DAPPCON 2024: How Can Stablecoin Issuers Remain Relevant? - Philipp Pieper

Transcript

welcome at the end of the day we know uh it's been a long day but I'm going to bore you with one more topic that is uh related to what uh the title had said um I think real world assets just basically as a precursor is obviously defined as anything that is not chain native represented actually on on a chain and I would argue that you know aside from the digital native assets that's the bigger use case that we're actually like trying to solve for blockchain entirely that's why it's not really in a surprise that uh real world assets as a narrative has become so strong in this um this you know bull market because it will lead eventually to all the different shapes

and forms how blockchain manifests itself into our lives and you know I would argue that stable coins probably are the the most successful you know use case for rwas today it's actually representing cash hopefully in most cases um that are then digitized so when talking about rwas I think there's been a lot of difficult things that have been getting out of the way um so it's been always this long promise coming for the last seven years of how to use uh blockchainbased processes to actually show something that is relating to the W world on a chain but one of the Lynch pins that I want to talk about today is actually um the the way how to create liquidity for

it and the difficulty about it so um you know maybe short intro um myself you know I've been a Serial entrepreneur I did different uh companies in the in the digital assets space um but most importantly also was working in my former life in the in the financial industry for Deutsche Bank and Alan group um and then in 2017 we started actually with the first Dow way to actually build compliance based smart contract in a time when obviously sort of the the ecosystem was not really familiar with what it means to actually do sort of regulatory compliant token offerings so that led to the first iteration Of Swarm which then in 2019 we actually transitioned over to Europe and

um our headquartered out of Berlin we actually interacted for the last four years with uh the German finance ministry and with different institutions in Germany and and across Europe to actually help build the regulatory footprint of actually being able to do this so um as of today we we have two businesses uh which I'm not going to talk about too detailed here one business is actually sort of when we uh publicly actually um tokenize public stocks and bonds so T bills and you know micro strategy and coin as digital assets that you can then actually sort of purchase from your metamask wallet on a sort of permission less system and the second business is then using the entire stack of you know

the tokenization stack so the token issuance as well as the trading stack to then actually give that to um issuance platforms to um you know issuers themselves Etc but one of the key challenges has always been actually what does it mean in terms of liquidity because issuance is pretty easy you can actually do that you know it's almost like a commodity you can do it just with with no cost whatsoever so let's look at briefly look at Market structures and I'm not just limiting the market structures to um um you know to the blockchain markets um you know generally there is this um you know this way how to how you know in financial markets actually markets are built and let me start with the right side and in that in that left side so

The Exchange Market is the most common one so when you go to New York Stock Exchange or Frankfurt bur or something you basically have one Central system in the middle then you have different actors mostly professional actors actually transacting on on that together and that is pretty efficient but it's also something that is actually you know giving a lot of limitations to the participants it's also giving a lot of risks in how to interact with that because it you know not only applies to every asset but you know it's uh it's something where you know there's price discovery that is often often a challenge that that's why you have professional market makers in that so right going further to the left you then actually have these variations of that so one of the variations is a sort of a node a broker-based

OTC market and I would argue and it's probably a little hard to see on the right side but that most the dominant parts of the financial ecosystem today are being traded on on OTC markets actually if you look at the different asset classes you know equities actually being sort of in 2008 was at 16% now it's actually at uh you know roughly over 50% of the market is actually traded over OTC desks so the majority of the market is actually not traded on public markets and if you go across the different asset classes bonds are by far like know 75 plus per are actually traded on OTC markets and you go down the list so the average across you know

equities Commodities interest rates crypto uh um currencies is actually on average 52% and we in the crypto Market um we always look at centralized exchanges such as you know binance Ken Etc as the dominant places where where actually things get traded in fact the current um volume of OTC traded volume is 76% so most of the value is actually not really traded with proper price Discovery it's actually traded bilaterally between parties right and we've seen actually in the past what the difficulty is with that and there's two main things that actually come to come to mind actually one is actually counterparty risk so the way that an OTC trade happens is

that the party that is the biggest balance sheet can dictate where it happens so if I say basically I'm expecting to trade something well I'm going to have to subdue myself to the one that actually is the counterparty that actually is the say now that's a trust thing because the counterparty might just you know if the market moves not not just nefariously but if the market moves they could just return and say you know what we've changed the deal and actually you just have to accept the new terms right um but the second piece is actually it might be underpriced because in fact you know you're actually doing something in the assumption that it's fairly priced based on Market but actually it doesn't really have that transparency you don't know actually what's happening behind the

scenes and so these two things are still today in the crypto Market it's one of the key things that actually keep a lot of people away because it's um it's actually limited to wholesale providers that deal with these big institutions you know from uh from dcg group to uh to Galaxy to other places and you know I think you know the nature of the blockchain allows us obviously to go more to the PTP model right really bilaterally to actually have a discovery that actually does it better and let's go through actually what the benefits are there because obviously it it leads to that transparency so we actually don't work on information asymmetry anymore and and a lot of these benefits actually are just general benefits about

the blockchain but as it applies to actually sort of these big trades and how they actually apply to these markets it's quite significant the counterparty risk if it's a smart contract and this is what smart contracts are built for to actually have a finality a full settlement of what actually you know people want to trade on and actually do that without anyone taking the middleman position in this case right so in this case you can actually mitigate the entire you know entire risk of dealing with these two parties and then even from a liquidity perspective so you know we we obviously sort of know from Unis Swap and and others that basically sort of a bonding curve based trading model is already the precursor of that but

even if you go into low liquidity models where you have a data Oracle that from the financial markets in the case of real world assets actually has a pretty proper price Discovery you don't if if you do it in the right way on the doc side or on an OTC side you can actually have the same replication of liquidity on chain and you don't have people subject to risk in in that whole context right there's several other other benefits and we can go through them but I think you know this is the core of what we you know think of of hoping to solve for because um when thinking of these asset classes that are you know by far potentially 100 times larger than actually the crypto Market we have to be able to latch a hybrid of the offchain

markets with the onchain markets so let me introduce you to what we developed as a response which is obviously built on long learning in the regulatory space um so normally this function is being done by broker dealers it's done by centralized institutions and they have a certain way how they have to be regulated now if you do this in the decentralized blockchainbased markets there is some benefit that you can actually do this in a fully non-government and public uh service kind of way so we actually introduced a couple months ago actually the first first version of something called doc. and with the domain you can already tell that it's basically you know it's

it's actually not served by a centralized server entirely all the contracts are sort of non-government we don't have any say over them they obviously will be upgrade not upgraded but actually updated into a new experience over time but anyone can go back to the original contract so it's completely open it has no no limitations but you um you can trade anything from ec2s to 1155 you can quote your own price you can actually then say whether it should be actually a full block trade or an increment trade and you can today already actually limit it to certain recipient recipients so if if I actually say you know I I fix a price with my counterparty I can just say okay your wallet is the only one that can take

this it's fully collateralized in the smart contract and there's no more this dispute of um who goes first so in this case actually the smart contract settles everything and there there's a full reconciliation happening between the two parties now the exciting bit starts when the next level is actually sort of released where we are introducing actually an what we call off select which means that I can actually determine um who what the counterparty should be qualified by so if I have a preference that someone is actually on on boarding with me directly and I need to know who that counterparty is from a financial Market perspective I could say that my offer is subject to someone

being qualified or I can say in this case swarm should be the qualification partner or someone like you know uh you know like block pass or or you know some some other qualification vendor now instead of making it static the second thing we're going to be relaunching is is dynamic pricing so I can actually DET determine a data Oracle that gives me sort of the reference price so there's several data oracles out there today you know you can actually quote um Nvidia you know from a data Oracle from chain link and you can make that part of that um that offer and then say basically I'm expecting not only that offer or that price which might be floating but I could say I want you know a certain premium on top of it

because it's a block trade or I give a certain discount on it because it's a bigger trade so it's up to me to Def Define in what range plus minimum and maximums I want to trade this in and if you think of that module then it can actually be a pre-module that is available to other dexes as a limit order book right because in in the end I can say well you know what if ethereum today is at 3,900 I'm willing to sell this amount this block at 4,500 and 4,500 to 4,700 and I'll just make that a standing offer and I don't need to do anything so I can actually I will be able to actually do that from within my safe I will be able to stake the amounts that I'm willing to actually

trade for that price and then it's up to market makers from the outside or individuals to actually look into into these kind of orders that are available and just take them when they're they're they're beneficial in in the whole sense right so that will lead obviously to a a completely new way how individual safeguarded environments transact with another because they don't have to necessarily go to a public Dex they don't actually necessarily have to go into the system the broader ecosystem of a blockchain but they have a direct interaction mechanism that allows them to discover better deals but also have be safeguarded around it and what we'll actually include in that as well is something called affiliate participation so in know in some ways bringing attention to these individual deals is

you know is a channel function and so you think of safe for example today you know they basically should deserve for bringing the consumer to to a a protocol like us they should deserve to actually participate in that deal too and that's going to be embedded into the protocol itself that for those instances they will be able to you know get a a piece of the fee that is being taken out of the transaction to then actually sort of you know have a incentive also to actually go out and and do more of that so we think overall speaking that this is a crucial component that is an additional layer that is needed today because you know we believe big time in Defi and everyone's right to say that basically defi was the successful

infrastructure that continued working while actually the the the last um you know uh the system was actually melting down with Luna and and Celsius Etc but in this case actually it's something that actually lets me as a consumer as an investor actually take a little bit of a hands-off approach and actually has the same kind of convenience as if it was a centralized system and it allows them to actually do things in a almost it feels like it's a centralized way without the centralized counter party risk that's it thank you so much uh thank you Philip uh we have some time for some questions if you guys have any okay then I will see you in 5 10

minutes there's one uh next this is this is this is it yeah okay thank you very much thank you for your time