Synthetic Assets

Transcript

I'm Dominic as introduced um so quickly first question you know why do we need synthetic assets synthetic assets are crypto tokens the represent real world assets like gold facebook stock pretty much anything that you see in the traditional financial world and the answer is if we have high quality synthetic assets we can power open worldwide trustless finance based upon small contracts it's a we call autonomous finance so next question what is autonomous finance do well once we have synthetic assets such as d google d

gold we can obviously unable to centralize trading hedging derivatives that kind of thing people can use them for saving and investing and we can cradle kinds of interesting innovative consumer applications another thing we can do is we can create price stable cribs occurrences so you might imagine that cryptocurrency called fire was created by blending d gold d USD that kind of thing and this would be liquid and it would be price stable so we could use it as a unit of account as a medium of exchange and a store of value and that in turn could be used to power other fiduciaries smart contracts prediction market could be used as a prediction market at collateral for

money transfer and payments that kind of thing so we'll look at the kind of basic architecture talking about you know traditional financial assets are you know underpinned by clearing systems exchange systems the thing called the DTCC broker-dealers banks this is a very complex slightly on Tikrit ated infrastructure and when two people transfer or trade these assets of course it's going through a whole series of middlemen and really there to customers of this financial system that are transferring these assets and what we'd like to do is have synthetic versions of the real world financial assets that

mirror the values securely but can be traded peer-to-peer without middlemen so you know we'd like to have a mirror copy of all all of the major financial assets and through this we can get some interesting properties you know rather than one two three days settlement time we might get 20 seconds settle the time we might get rid of commission completely on transfers we might label people to have fractional assets and even something like fractional assets can be a really big deal and if you look at a google stock at 611 look recently that's six hundred and fifty dollars or something if you're living in a BRICS country you may not even have six hundred and fifty dollars to unless you

perhaps like to buy you know no point nor five of a google stock or something like that i think other things too like you need twenty-four seven trading right i mean it's if you have traded it's crazy restrictive anything else to trade with you access to good liquidity sort of 925 the key aspects of the system is that it's open and and trust less and that enables permission that's innovation and that's very very different to what we have today the current system is very restricted it's expensive its hegemonic and you certainly don't have permission its innovation so the question is you know how can we how can we get to this place

where people can truly innovate and provide access to people that don't really have access at the moment so which studies of the synthetic assets to create one of us finance to be synthetic assets and then the question is well how do we create these synthetic assets and there are three main mechanisms for creating synthetic assets first one is colored coins which is quite widely known second one is cryptocurrency collateralized instruments and the third one is Dow issued assets so returning to colored coins hella coins are really Berra shares in cryptographic form they're issued by some company who promises to

pay the bearer on demand whatever the asset represents good dollar for example tether does this it could be a inequity and of course this results in some pretty severe regulatory problems because the issuer is based in some jurisdiction if it facilitates exchange it could be subject to money transmitter laws exchange regulations that kind of thing it's a single point of failure do you really trust this issuing given them your money and they promise to pay you on demand whatever the crypto token represents but you're really trusting that they'll be true to their word it's a poor funds ability often as well I mean if you if you have a tether and you have a chase dollar chase of talked about creating a blockchain with with

dollars oh no these the same thing wit is is one tether equal in value to one chase dollar probably not so you don't have funds ability and press the biggest problem of all is that there are seizure risks because you've got the single company custody everyone's assets and you might imagine that an agency comes along says we don't like this user can you seize the gold coin for example and there's a problem there because that gold coin may have been used as collateral in some small contract and you can imagine a kind of web of dependences fanning out from from from this contract where the gold coins being used as collateral so we don't like color coins cryptocurrency collateralized instruments are

instruments where you know they're pegged some kind of thing cause i'm going to peg to an external asset you know for example Facebook stock or something for that and they're collateralized by liquidity provider in crypto currency and the idea is that you know the value of the stock goes up the liquidity provider will wreak lateral eyes the instrument if the value of the cryptocurrency goes down they'll reflect relies the instrument and so on but there are problems with it too I mean there's very expensive because you've got to put the collateral into the instrument you've also got to hedge the collateral on the real world market so you actually have double the amount of capital in this thing there's an ongoing role cost in every time you

have a margin call or something like that you know the spreads involved and these constant friction it's just leeching money out of the system the biggest problem though is you've always kind of recursive debt spirals so cryptocurrency really at least at this stage is far too volatile to be used as collateral but it might be that you know five ten years when there's a huge velocity due to in vast numbers of d apps executing it'll be much more stable because the velocity of the currency or underpin its value of making ya remember and reduce the volatility before now it's not suitable and the idea often is that you know crypto equity will be offered will be issued as a last resort

and injected into these instruments to collateralize them when the quiddity providers can't do that but of course the problem is that the the problems with the crudity providers will be correlated with decrease in the value of the equity so you gotta kind of recursive death spiral so the third option is dow issued assets i don't know if you've been putting out a peep heard of a dow yeah great says it's in proposal denotes it's a decentralized autonomous organization which is a bunch of smart contracts that fulfill many of the roles of an organization but they're

not controlled by any individual or organization probably them have time to explain exactly how this works but we've got a user there talking to what we call it d asset API the data API is pushing calls through to the data exchange which falls through to a DI sit down all of this is autonomous financial logic that's executing in the cloud for the most part we hope that the assets would be recirculated on the exchange but when for example you want to buy some asset there isn't a an ask in the exchange full through to the Dow the Dow can generate you d assets and redeem than it does that by hedging this position in

the real world by interacting with the quiddity providers who essentially sell it CFDs and close them on demand some zero base CFD so the redemption value is from zero to the price and these CFD traders exist within a compliance framework there's an association of governance them and you know they do with broker dealers and there's multi six games to stop them withdrawing money and all kinds of other things and the requirements are that they hedge their positions in the real world by buying the underlying asset the key thing here though is that when you buy a D asset if you buy a Facebook coin there's no

mapping between your Facebook coin in any particular Facebook stock held by brokerage account and the dance in itself doesn't give you any voting rights in a company dozen give you any dividends it's just a synthetic asset whose value happens to mirror the real world asset just quick note on what autonomous financial code is an important point it really mustn't be controlled by developers or organizations it probably has some voting shares which enable it to vote on the logic used and things like that but it cannot be controlled by any entity and it must exist pretty much as a

network protocol in the cloud and its regulation then falls on the entities that access it in in in local jurisdictions and that's pretty much any way you can create a global financial system you can't have some kind of global financial system which is subject to the regulation of every several hundred countries in the world I kind of scale I know skip past this quickly but and this is just talking about a decentralized kyc scheme in which of course you have that KY CD users kyc providers and voting shares that decide upon who can be a kyc provider and finally just like to introduce this idea of a liquid

wallet which is an example of a consumer application you can create using synthetic assets and this illustrates what's possible and how you can create different kinds of mass-market consumer application using this kind of technology than you might be able to create using existing facilities so his liquid wealth wallet and because all of these different assets are convertible to cash form they can be treated as cash so we've got a single balance at the top which of course is a real dollars it's d USD and we can spend that you know through gateways BAM you know where

money's exported is Bitcoin and pass to a debit card and in the wallet we have some DSD we have some apple store get some face book store we have a kind of derivative that generates interest based on margin lending we have a folder which is the kind of crowdfunding folder for a bunch of friends to crowdfund a burning man camp and this illustrates some and stuff as possible so when you spend money from this wallet it would go to each of these items and liquidate a little bit but but of course you can do all kinds of great things you can lock items you can lock folders and generally speaking is programmable so you can imagine creating a folder called my car

fund right just saving up for a car and you you might program that folder so that every time your every time your balance goes over ten thousand dollars for a full day it's it sweeps fifty dollars from your balance and sticks it into your my car fund folder so it's kind of kind of a merger of a checking account a savings account and an investment solution which you can configure to behave in exactly the way you want and furthermore addresses the issue which a lot of people have that you have you know money lying around in your bank account but you just to have a time to send it to a wealth management

solution or you need an equality on hand and yeah that's it for me I think I've stable