Building the Data Layer for Ethereum's Institutional Era

Transcript

Everyone, it's great to be here in New York. Hoping the W hoping the Knicks win tonight. If if so, that would be uh even more energetic electric New York than we're used to. Um if they don't, good luck in Manhattan tonight. Um, today I'm going to be talking about building the data layer for Ethereum's institutional era. How we provide data to smart contracts that can either come from institutional portfolios offchain or uh secure events onchain. Space and time is a database onchain for smart contracts that allow smart contracts to ask complex questions. When we started building space and time in late 2021, we set out to build the first verifiable

ZKP proven SQL database. All that means is zero knowledge proofs, cryptographic proofs for onchain queries, questions asked by smart contracts. Initially the thought was, hey, you know, a lender onchain doesn't know anything about the borrower wallet that's borrowing. Why not allow that lending smart contract to ask a basic question like how many what's the volume of loans that this wallet borrower has already paid off? It's shocking that DeFi uh protocols, DAPs have really no knowledge about the wallets that are transacting with the smart contracts, right? Smart contracts have no database. They can't query uh past activity and aggregate information.

Space and time solves that. We bring an onchain database that allows smart contracts to ask about the wallets that have connected and are transacting. They can roll up and aggregate uh history of transactions, events, anything that's happened on chain in the past that we can prove back to the smart contract quickly. Next block. And so that brings a kind of a verifiable pipeline of data to smart contracts. Think about the era of oracles and price price feed data that uh enabled DeFi summer back in 2020 by actually bringing some data some price feeds to smart contracts. They can make better decisions. Take that one step further and allow a smart contract to actually run a SQL query aggregation.

That's what space and time brings. But it's going to be very important as a really powerful primitive for institutions that are coming on chain especially in the lending and vault world going forward. So space and time really quickly as a technology is a decentralized database that sits next to the EVM. It sits next to Ethereum, next to base, etc. And really all it is is a blockchain that allows you to create tables, insert data, and run queries. It's a blockchain that allows you to do SQL style database actions. And you spend your SXT token, a few tokens per action. For example, I spend some SXT to create a table called uh T- billill volumes and then I spend

SXT to insert my T- bill portfolio data in and I spend SXT to query that from a smart contract in order to mint stable coins that are backed by my T bills offchain as an example. And we're seeing really nonstop this year and with the Clarity Act about to pass, banks are leaning in. It was led by the FinTech last year. Um, Stripe, PayPal, etc. Circle to a certain extent with ARC. The FinTechs came into this space, started minting their own stable coins backed by their cash reserves and showed the major banks how to do it. And now the major banks are starting to hire contractors to write smart contracts, putting them on major chains and kind of

waiting for clarity to pass. But we're going to see a massive influx of major banks that are that want to u tokenize and capitalize all these securities they have offchain. You think about all these portfolios of stable coins um of cash reserves, T bills that they want to mint as a stable coin. Sorry. Also, the benefit of bringing this capital to the chain as you all know is programmable finance. Not just 247 liquidity, not just access access to a broader market. globally, but programmable finance. And so what the banks are realizing, oh my gosh, if we can take our cash reserves from this off-chain portfolio and we can bring it

to a smart contract, mint something like a stable coin for our bank, sell it to a wider audience. But we have this smart contract where we can program business logic. We can codify rules around how that token is traded around, you know, thresholds for volumes that we can sell. Make sure it's always matching and marked to market with our off-chain portfolio. That opens up a whole new world of programmable finance where we can go way beyond stable coins and start to codify rules around collateralized loan obligations, offchain equities, commercial real estate to a certain extent, right? these kind of legacy traditional processes that mark tomarket or you know repriced every month can now

be programmed to be repriced as often as you want using SQL using space and time on Ethereum or other EVM chains. So we think about like all this securities data we have in traditional portfolios that live in traditional transactional databases on cloud hypervisors operated by major banks. You think about where all of their treasury and bond positions live. Think about where bank balance sheets live, where CLLOs's are monthly rolled up as a PDF and priced and sold on the market. And we think about how we bring that to the chain. Well, you kind of need a conduit

that sits in the middle. You need a facilitator that sits between these, you know, very compliance lockdown off-chain portfolios and the onchain contracts where securities are tokenized and sold to a broader liquid market onchain. What sits in the middle is something that can very securely reach into the portfolio's offchain from these banks and ZK prove to a smart contract that the data being passed is accurate and the queries and aggregations executed to codify business logic are accurate have not been tampered by either the inst either the engineers at the institution

itself hackers externally you name And so what we bring first, space and time, is is not just a core primitive important technology for the future of Ethereum that allows institutions to actually run queries, roll up and aggregate data, ask questions about how their market has changed over time from a smart contract, but even more importantly, connect off-chain data in a secure way where we're not talking about price feeds here. We're not talking about an oracle for price feeds. talking about queries executed against a number of portfolios. So for example, I have you know my bank has bonds uh has a treasury of T bills. These live in 17 different portfolios across two

different clouds, different databases from different teams within my bank that that build these systems and I want to kind of roll this into one single stable coin that I mint for my bank. A question has to be asked. An aggregation has to occur that aggregates all this data. What's our total volume? What's our total collateral available? How much collateral do we have offchain that we can bring to the chain and sell right this second? And we got to make sure those numbers match. I I got to make sure I don't mint more stable coins than I have cash reserves to back. And this this can't be a monthly rollup.

This can't be something that accounting does or a bunch of interns do once a month. this has to be real time or you know every few minutes, every few hours worst case. And so we reach into these transactional databases and we allow a smart contract to run a query that says, hey, what's the total volume or what's my total collateral amount across these 17 portfolios? space and time then relays that to the smart contract where the stable coins are minted and business logic can be codified to ensure that the collateral matches what's minted and sold.

Now take that a step further. Um these banks realize, okay, hey, stable coins is a great starting point. Wonderful. Let's take it a step further. We have all these other assets and securities we want to bring to the chain. equities portfolios uh bonds loan loan obligations, and CDPs. Um, and and so now we're talking about like first taking, uh, the business logic for these securities and rolling them up as SQL and then allowing a smart contract to execute that SQL. And and so it's just an important primitive that every engineer at every financial institution is already confident and and familiar with. They already run SQL for all of

their processes and then they come to the blockchain and they're like, "Whoa, we can't do this on chain without space and time." Okay, great. Well, we now have a solution. Without this, you have no ability to do historical aggregation. So, think about that. Not only do you not know the wallet that is transacting with your smart contract, what that wallet's done on chain, its volumes, its uh events that it's created, its history, but you also can't uh do historical aggregations of your own data from your own smart contract. Like something as simple as show the total volume of this certain RWA, show all of its outflows from this contract over the last seven days. very

simple business question that any business analyst at any bank would want to ask. You really can't do onchain without an onchain verifiable ZK proven SQL database that provides confidence to the smart contract that that that question has been answered accurately. There's no asset providence, right? I can't say, hey, show how the total volume of loans this certain wallet has already paid off so I can give them a better borrow rate. And you can't derive any like business metrics. You know, I can't say, "Hey, if um if if I sell a certain amount of this stable coin over a threshold in a 24-hour period, stop sales and double check collateral."

these very simple like rules that we want to add to a a smart contract we can't do without a database on chain that can run simple SQL queries either on fully onchain data in the case of the historical aggregation I gave you or fully off-chain data like total you know volume of cash reserves for example now let's take that one step further right now vaults is all the talk that I hear in the institutional capital lending space, especially within the EVM world, everyone's building vaults, everyone's curating them, and borrowers are coming in and starting to borrow at at larger and larger amounts. However, we're not

going to see major financial institutions, namely banks, come in and bring, for example, $80 million of T- billill capital uh to a vault without some understanding of what the borrowers already have as collateral and how the borrowers are going to use that money once they borrow. So, there has to be a data room. There has to be a lot more transparency to the lender about what the borrowers on chain have today and how they're going to use that money postbar.

Right now, for all the all the talk of like transparency and auditability and verifiability of smart contract vaults, we really have an opaque world we live in on Ethereum vaults. Like we don't the lenders really have no idea who the borrowers are, what their capital base is, what their collateral available is. It's kind of just, you know, PDFs passed around in emails and then approvals done on chain. Let's take that a step further using this powerful new primitive using space and time. What we call virtual vaults are you go curate your own vault your way on the platform of your choice bank. We don't really care, but we're going to show you as much data as we possibly can about who these

borrowers are, what kind of capital they already have deployed into uh market making on centralized exchanges, into dexes, into um you know, highly looped DeFi plays, you know, looped lending on chain. So we provide like a view to for the lenders of what the borrower's capital looks like um across deployed capital and centralized exchanges and dexes and that gives the borrower more opportunities more lenders that are willing to lend to them and the lender of course much more confidence before they bring higher volumes of cash USDC and USDT to vaults. It's the kind of time to upgrade the world of lending on

chain. Um, and I'm not talking about overcolateralized lending via AB. I'm talking about vaults that are generally uncolateralized altogether. So, we need to at least show that collateral at the very very least. And so, we start with like an investor dashboard. We start with sort of like a data room that we provide to lenders that says here's what the borrower's world looks like. Here's all their collateral available. Here's all the trades they're making. Here's how they're going to use your money postbar. And then, of course, during the borrow, continue to do so. But take that one step further.

What if we could provide that same data to the vault contract itself? So I'm talking about the vault smart contract actually programmed to run SQL queries that ask similar questions like how much collateral does this borrower have left right now? And if the borrower exceeds a collateral threshold, if you will, do what is essentially a margin call. Essentially, like take your collateral, take your your cash back. Um, codify more advanced business rules into these vaults, make these vaults a bit more intelligent, give them the ability to ask questions about the borrower, pre-bar and postbar.

So you can start to build much more uh off-chain compliant vaults, vaults that that follow your risk and management compliance rules that you're already used to codifying offchain using this powerful new primitive. So let's take it end to end on the left side or on your left side. Yep. You've got all these exchanges where for example a borrower who is a market maker is dash dishing out money. their market making on Binance and Coinbase and uh five other exchanges where um they have $40 million in the market that they don't really want to touch. It's it's active. It's traded and they need they need more capital. They want to borrow 40 million more.

They first prove to the lender that they're using that money wisely, that they show their capital basis, and hey, worst case, we could pull money out of these trades and we could pay off a loan if we had to. That gives a lender so much more confidence. Next lender deploys 40 million of USDT into a vault on Ethereum. They choose the borrower, approve the borrower, the money starts to get lent onchain. And now their smart contract can manage continuous repayment. They can stop them from borrowing any further. They can claw back whatever they want to do on chain. that can codify those business rules, which is an incredible change in how we think about vaults like Morpho, for example, that are really um kind of

cut and dry, very black and white on what you can do. Now, we've already talked a lot about institutions. We've talked about how banks are coming on chain, bringing stable coins, even more exotic securities and assets that they're starting to tokenize using these powerful tools that every developer is already familiar with but doesn't have on chain without space and time. But what about DeFi itself? So let's go back to my example of traditional lending on chain. Uh I go use a I take out, you know, I borrow against my ETH. A has no idea what my wallet sorry the A smart contracts have no idea who I am what my

wallet is how the volume of loans I've already paid off and everyone kind of gets the same borrow rate right I get the same borrow rate as someone who's lending for the or borrowing from the first time even though I'm a very experienced borrower and I've paid off a ton of loans on chain something as simple as asking the question what's the total volume of loans that Scott's wallet has already paid off asking that question would allow ow a lender to give me a better borrow rate for my loyalty. Give me a better borrow rate because I'm a lower risk borrower. These these sort of questions that we want to ask from smart contracts can power a whole new wave of DeFi on Ethereum that we're really excited about. I think the next year with the passing of the Clarity Act will be a lot

of banks coming and then we'll see a massive run in DeFi as people get more creative and build more interesting lending markets around this. Think of space and time as core tech that we've brought to Ethereum, but we're power we're powering these important use cases for capital management. Thank you all for your time today and I hope uh hope the Knicks win tonight. Y'all take care.