Can a Hacked Issuer Silently Drain Canton Assets?

Transcript

Yeah, I actually So, why don't we go into that part because like So, you know, I am not a technical person as most people know, but from what I could tell of what I read, it did seem like Alex's point earlier about how the point of Canton is more around messaging was um was valid. And you know, it wasn't totally clear to me. So, like and and you know, maybe this could apply to literally any RWA on any chain. I'm not sure. But it's sort of like if Canton were to break or any chain that's holding or that's, you know, processing transactions for an RWA, then what does that mean for that asset? Like does it not really affect the asset because

there's simply another sort of backup system that can handle So, let me let me try to let me try to to to frame the question. The it's not about the asset. It's about enforcing financial rules without a trust trusted third party. This is what Bitcoin white paper was about. This is what Ethereum is about. This is what all the public blockchains, what blockchain technology in general offers. This is what institutions also look up to blockchains when they embrace this technology. You know, if you are if you still depend on some trusted mediators or or trusted third parties to enforce certain properties, it's not a blockchain. It's it's just messaging maybe cryptographically

facilitated messaging between multiple parties. Maybe it's something like a DocuSign for tokens. When when all parties agree, they can see their their state like whatever we like we mutually agreed on, they approve this, it goes forward. What blockchains enable beyond this bilateral relations is enforcement of financial rules in aggregate across like for smart contracts that encompass multiple parties which can be permissionlessly joined.

And this are, you know, it it goes from simple use cases like enforcing a token cap to some more really interesting and and exciting topics like liquidity pools, DeFi, um margins, automated margin liquidations, and collateral management. All of that is not possible on Canton without a trusted third party, which you completely depend on in basically this one of one multi-sig security. So, wait. Hold on. Hold on. Hold on.

So, Alex, it seems very intuitive that like anytime you have a centralized issue where you are trusting a third party, right? Like there's there's no universe in which you have issues on the >> but but in Canton, you only depend on them. Like in in in Canton, there is no way to enforce the rules by consensus by the entire network the way that Bitcoin and Ethereum >> times did I tell you to go and look at CBTC, which is a decentralized asset on Canton? I mean, maybe you should go and look at it and come back and revise your statement. Second of all, um it's kind of it's kind of odd, I have to say, to sit and listen um to to this argument because again, a Providium relies solely on an operator

to write proofs for you. It's it's it's I'm I'm just trying to understand most of the things that happen of the hacks where an issuer-based asset, forget about Canton. The reason why these hacks have such a bad outcome is not because of the centralized issuer because if USDC or USDT were involved in a bad hack and the hacker wasn't smart and actually stayed on those centralized issued asset, guess what? Eventually, why why do people get so angry at Circle with the previous hack is because they didn't act fast enough to prevent from

the hacker from actually moving into permissionless assets. So, the issue is not with relying on a centralized issuer. Actually, we would have been happier, as we've seen a lot of the crypto space saying, if the centralized issuer were to intervene sooner rather than allowing actually these assets being traded and swapped into permissionless assets where then they can no longer interfere. So, again, on Canton, no different than any other public chain, the issuer is centralized in real world assets and they have different properties or

similar properties to what they would have on public permissionless chains. We have stopped the conversation earlier from explaining to me how if the issuer was not aware that they were hacked, similar to any other public chains, how you as a third-party observer of what seems to be the same type of activity that they do the same day all day long would actually prevent anything bad happening from again having these newly minted assets be swapped into a permissionless assets, which is what always happens when these hacks take place. So, again, I would say that at least on Canton, as a party to a transaction, nobody can upgrade the

smart contracts on you without your knowledge. You are the one verifying the transaction yourself. You're not relying on a third party doing a proof for you. Right? And again, we're we're going to go back in circles and and Laura, I I I have to say, if if you're not technical, I think that it's dangerous, especially with someone who has reached like you, to say, but it sounds right. I can tell you that if Canton goes down for Broadridge, it would have a systemic issue on running what today is close to $400 billion of repo and I would say that within the next 12 months we'll get closer to a trillion dollar worth, which

actually does have systemic implications on banks that need to meet liquidity threshold. Now, would would those banks and people like Broadridge consider alternative in the case that one of their liquidity pathways had an issue? Absolutely. But I will tell you that assets that have applications on Canton are no different and I would say in most cases are just as systemically critical and Canton is not just a messaging base. Again, I would say that any RWA, the actual asset is not the token. It's the asset that sits in a fund admin off-chain. Right?

That's that's the reason why people want some of these RWAs to intervene when there's a hack because no money's actually being stolen from Circle. The treasuries that they have are still at Bank of New York Mellon. The bank deposits are still at the banks. What actually happens is someone goes and takes a USDC that has been stolen and swaps it into Bitcoin or Ethereum and that's where the control is lost. So, it has nothing to do with real world assets that are being stolen and that's it. I mean, I just I just think that it's important to stay factual and not to say like if I'm not technical, but that sounds that sounds right. So, I want to ask you then just to explain

because some of the things that I read about Canton were that for the sync domains, they are in charge of message queue sequencing. They do timestamping for participant nodes. I also heard, I think you said earlier in the podcast and on other podcasts, that Canton does not do state. So, can you just >> No, I said on this podcast that we do state decentralized state management and I would say that every every blockchain uses messages. I mean, mempool are messages waiting literally in a memory pool before they get committed into a block. I mean, RPC messages. I mean, like we can just keep on going. There's messages everywhere the way that computers Let me let me maybe sharpen the question a little bit. So, it's I

think the charge that Alex is levying when he calls it a messaging system is not literally that okay, well, obviously all blockchains send messages. Um I think the claim is more that it's not load-bearing, right? So, uh normally when people think of USDC, it's like okay, if I get USDC, I know it's a bearer asset. I now have a claim on this dollar and it doesn't really matter what Circle says. Obviously, they can later freeze me or whatever, but barring that, this is mine and I have a claim to it. The claim, I think, and Alex, correct me if I'm wrong, when you say it's a quote-unquote messaging system, is that it's more like these are digital twins in the sense that okay, Broadridge has their own back end. They're recording who their counterparties are and who owns what in

these reverse repo transactions, but basically what's happening on Canton is just like a a replica of what's happening on their own system. Maybe it's faster, maybe it's easier to read, maybe it's easier for everyone to synchronize on, but it's not load-bearing in the same way that USDC is load-bearing. >> Haseeb, just just listen to what you just said. In your words, not mine. I can hold USDC stablecoin and it's a bearer asset granted that USDC doesn't freeze me. I mean, you yourself said it. So, it's not a bearer asset.

Like I mean, there's there's it's a spectrum, right? It's a spectrum, right? There's there's a it's a bearer asset unless I I I think this entire like this like Yoval, thank you for answering the question, but your answer is not the question I asked. I asked you about the enforcement. Again, I'm going to come back to the to the original idea of blockchains. Blockchains is something that enforce that those are systems that enforce financial rules without reliance on third trusted third parties. And Canton cannot ensure this. So when when when like for bilateral agreements, sure, we don't have a trusted third party. We just we we sign messages between >> party. I mean, I don't know how many times I'm going to repeat the same thing and you're going to keep on ignoring it.

You could have an asset on Canton which has a decentralized party that's not a multi-sig. >> What does it have to do with asset? I'm not asking about the asset. All right. All right. I'm going to I'm going to put a kibosh on this thread because I I don't I don't think we're making progress. Um I want to come back to that >> I'm just going to say that we had this conversation with your co-founder, uh Shaul, and Shaul confirmed this. He admitted it in the in the public thread with me that yes, Canton cannot do this. Canton cannot do anything Canton cannot enforce aggregate >> to I'm going to I'm going to actually cut this thread. Actually cutting this thread. Um I I want to come back to this point, Yuval, cuz I think it's a very interesting one. Uh you claim that like

well, um is it not also true for USDC? Like is there really a difference here between um what what I'm describing with USDC and what maybe is the is the trust model on something like Canton? Um I'd like to I'd like to hear um Alec, your your reaction to that to that point. Um do you think there's a difference between an asset on Canton and something like USDC? Um that's an RWA on Ethereum. I think everybody agrees that this is the canonical model for a permissionless, quote unquote, RWA. Uh but to Yuval's point, like Circle can decide to delete your coins at any time. And in fact, people are calling for USDC to delete people's coins. So, what exactly is the differ- Is there a real difference worth noting here or is it purely a cosmetic one?

Uh so, uh let me describe what's possible on Ethereum. I don't know if Circle specifically follows this, but what's possible on Ethereum that is not possible on Canton. Okay? So, on Ethereum, you can set limits. You can you can create a smart contract. And you you you can make it upgradeable with uh the cold keys that you called and hold in the cold storage by Circle with the multi-sig, whatever. And this smart contract enforces limits. So, it says like sure, the service can mint some amount of tokens up till, you know, 1 million per day.

And they beyond this point, it requires manual confirmation by people. Right? You can do this on Ethereum. I don't know if Circle does this, but you can do this. You cannot do this on Canton. On Canton, your asset can be compromised up to 100% of the asset by compromising a single server. That's my point. >> Okay. Well, let's assume for the sake of argument that Circle does not do that. Let's assume that Circle just has mint function and it can mint as many as they want. >> Then then then no difference. Then no difference. I'm talking about the ability of If the if Circle just does the like, you know, they have a mint function and it's controlled by a single hot signing key, sure. Like the the the only difference will be that it's going to be immediately publicly visible to everyone that Circle supply all of a sudden

jumped like 100%. On Canton, it's not going to be visible. It's going to propagate silently through the system. That would be the only difference. >> Listen, Alex, because this really at this this level at this at this point in time, I would literally say if you literally just can actually um go and open an account on Twitter, you could hack all of Providiums. You keep on just propagating this lie and I keep on trying to say to you you could have a decentralized party and you can keep on just propagating this lie on a live on a live show and we're just going to technically prove you wrong and you're just going to keep on propagating a lie which is not very good for someone like yourself to do. And I'm just telling you that we're going to make some proofs on

Providium on what you can do with Providiums and I think that it's not going to look good for you. So, you could keep on making this claim and I'm just trying to tell you, let's just go under your assumption that an issuer got hacked, whether it's a single server and a multiple server. And I'm going to make the claim that we cannot prove in this call, neither you or me, and I'm actually recommending that you stop making the same claim even though I'm telling you that you're wrong, that let's say an issuer have been hacked. Period. End of subject, whether it was a single server or multiple servers. And just answer Haseeb's question.

That happened. What can you do on Canton or what can you not do on Canton? What protections do you lose on Canton that you get from any other chain? You don't you on Canton, you rely solely on the on the multi-sig. On Ethereum, you rely on smart contracts that are enforced by the network. This is the difference. So, you know, on Ethereum, you can construct smart contracts that are going beyond the multi-sig. On Canton, you can't. Explain to me like a smart contract that will say you can't mint more than a million dollars at a time.

Exactly. And beyond that threshold, it will require a different set of keys. >> You can't on you cannot do that. You cannot do that because it's going to be enforced by the submitted transaction by the issuer or or by the complicit uh party with the issuer. And in Daml, uh you know, the mediator will not see it. They will just count votes. They will just That's not true. count votes. It's just not true. It's just absolutely not true. You could have for minting all of the protections that you said that even if a signature by the issuer would not be able to Again, all of the parties that are participating are the ones validating the smart contract. You would actually have to change the smart

contract first and to say now I can actually mint a different smart contract. That's it. It's just You're just You're just spewing falsehoods here without actually doing your >> enforce aggregate properties of your asset and this is what your co-founder confirmed. So, you cannot do like uh I guess we'll have to take it after the uh the debate and we'll we'll just provide our POC and you will provide your POC. But in Canton, you rely on hot servers and this is basically what happened yesterday with uh with LayerZero. You you you can't enforce the uh the like the network cannot enforce the rules. The rules are always enfor- enforced between a small set of a finite set of participants. You cannot have an

open contract that everyone can verify uh that that does not rely on the If I were to tell you a decentralized party and you're going to keep on ignoring it and I'm going to keep on reminding it and Canton coin is literally an asset that invalidates your whole statement. So, to say that Canton can't have it is just ludicrous. It's really >> rely you rely on the multi-sig of the coin issuers. Like if you if you put more more uh uh servers into multi-sig, sure, you get it gets better. But it's still a multi-sig. It's not a uh decentralized enforcement.

>> You run a BFT across them. I I don't understand this whole point about a multi-sig. You're the the BFT is uh uh a consensus within them will authorize the transaction is the signature on the uh like on by the mediator. Mediator approves the transaction. Etherfi is giving Unchained listeners 15% cash back on ride shares, groceries, and restaurants right now, which honestly is kind of wild for a card like this. On top of that, I'm getting 3% cash back on every single transaction using my actual crypto. No conversion fees, no nonsense. My bank never once did that.

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