour was not such a good idea but it's it's stuff you learn if you try yeah absolutely well I think we are kind of at the end of our episode it's been a lot lots of interesting stuff to talk about that I think Banquo is going to be a topic that

hopefully will come back so right hopefully we'll see some interesting projects using Bank for going to market and I think some incredibly interesting things could be built when we have these liquidity networks I certainly agree that very interesting direction and yeah I think a lot probably a lot of listeners will still have open questions it's not an easy concept to understand bank for it's not very intuitive concept to understand of course will link to add white paper will link to some of the other writings you guys done which abuse include some very nice writings I was particularly impressed also with your post which was the you know response to aiming and serious criticisms of you

which was a has a book chapter that you wrote I think quite quite well addressed a lot of it at the point you had so yeah thanks so much for coming on and for yeah sharing about the super interesting project you're working on thank you for having me okay and well thanks so much for a listener once again tuning in of course as I mentioned we'll have a whole bunch of links to talks and other resources about Bank horse if you want to learn more you can go there and and yeah at the tennis particle so click on network and a show and I'll show some less or pick one calm if you want to support the show to do so by leaving and I to interview for us unfortunate there is no a personal coin you can purchase but overview you can so thanks so much a

miracle to be very [Music] [Music]