DeFi By Design EP#23: The History Of Money

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich what's going on guys real quick break for the d5 by design podcast sponsors and a defy slate sponsors who make this all possible first we have ave a money market protocol that allows you to borrow and lend and leverage your assets to earn interest uh right so if you want to deposit some stable coins in there currently you can get three four five six eight percent apys on stable coins which else any bank in the world uh as far as we're concerned you can deposit uh any uh ethereum based asset that is listed there borrow against it you can borrow stable coins you can borrow other assets like ether wi-fi link even the ave token itself ave is

the go-to protocol for any sort of borrowing lending check it out at app.com the next one we have is access auxis is a new crypto wallet auxis.com you can store all of your crypto there they have quite a few options uh they're integrating new dex features soon um and allow you to have a non-custodial way to store your crypto safely off of centralized exchanges and also just not in a meta mask or in your own ledger a bit of extra security there next we have mcdex mcdex is a decentralized perpetual swap protocol basically allowing you to trade on leverage uh on the ethereum chain right they're coming out with v3 very soon at that time you're listening this might already be out they are super solid team um and they're pumping updates and

allowing you to trade decentralized perpetual swaps on eth link and a few others all on ethereum all decentralized so that is mcdex next video ramify ramify is a decentralized stablecoin it's an algorithmic stablecoin that is pegged to the purchasing power of commodities and then basically it measures what value one dollar buys in terms of a commodity index each week and then it provides you with essentially a store value that allows you to continuously evade inflation while maintaining you know a stable aspect as if it was a dollar and that is the ramify protocol check them out on twitter finally we have diversify it is an l2 decentralized exchange they allow you to basically trade in a gasless and feedless manner

big volumes whatever quantities you need it's almost like a centralized exchange on ethereum but you are the custodian they do not hold your coins as a centralized exchange would you have full control full power so really it's almost like centralized exchange capabilities on a decentralized exchange and that is diversified all those sponsors make this possible i know it's a lot to take in but thank you very much for listening and let's get back to it up guys episode 24 of the d5 by design podcast here today we almost a quarter away to 100 baby we are making progress uh it's been a good six eight months uh with robbie and the guys here and you know we've been learning a lot uh today

we are bringing you another episode that's going to be strongly focused on the lending and borrowing markets and the interest rates and kind of how the building blocks of diva are coming together uh to you know to offer people a favorable rate in the times of low yield in the world really interesting stuff going on on a macro scale as well we've got joe biden has came into office today for the united states um really interesting i saw a tweet that said donald trump left them a double decker on the estate toilet uh that's always a good one and uh yeah other than that we've got some interesting stuff going on in the stock market uh crypto markets are doing well and yeah we're here today so i'm with robbie as usual

robbie what's going on good morning andy what is up what is up it's another beautiful sunny day i mean the weather's just i i couldn't ask for better so i'm hyped i'm excited i'm happy feeling good um yeah and these are some of my favorite episodes uh we have smart credit on today martin from smart credit and uh we're gonna we're gonna talk a lot more about what smart credit does but to introduce the the concept it's a bridge between centralized finance and decentralized finance and we talked a lot about decentralization and these different protocols and applications but really par part of what is driving this mass adoption is building bridges between the two sectors of finance decentralized and

centralized so you know we're not here to burn bridges and and start revolutions we're here to build bridges uh and help you know make this world a better place so you know i'm excited to hear about how smart credit does that uh martin how you doing today man hey guys we're very happy to be here to include so great stuff so looking forward to the conversation nice nice nice um yeah i mean real quick how do you feel about the decentralized versus the centralized bridge that we just i mean robbie just brought it up and now just got me thinking like you know would you say you're more in like the revolutionary camp of like you know burn all traditional things and replace or do you find yourself to be kind of more in the let's work together and kind of

collaborate you know and if we both have to give up certain things on each end then so be it like which camp do you find yourself in martin okay i will define a truth camp and i will say this campus give people a choice it's about people having a choice because at the moment people don't have a choice they are stuck in a traditional fiat fiat financial world that's everything they have and most of people okay only the ones who are working the banks maybe they have to know how the fiat word actually is working now most of people don't know it now decentral when we're creating a decentral actually offering the people a choice they can have a choice do they want to be in a part of this manipulated fiat financial system or they want to part of a t5 of t

central system so it's um and what i think what will happen is uh like just this let's call it the traditional finance um it starts to go slowly down the t center finances going up and this is something similar because like it happens in traditional banks look traditional banks when they introduced online banking only the youngest people they started to use the online banking the elderly generations didn't use it i worked for credit first like a credit suisse sprout banking 10 years now the average age of a graded swiss client is a 55 years average age 55 years no and these 55 years old people they probably don't start to use

diva they start to keep using uh speaking with the relationship managers and do the online banking but the younger generations they will take over so it will be coexistence but it's as well as keeping giving a choice to the people that people can choose in which assets in which underlying assets they want to keep the wealth they don't want to keep it and so manipulated assets do they want to keep it in a less manipulatable assets it's all about the choice it's about monetary competition because at the moment we don't have monetary competition this is like a soviet union 2-0 where everything is written to the people what they have to do people think that living on democracy in a free world no it's not if the monetary system is

defined if there is no choice it's not a real democracy it's not a real capitalist it is a little bit like a soviet union to zero yeah it's a i mean the choice is super important um i mean that was one of the big topics that we spoke about with a uh a dude whose name's joseph weinberg yeah he was in bitcoin quite early into the mining scene kind of he's kind of got his hands in trying to basically bring d5 to uh traditional world and whatnot and i mean we speak about these manipulated uh concepts of markets i mean they exist in both you know but ultimately that choice is important and and yeah you're kind of right i never really thought about the monetary competition i mean that's something that has never existed really um i mean we've always had a certain

standard i mean obviously each nation has um you know in an economic sense their own currency so those those currencies compete and trade against each other on the forex markets but the idea of basically a race to create the soundest money that can facilitate worldwide and i don't want to sound like a speakeasy but abundance it's been an insane challenge and yeah i mean that's kind of what we're seeing here rob what do you think yeah andy i think you bring up a good point about um the the fiat currencies you know not having any source of monetary competition aside from the political side of things where you know it's essentially a tool for some countries to gain power over others

america happens to be winning that competition at the moment because it's a reserve currency um you know it's really at the base of all all the other nations currencies you know that that could have been said for hey rob real quick i want to keep you on that point so going off that and youtube martin is the solution i mean or what we could prescribe to be a solution is it one global currency like is that bitcoin is that like what we're thinking well well here i'll go ahead and finish that thought like you know now there there's some people around the world that don't really have a horse in the political race you know that there's an internet economy booming there's people moving and don't really stay in one place at one time

which is why bitcoin has gotten so much intention as the currency of the internet so in terms of a solution i'd really like to hear what martin thinks on this you know is it one global reserve currency or is it you know different currencies that kind of are used for different things oh okay let us trace a little bit back because what we are saying history is always repeating it's always repeating now we are now 100 years in a very strict uh like a central banking era let's look how the finance worked before central banking okay we know there was a us a free banking car there's something similar existed in europe now and it was a cold standard now but it's very important in a gold standard and all that central bankers today

by play proficient they complain always about column standard gold standard because they're getting paid to say gold standard is bad no i'm saying gold standard was perfect it was perfect for the people it was perfect for the middle class that's where the middle class was created cold standard was voluntarily every nation choose to join or not to choose every nation called abundant gold standard and the cold was the reserve currency between the states no of course now they are starting to go this people start to say it's not effective to transport coal from let's say from berlin to the new york but that's not the case the state escaped called in the walls and the walls were in new york and this was just moving called from one world to another and the call stand at the big advantage

it was if the government started to spend too much okay name a government which is spending too little at the moment we don't know it so all governments are taking depths but if you're taking depths your interest is automatically going up your economy is cooling down so because you have to finance it you cannot create a new reserve currency and the reserve currency between the state it was a gold now if someone some country uh happened to live too excessive life then but it means they had to finance it they had to finance it with the gold the gold was flowing away so from the countries so it's it's not like the system now where we can only we have unlimited reserve current secretion

so this was the gold standard and this gold standard we know it got destroyed it got destroyed after the first fall 1933 then it got stopped and the second war and then 1944 it was then completely over and then the remnants of this were 1971 and then the last country the last country in the world who still kept some elements of a gold standard it was switzerland and they left 1992 when they became a member of the united nations which was a very big mistake in my eyes so uh so marlies can we can we talk a little bit about why some of these countries left the gold standard um something in in my eyes now is it has to do something with oil um in the in the middle east and america

trying to get as much of it as possible you know at the root and i'm sure switzerland and some of these other countries left the gold standard for other reasons you know maybe for similarly they were trying to accumulate commodities could you could you explain that a little bit more from your perspective okay no not necessarily the key okay let's look at the events that happened till 1913 it was a cold standard with like a 51 states but i think 80 percent of our global economy was based on a gold standard until 1913. we know federal reserve was created and federal reserve got all the rights now but at central banks were created as well in other regions they got as well as many rights to create the money and so it's about the central banks didn't like the gold standard

so this is one of the things now 1933 then the cold got abolished in u.s just that everyone knows it the land of democracy owning gold med you go for two years to the jail if you don't report it or you give it away throughout the land of democracy gold means jail until 1971. so why because uh after in the first war there was so huge and depth was created and that was finished the first why did the first war lasted so long it was because of the federal reserve the federal reserve kept buying u.s stepped u.s government that u.s government debt was used to build new weapons

these new weapons were sent to the front if the monetary system during the first war would have been gold standard the war would have lasted maybe one year both sides would have exhausted they will have a little piece and everything would have continued this new monetary system this federal reserve system allowed this extra orbit and debt already that time in the u.s and the war could continue for four years instead of to have stopped within one year before and in 1933 of course then the result was the gold flows and the court was the u.s kung and u.s treasury couldn't keep the cold anymore on this price as it was officially i think it was 125

like 1 ounce 25 because dollar was a measure of it was unit it was a dollar meant it it was a weight so the dollar was was not monetary unit it was a measure of unit for the gold and because so excessive debt creation was happened with what is the new central bank central banking policy alert is a massive government debt crash already that time no no no we are even factors factors factors factors more of this they call standard wasn't sustainable because gold standard means every person can identify there is inflation gold standard is an enemy and a bitcoin we call standard enemy of a central banking because you

see there is an inflation let me say about inflation now you look look at the statistics you think inflation is small now in the europe or in switzerland so no it's not the inflation statistics have been changed the real inflation is the monetary inflation you take this so-called m3 that monitor aggregate the third aggregate and you look how much is this growing and i think in u.s it was going to last 12 months 25 now inflation will hit with the delay 12 months 18 months it will hit so it is is coming so it's a inflation is a ratio of total money divided with the goods in the society if total money is growing the price is going up it's just mathematics you cannot change

it now the inflation calculate how it's calculated it was changed it was changed in a clinton era in u.s and after that it was used in all europe the same approach because they said oh oh personal pension funds they are indexed by the inflation let's be creative let's get inflation down and if inflation is down we have to pay less pensions wow we are good we are very creative that's what he did and the same system got moved over to the europe as well of course the european governments like this new like a clinton modified inflation calculation very much too and this is a website shadowstats.com if you go there you see pre-clan pre-clinton calculation of the inflation in u.s and you see a current

calculation the cap is like six seven eight percent so but this is every year and this is what the current monetary policy is taking de facto the money is taken away from central class i'm sorry for middle class who even doesn't know that money is taken away from them they even don't know it because they believe the inflation numbers right and i mean speaking on to what's happening now i mean yeah this year has seen definitely an unprecedented amount of of creation of just just endless money is what it seemed um you know i know a lot of people who are who are working online who are investing in stocks or crypto a lot of people are having extremely good years in terms of like how much money that they're making

but what i've been trying to think for myself and explaining to others and what i've been thinking is like you know you have to think about if you're doing this well then how many other people who are much smarter than you and have more money are doing even better right so then at what point is your you know 100 000 a year or a hundred thousand dollar month or you know even ten thousand dollar a year is like how much is that really in terms of purchasing power right so we're getting to a really interesting point here where it's like okay a lot of people who are invested in risk assets are making a lot of money and obviously there's people who are not who aren't and and so as you said like that gap is kind of widening more now i'd like to kind of shift away from

like the social and the monetary theory kind of concept and kind of talk more real on how this is happening right now um and the one thing that i would like to start with is how um have we seen the interest rates and the yields in the world um that are offered through through either uh treasury bonds in the u.s or mortgages right um loans from banks right so how have we seen those things change over the last six to 12 months obviously interest rates have gone to zero but what does that really mean for those who are listening martin what does it mean when interest rates have gone to zero what does that do to yields to mortgages to loans from the banks for small businesses etc

yes and this is as well but people look now the interest interest rate is going to the zero but now the big question is is interest rate going to the zero as well for small medium enterprises the answer is no not at all it's growing and now let's think what is the economy what is the gdp eighty percent of gdp is created by the smes indirectly 20 percent is created by the corporations corporations are destroying workplaces smes are creating workplaces so corporations are optimizing and they get a very low interest rates the smes are getting very high interest rate is not getting at all because where is one thing is of course if you look on the fair interest rate

yes okay mortgages other things the index and this but let's think real economy the smes now why is the sme interest rate so high real quick for those who are listening what is an sme martin small medium enterprises eighty percent of economy so eighty percent of employers okay they are the smes so okay now small medium enterprises like shops here shops there local shops non-corporations now because there are regulations basel three regulations no and the puzzle three regulations are saying if every company you're doing lending needs are credit rating now corporations have credit ratings they are critical agencies to give them credit ratings

and if your company has a credit rating like corporations have them then you have to put okay charmander stella lost provisions here okay it's the so-called rva risk weighted a risk weight if assets capital budget you have to use a very low uh budget for this if the company has a risk rating smes do not have risk ratings they do not have this no companies were giving sme risk ratings now this means when banks are lending to the smes they have to put down much more of the risk weighted asset capital this rva capital rea budget which means to compensate this they will put the interest rate for the smes 15 percent higher just to compensate this rva loss so and this is what people don't understand like this is everything

it's triggered but there's regulation and this regulation so indirectly in the so-called free economy is the regulation which is saying if you're a cooperation you have preferred conditions to borrow and lend as a corporation as soon as you're on a smaller company you don't have them so all this free money yes it's consolidating into the corporations it's consolidating in the financial speculation it's not getting into the real economy let's think real economist is 80 smes who are right so and it's not getting there yes the interest rates are low because it has this impact on the mortgages and so but does it what is the impact on the real economy

yeah exactly it doesn't exist right so because of the favorable conditions if you will for the larger corporations etc right so the the opportunities to earn yield on a bank account per se uh in terms of savings for the average joe is now extremely low right i mean in europe there's like there's a negative interest rate in the states it's zero right everywhere is getting to that point the traditional like route of savings is no longer you know uh applicable in my opinion so talk about how that kind of drove you if you will into a smart credit and kind of what that kind of builds and and how that provides an opportunity now and just to comment on this one yes the people are in europe there are

negative interest rates in some states in some will be soon negative interest rates but let's think the real inflation in europe is the same as in the u.s it's six eight percent it's the real inflation calculated by pre-clinton formula after clinton formula we're getting this one percent zero five percent answer so the factor people are losing pension funds they're losing just every year six seven eight percent year by year so and okay german work and ignorant that's how your wealth is stolen from you so and and now this is this is the monetary system and we started today we started to speak about the choice i worked 10 years for credit suisse proud banking so and my hobby are the monetary systems

and the credit systems and the trigger was the layman crisis because after lehman crisis i started thinking what did happen there what was the trigger i started to study so much monetary systems credit systems me and my twin brother and and then through this we got as well into bitcoin we look like okay this is an alternative with all these characteristics but we kept still working in a credit suisse but luckily when we could leave the credit switch so we created a smart credit we said okay that time we spoke about decentral autonomous banks the idea is to use the alternate to create alternative financial systems which are not having this this traditional well paramite effects

benefit it doesn't matter how much you work in your life you will not inherit in anything to your children because the system is not designed for you the system is designed for someone else not for you so yeah and you can and you mentioned at the onset of this podcast the uh manipulative uh nature of central banks and you know how they're essentially just toying with that mathematical formula nothing happened to the inflation rate it sounds like it's essentially stayed consistent for the last 50 80 years but you know once people realized and kind of found out what the central banks were doing and inflation was very high and and so high that it was harmful they didn't do anything about the underlying

you know inflation that was going on and and inflating the monetary system no it's just the measure of inflation um and changing that so that it looked a little bit more attractive they faked the inflation calculation so that um 80 percent of people think oh the world is perfect inflation is just one or two percent now let's think on central banks central banks are setting the target u.s federal reserve there has to be two percent inflation per year now can you can someone explain me please i have four master degrees please someone explain me why should my wealth lose two percent every year well so that so the argument against you know er or i guess for inflation is you want some positive inflation so that

people are incentivized to put their money to good use exactly exactly but now let's go back let's go back in the free banking area let's go come back into into cold cold era the pre pre-feda reserve that was an area of a deflation because the humans by nature optimizing they are innovative every year through the innovation you are creating a cane two or three percent so that means every year just if the economy is running with a normal innovation there will be two three percent wealth creation uh like by by innovation the commodities are becoming cheaper no just you know innovating new products innovating new technologies innovating new processes the human creativity innovation and you talked about the the

cost of goods essentially right and and if we consider that the denominator right and you have the monetary m3 on top to have some healthy inflation it doesn't take inflating the numerator and having monetary system go up it could just be deflating the denominator right cost of goods can go down by way of innovation and scientific improvement cost of goods gets cheaper and monetary uh you know m3 at the top is actually seeing some healthy inflation even though the number isn't growing the ratio is okay i will go one step further i will go back i will go into the free banking area but that means brief with our reserve area the cost of goods went down

and everyone who had some money meaning gold got richer every year every retired person okay there were no retired persons that time but everyone was saving caught richer every year so because the cost of goods it uh it went down so and that was the era when the middle class was created the middle class was not created in after fade era miller class in u.s was created in a pre-fed deflationary era deflation was the system where the middle class was created and and we got sidelined from the uh your entrance into smart credit but but kind of more pertaining to andy's question um you know now in the current scheme of things interest rates are very low we

talked about how that's not really the case for smes the small medium enterprises um but you know it still is at the root of lending and borrowing the this peer-to-peer nature of things that you know essentially is underlying every transaction um can you talk a little bit more about smart credit your entrance into smart credit and and kind of how you guys are improving lending and borrowing for for the individual okay very simple in one sentence we are doing the same how the world worked for 4 700 years that's all because if you look on the credit systems the credit systems are 5000 years old they credit money now we have

centralized credit money the decentral credit money is 5000 years old for mesa damage to credit transactions for four thousand something years still is centrally 4700 years till this centralization started via the banks it was decentral the well the renaissance in europe it was decent for credit money system it wasn't central credit money system people are speaking of the middle middle age in europe as the dark ages i'm saying always well yeah well just the era of renaissance it was the era of hansa era of mediterranean trading network here of islamic trading network it was era of massive economic development let's think so it was decentral credit money not government money

decentral credit money it was sound money as a basis gold silver always double to have a choice and monetary competition and the decentral credit money on top of this what we are doing in a small credit we are saying hey these decentral systems they existed so long let's reactivate them the pendulum which went on the centralization of the monetary systems centralization of the commercial banks this pendulum will go back because the question is why did this centralization happen it happened because the transaction costs it got cheaper to the scale effect to create big companies who were dealing with the credit business but now we have a blockchain and thanks to the blockchain okay of

course we have to fix the gas cost in ethereum that's the other topic but they will be fixed it will take some time it will be fixed but the transaction cost of cost of doing like a transactions thanks to the blockchain it's going lower and there is no need to have any more of these big centralized credit organizations giving credit we are getting back to the same mode as the humanity existed for 4 700 years decentral credit systems decentral monetary systems decentral financial systems because this real quick how does smart credit kind of fit in there are you looking to basically provide people an opportunity to lend and borrow

right with their funds what is smart credit allowing folks to do who are in this situation smart credit very good okay the smart credit what we are okay first we started to create the credit money okay like you know there's a basement there's a credit money to create the credit money we develop the lending and borrowing and then we realize people don't understand yet they don't understand yet what the credit money means you say no problem and we focus poorly on the borrowing and lending and you are focusing on the fixed income funds now if you're taking traditional finance in traditional finance okay you have money market funds but they're very small piece most of the fixed income is a fixed income funds now you look at the t5 money market fund everywhere yeah but

there's no fixed income there's like barely any there's like two yeah yeah mile per hour mph's 88 mile an hour is definitely one but other than that it's tough to think of one okay i'm sorry i have to challenge you at this 88 mile per hour is a trading strategy it's not fixed income sorry it's a trading strategy which is a trading strategy is something different fixed income is a traditional economy low low risk business you're borrowing you're lending there's a collateral nth is doing a little trading algorithm he's converting variable interest into the fixed interest with a little formula so well it's going into category

trading so they offer a fixed rate but they're not fixed interest rate sure the world came fixed rate versus fixed interest rates so we offer fixed interest rate and fixed term so and as a fixed in conference so far we are the only ones so and and we are saying like hey t5 look you have noticed absolute absolute flexibility i can put my liquidity into one protocol in 10 minutes to take it available to the next next next okay cool i have absolute flexibility now let's reduce the flexibility let's give the people more stability like a stable interest rate so let's trade stability let's prefer stability to flexibility and in a traditional

economy people prefer stability to the flexibility it's better to know what you earn in one year instead of moving your funds between 10 different money market funds so and we say fixed income fixed income funds and this is where we focus in a small credit that's what we want to add of course and we want to add as well other things we have a credit risk calculation so we are calculating like we're doing risco like uh okay it's optional so we're doing these things then thanks to this fixed term approach then thanks to this um then of course it's just mathematics we can offer a lower collateral to the borrowers

because if you have unlimited probing time in a money market funds you need a lot of collateral because you don't know how long this alone is running just by fixing the loan term you know already you make a little mathematics you calculate your probabilities and you could be a cfa chanted financial analyst just the easy calculation so to calculate these things please you know the long term another thing yeah another thing rob is

uh dude when the when there's a massive farm um like i mean which is like it's this is probably started to slow down but when there's like a huge farm opportunity or there's a big need for one stable coin the uh the borrow rate just goes through the roof on ave or compound so you'll see sometimes the bar rates 30 40 60 percent and then it'll be back down to eight percent but so like that's just one thing as a borrower of stable coins you you have to be aware of on you know not a fixed platform right and it sounds like the variable interest rates are much more sensitive to supply and dem dynamics you know just like you said when demand for that stable coin goes way up because people you know i guess want leverage in that

case to buy more crypto they're they're gonna see a much more inflated borrowing apy the other thing that i had on mine was um there there has to be a kyc process right if you're going to force people to i mean it's not even a force you know they choose to go into this agreement willingly but if they're going to decide to pay back a loan in a certain amount of time you know there has to be some way to basically come after that person if they're not going to pay back their loan is that the case with smart credit okay let's go in the risk management framework you know smart credits and now we we are over collateralized

but we are less over collateralized than the famous money market funds just the long term is giving us the advantage now if you are speaking of the kyc it's um let me make a little uh circle now into the peer-to-peer lending if you're looking at all the peer-to-peer landing in a fiat world this is unsecuritized lending lending club all of them it's unsecurities lending and so you're looking landing club interest rates or depending on the risk for a to f so you have like 10 to 20 25 like in u.s dollar so things but the difference is there that in these systems if you are not paying as a borrower there is a way to give you in the court process now and that's a standard approach and this approach is exclusive for fighters

and years that's that's what you need for credit systems you need a contract law you need a court and you need a people to make a deals you don't need actual government you need just a court to enforce [Music] the contracts now if you want to get to the other collateral under collateralized loans in a different in the same way as with snow in auto peer to peer fiat landing landing club and all the others so the same issue needs to be fixed we have to get this possibility legally enforceable contracts now but we have researched this topic a lot but to get to these things there is a challenge take a typical european court go to them and tell them about the blockchain and

he used his private key to sign a transaction i think they lost you in the second sentence already so but this is a challenge to get to the real to get a very massive uh peer-to-peer systems we need as well code framework legal framework this will allow very high local local this will allow the same as peer-to-peer systems doing the fiat yeah maybe you can expand a little bit more on uh the decentralized credit score um maybe it's not completely decentralized but you know how smart credit plans on offering that credit score to its creditors um and then kind of what the path is to get to

um a legally binding smart contract where where it can be legally enforced you know in reality and not just on the blockchain okay let's take credit score until legally finding smart contracts okay the credits go all traditional credit systems all traditional finance it is based on credit scores now if you're looking on the t5 there's no credit score there's just this enough collateral and that's the best credit risk management system now the the real credit credit risk management system still like a nets you set a different amount a different net around us but the first net is not uh touching the second net fail catch the third net will catch the fourth network serve multiple elements in the same framework now but what we

are doing the credit risk scoring is then one of all elements of a risk management okay we have collateralization we have lost provision fund okay we have fixed fixed loan terms and the credit risk so in the criticism we say this is optional we say if someone wants to stay fully anonymous please stay anonymous you just have a little bit more collateral and you pay more interest choose or you can monetize your data now how this data monetization happens there are three elements that we are doing i think we are the only ones who are doing this we see that two or three other companies who are trying to do this but actually we are only the only one who is doing this three three elements the first is blockchain

analytics so we just look the inflows outflows assets like it's the same that the banks are doing the banks are looking like um the same on on your banking code how many assets are coming in how many assets are going out what is the cap monthly cup this is and this uh this gives you we call it capability to borrow so what is your capability to borrow now the second parameter is very important it's a willingness to pay so you can have money but maybe you decide to cheat the system because there is no enforcement willingness to pay how much you play by pay by the rules and these elements we are using some social graph we do this based on a social media it's

optional user can open it up or he cannot open it up it's his choice it's his choice to monetize his data or not to monitor this data and the third element is a little psychometric test that's again his choice to do this or not to do it if he does he can improve his credit rating and then if you unplug these elements together we get a credit score and we give it as a relative credit score so it's always relative to the it's not like a fico score that's an absolute score it's relative to the population to the others so that we can rank we can rank people relative to the users and this gives a credit score and then of course the interest is that people with a good willingness to pay this is this important parameter

and the good capability to pay that we have more of them and the other people very good they can go to money market funds they can use the other things but yes we think what will happen is that fifa will get much more credit score because it's not about d5 we say it's about t central autonomous bank we spoke about decentral autonomous bank and then andres and uh these um companies they came and started to apprentice d5 said okay guys let's use the d5 words it's okay it's shorter than decent router knows bank so let's use it tifa but the idea is that these things what we see you know in these are autonomous banks

but these things that existed 500 years ago we are getting genuine decentral finance in the t5 sure and one of them is a credit score and like say there are no i think four companies um like we are live veto product but but we don't offer this at the moment to anyone else we just keep it as our competitive advantage and the three companies would try to kind of to create products as well and these things so at least we know three of them are cool nice yeah no that's a that's an awesome feature i mean it's going to be super important as you're saying it it'll be interesting to see if we can like delegate credit scores and reputational um aspects to certain ethereum wallets

basically you know not not having to like do it by name or by email or by but just by buy this wallet like hey you know if this wallet comes in interacts with with your protocol here's their reputational score here's their credit that that'd be really interesting and that kind of takes me to the next point that robbie asked which is you know how do we take that relationship of uh of reputation and credit on chain you know and kind of make it into like a legally binding agreement right for the credit score we see that two companies that are trying to calculate as well credit score only based on the blockchain analytics we do this blockchain analytics but we say it's not enough because it's credit score is not only your history of payments credit scores as well your behavioral how do you act

how how much do you respect the agreements what is your willingness to play by the rules like like this profile so we have both profiles so it's your history transactions and as well yours so it's a metric um social media metric classification so okay now legally enforceable contracts how to get that um it's um okay unfortunately this is it's pawn to the legislation so we did a lot of research on this on the initial and the smart credit we wanted to get to the legally enforceable contracts but the issue is so-called digital signatures and if you look on europe if you look in america the digital signatures meaning private

key signatures are not legal documents so this will be okay in estonia in some countries in europe they are but this is a minority now and it will be a very simple change in the law procedures to say like the private keys private key signed documents or as well legally binding documents so because at the moment you can go to the court you can say look this gentleman controls this private key is proved by this transaction that he transferred the collateral that means he controls the private key and he signed his loan contract but well the issue is you have to do this case by case you have to explain it like a two-week school process it costs money of course you will win but

you will pay ten thousand dollars to get a thousand dollars and just uh just a quick interruption i it is how is uh a private key signature different from you know i'm sure you've used like docusign right where you're you're signing something and it's online it's not like you're you're physically writing something you know but it is your your signature it's your your token representing your eyes exactly you know is there a pair of it's the lowest difference okay so i'll let you take it away you see where i'm going is there a okay so is there a blockchain analytics um functionality that can pair that just similar to like a docusign electronic signature

the tokusen electronic signature is in the law it's accepted by the law electronic signatures are accepted by the law as well in amazon if you are assigning a transaction not a signing transaction committing transaction this is accepted by the law no this is in the law but what is missing in the law whether like a bad signature electronic uh like a docusign signatures there but private key signature please deregulator instead of speaking the small medium enterprises don't have any money in europe just make a little change in the law say private key signature will ease legal contract and after this you can get so much new sme financing yeah

so much new consumer financing really financial renaissance because this allows you to go to this under collateralized lending like you don't need any big magic of delegation of risk so you're saying it's a legal document it's a court accepted contracting the same as a vet signature one little change in the laws but i bet this will not happen so fast yeah it's not so easy i mean ethereum and and d5 it goes it goes over borders so to have like regulation to you know it's just we're gonna be in this world where there's different regulatory ideas and bodies in terms

of nation states for a long time because obviously each nation state is gonna have to figure out how they're going to regulate the technology because the technology like we said it defies borders there is no there's no end like there's no end like you can't cut the technology off from your country so yeah what i'm saying is you know these regulations they're going to start in favorable nations as you said estonia perhaps even switzerland right more that the free world kind of ideological nations and then they'll kind of seep into the uh the more i'd say westernized if you will uh you know countries and you know states etc and and those you know even in asia as well yeah we are about out of time here so uh what should we wrap up here martin is there anything that

that we haven't wrapped up on and hit on as far as smart credit goes anything that you'd like the listeners to know okay in smart credit we are now working we are in internal testing of february we target february release we call it the release one one this will then add in the full fixed income functionality then after that is because but we have now in the production there's a fixed term loans or fixed interest loans there's loan tokenization there's a credit score everything is there so we are now on top of this fixed income fund so that we are the first one who is real doing real fixed income funds not fixed interest rate transformations so and then of course then there are four months later tennis tender release one two and we will keep this four month cycle

since we continuously will bring this new functionality the backlog is very long everything that existed 5000 years ago we will do it decentrally so yes we just need time and we need users yeah users is is huge i remember i think elon musk might tweeted this it was like you know the value of anyone's technology can just be seen by the amount of users i mean that's huge and i mean we've seen that blow up this year in d5 and ethereum and you know we hope that smart credit can uh continue to grow i mean it seems like they've got the right guy at the reins we will do it anyhow this is all philosophy because we say like like we people have to think this decentral finance is not now the

thing of last two three years that's how the humanity existed before the banks were created and this was a very effective system very transparent system and now we have blockchain let's get back there let's get back to the rules we are not inventing something new we're just copy pasting that existed yeah and a quote i heard a while ago but i i've tried to you know incorporate it into my philosophy a little bit more is you always hear about um you want to learn from your mistakes you know and you know i think that's a very important sentiment but it's just as important to learn from the successes over the years you want to you know repeat what's good in history but you don't want to repeat what's bad

so it sounds like you guys are you know you have that right in the mind and you're looking at what has been right in monetary policy going back the last five thousand years and trying to incorporate it with the new innovative technology at our fingertips now that's it that's it that's it right there awesome that's so true i mean that's exactly what smartcard is working on that's what that's what dfi is trying to do and i mean ultimately it becomes a whole new world and it'll be exciting to see over next 5 10 years 20 years 30 years hundreds of years and yeah hey martin we appreciate you making time for this us as well we're glad that we can make this happen um and thanks for coming on thank you guys very nice very nice to speak here

yes sir yeah this is super thank you martin thank you all right nice thanks for listening to the d5i design podcast until next time defy slate team you