Low EU Interest Rates, Ethereum Settlement and Stablecoin Use Cases

Transcript

okay guys so first I wanted to ask have you taken any loans yourself personal either a credit card loan or mortgage loan or car loan so do you like do you remember what was the interest rate on the loan mortgage 1.8 mortgage 1.8 car loan nobody credit card loan okay so the thing is interest rates are in very low currently money market interest rates especially in Europe are really really low Federal Reserve just lowered

interest rate in the United States by 50 basis points that half a percent that's significant thing but still that's almost 2 percent higher than in Europe and I'm here to present a solution how we can capitalize on the low interest rates in and take these interest rates to the crypto world so basically there is a market called crypto lending is when you take your assets Bitcoin or etherium and you get a loan in something as a stable coin instead there are various use cases why people do this first they don't want to trigger their

tax event if you sell your crypto for fiat usually you trigger a tax event you have to file your tax forms and buy higher tax rate also people tend not to trust centralized exchanges central exchanges get hacked every other week months so so an idea to get a loan through a defy platform can help you do leverage trading you can borrow some stable coin and then redeploy that capital into the market without having a centralized counterparty exposure also pawnshops type of analogy where people just need some

term cash you hold crypt I don't want to lose ownership of it you don't want to sell it but you need some emergency you have you have some emergency some medical needs or a travel needs and then you go and borrow and that resulted in a significant rise of that market for the last couple years that market was not existent two years ago when we started creating a stable coin product but now it's valued around seven billion four balls the centralized and decentralized lending facilities and the centralized lending protocols like maker dao compound dy/dx total 1.3 1.4 billion right now and that's a significant

growth since last year now why the interest rates are so high in crypto markets because the interest rates and the traditional markets in dollar is around 2% in euro we know it's negative some people even pay to store money in the bank account so why can't we transfer those interest rates to a crypto we decompose the risks that arise from accessing this crypto lending market and addressed one by one if you studied finance you know that every interest rate on the market starts from risk-free rate so you can have your cash always deployed at the money market

rates at the risk-free rate usually it's the rate that government bonds pay or your bank deposit literally pays you but they in a sense take it from the government bonds rate so when you give your bank some money to put on a deposit they buy current bonds for you so that's called a risk-free rate and global mortgage rate is around 3% very low car car loans rates are around 5% why why they're so low relative to the crypto rate in the ball in in crypto markets and in mortgage markets in the car loan markets you have collateral with a platform that gives a loan instead of

Krypto is a novel collateralized loan so these are the loans that the safest one on the market when you have a credit card loan it's not collateral in some sense you may spend all of the loan the bank has given you and not pay him on time the bank on time and then the bank will have to haunt for you and take some assets from you liquidate them and pay for the law but in crypto the loans are given at almost three times that the collateral the parole provides almost three times the loan value so why the interest rates are so high then because it doesn't make sense relative to the other collateral markets so first there

is the risk-free rate like I said and in dollars it's already by two percent higher than in euro so using something like Euro backed stable coin makes a lot of sense because we can already lower the interest rate the risk-free interest rate by two percent then there is the credit risk of a platform that does this so the way we manage that we partnered with a big Auditor and I know it's not truly a defy kind of solution but this is the best you can get right now to attract institutional capital institutional capital things still in big counterparties and believes in them and when you do an audit of your platform by

a reputable auditor institutional capital tends to believe you have less risks so we did that and I think that lowered the interest rate already then the network risk we can't stop Internet we can't stop aetherium so that risk obviously remains if you think aetherium or Bitcoin can collapse overnight by 99% you should not touch this market you should not invest probably you shouldn't be here but I think everybody who operates in the dream space does not take this risk as significant we all we all kind of accept it so we cannot do anything about it it remains the regulatory uncertainty is something that we've been addressing over these three years and we were behind the digital

asset frame it was launched in Malta now France is following up on their agenda but basically there is a competition now among European Union states and we closely watch that and help regulators climb the learning curve in the digital asset regulation space then Fiat settlement hurdles this is really used to be and for some parts of the world continues to be a hurdle when you try to sell a Bitcoin or stable coin for Fiat what we have right now is a platform that allows to send your stable coin to several fiat settlement endpoints how we call them and you can exchange them to heroes for your Iban account in less

than a few hours you can try it for yourself if you download our wallet but there are several intermediaries whom you can sell a stable coin to and for 10 basis points 5 basis points depending on the size of the transaction you can get Fiat quiet fast and then there is the privacy issue and cyber security issue which most institutional investors still don't don't feel like comfortable with but companies like bid go for example rolled out a product for institutional's which allows to ensure the assets that are held with that custodian and that's really important because if your

institutional capital deploying some assets around the market you need somebody to blame if things go under when you're a small person small guy deploying your own capital you don't really care about custodians but when you're when you want to lower the interest rate for the market which is in billions already and you want institutions to commit millions and millions of dollars believe in you believe me you need somebody ensuring that custodianship and bid go supports your a stable coin and they ensure accounts of up to 100 million per institution now the market I think it's one of the most fast-growing markets in

the world right now crypto lending that will in total more than 16 billion this year because of the significant under penetration of this landing market if you look at the global world assets and world debt markets you see that the debt to assets ratio is much higher than in crypto markets and if if we just say that crypto stays at this price level say aetherium will continue to be price that we're about two hundred per per piece are in Bitcoin 10,000 per piece this lending market still has significant room for improvement because

of the drivers and the usages are outlined above think traditional markets Ellen mask for example he hasn't sold significant share of his stock but he financed all of his real estate and other investments by borrowing against his shares why because first he doesn't want to signal the market that he loses horn shape of the stock right he doesn't want to sell his stock so the market loses face in the company second tax reasons right exactly what we have in crypto and third loose of exposure routes of exposure if we all believe in crypto will hold Bitcoin we hold the theorem and we don't want to sell it to lose the app site it might have so for

this for for this three reasons the lending market will total 16 15 billion next year this year and 30 billion next year and out of that maybe 30 40 percent will go into defy once more user-friendly interfaces will be developed so we estimated elasticity its elasticity or sensitivity how much of a market share one could capture by lowering the interest rate because as with mortgage example at 10 percent nobody will want to take a mortgage at 5 percent there are more and more people will take the mortgage and at 2 percent or say 1 percent I'm sure everybody and

their brother will rush for mortgages if they manage to get such rates there was a funny example in Denmark one guy took a mortgage which was tied to the money market for a rate and the money market rate dipped negative just not to give into more details the guy literally received the payment for his mortgage so he took took a mortgage he owned the house and he received payment for it fascinating time we live in so current interest rates are so high in crypto lending that by lowering them even by one percentage points one could enjoy a significant increase in market share this is then market as we see for Euro

based lending and we think we can capture 4% of the market by introducing this platform later this year a little bit about stable coin that is back in this product so it was launched two years ago we have more than 32 million in outstanding emission we have a team of 20 people and the stable coin was transacted for more than 200 million worth of value transfers over this time and I think we are still the biggest X dollar stable coin now some companies experiment with gold backed stable coins I personally think it's a bad idea to

introduce something like gold stable coin I believe in two worlds one is a true defy say crypto focused community that unlocks Bitcoin but if you want to try to implement this technology in something tangible that can bring benefits to society short term then stable coins is the way to do it and there are multiple other applications of stable coins we can talk a little bit here so first the markets they address stable coins there are our crypto traits crypto trading people who are reducing volatility of their portfolios by converting some of the assets into

stable coins they were doing arbitrage between crypto exchanges by moving not cash but stable coins between them but opportunities in the lending market are a small fraction of what's available in Fiat settlement and acquiring markets countries like Malta Cyprus even France South South South southern part of France where a lot of tourists come in they usually have high acquiring rates when you swipe your card in a merchant your foreign card not only your bank screws you on the exchange rate the merchant gets three four five even 7% less of the amount of the

transaction because the local bank holds the funds up to 30 days and takes a really high acquiring fee for foreign cards so this is definitely something what could be a shortcut with something like a stable coin even in its current form I know if your room network is still hasn't scale to proof of stake and still not ready for thousands of transactions but for this type of transactions there's no there is not a significant requirement for scaling so this transactions can settle in minutes sometimes in hours if you pay for example for a boat rental or for for a

car rental you don't pay 10 euros you pay 5,000 euros and 5% out of South 5,000 this is significant margin to shortcut this route or something like a stable coin and then there is obviously ecommerce space and remittance space which also significant but require more capital on time to go after but funny thing is it's it's time where crypto related products and this technology can really come out of just speculative markets that were used to do some illicit fundraising and pump and dump schemes and do something better for the

society so this is some estimation of the potential fees that could be collected by disrupting these markets all of them are quite significant and I suggest you to try our stable coin wallet it's a noncustodial solution which allows you to transact with the Bitcoin etherium whole major stable coins and of course the euro a stable coin which will be available for purchase via credit cards in the wallet this month and already available for purchase via our SEPA and if you email 2w stasis net your aetherium address it's W at stasis net

we're happy to send you a promotional heroes coin 1 euro per person just for you to play with it with that I'm opening questions hope it was interesting enough any questions meatball is actually developing their own solution form crypto lending because they have an exchange sorry so they were really interested to know what we are

doing yes so when when we look at traditional markets it feels like for the last years we were starting from they the books that were barely ever mentioning that they negative interest rates are possible it almost feels like the axis was just not there even to look at this chart so are we just repeating the same possible scenario and not thinking about possible negative interest rates in the future on the crypto world have you tried to analyze such a situation very good question well listen I'm not a fan of the central bank

policy myself in fact I discard I was a hedge fund trader and I discard Bitcoin in 2000 twelve thousand thirteen when central banks were doing quantitative easing rounds all over the world and I thought this is a perfect deflationary asset that could increase in price significantly but reality is that to do successful business you need to figure out some arbitrage when when somebody is selling coffee it's also an arbitrage they bind some beans they bind some water and then they're reselling it at some market margin rate in finance it's the same when you do arbitrage between exchanges or you do interest rate arbitrage between say emerging market

country and developed market country you also capture two sides of a trade with some risk and you wait until that difference realizes so my job as I see it is to make a system friendly and safe enough so it's just on capital can go and deposit into the stable coin space into the crypto space significant capital and we have clients who've been asking us for this solution and asking for one percent or at least two percent rate so they can deposit billions there are billions of capital sitting on the sidelines just waiting to get some yield

it's so painful when the interest rate is negative and you have billions and billions of cash of treasury management which you have to deploy somewhere and you have no collateral assets to deploy them to so our sensitivity is that at 1% deposit rate they'll be at least 200 million of liquidity available to the platform at 2% interest rate they'll be 1 billion of euros available so that will be more than enough for start for crypto people to start and borrowing that say at 3 plus and it'll be 3 X improvement of what compound charges now so back to a question I disagree with

the central bank policy but I cannot fight it I created a way to capitalize on it sorry the question is more but it is possible that you would capitalize on the markets also with negative interest rate assuming everywhere would be minus 5% and you would be offering minus 2 so the question is more like do you think that we already have models in place or thinking of the models to include potential negative interest rates and on the chain in your product for example it would still be beneficial for customers potentially the stable coin a product cannot work with negative interest rates because you have to substrate the number

of coins that are in circulation and it's not really clear how do you you just subtract from everybody a small amount every day so that no they I think the crypto space it totally is not ready for the negative interest rate environment but there's so much opportunities to bring those rates at least in some equilibrium between what would Ryan capital markets and encrypt the world yes since I was late I didn't really pick it up how do you swap from you know negative interest rate in the Euro and get to the positive rate

unstable coin so ok so the negative interest rate in the euro zone makes a significant demand available for products that are 100 percent clutter iced or even over cauterized and yield at least zero so there are people who want who are saying guys sell me something that yields zero I just don't want to pay negative we are saying look guys there is some asset that is hundred percent backed that yields one percent how much can you give us and they say hundred million okay and then we ask okay what if it yields 2% they say 1 billion and it's just the tip of the

iceberg because European money market funds have 3 trillion in euro cash and all that is negative so the stable coin is the solution you need something as an intermediary asset to store to pull customer funds to be available on chain with the resulting rate of course and then of this somebody has to buy digital token that will be a representation of euro on chain instance domain but I don't get it from how technically financial point how you technically do it here's a 20 token sorry what you asking we put on one

balance sheet liabilities and form the tokens and assets in form of governmental securities in fact we execute it on the liberal vision but but just tabled stable coin is linked not to draw is linked to euro yes it's linked to the amount of assets the issuer has an issue has governmental securities issued in Euro similar to Libra but in Europe and we are alive and we have not paypal of course yet but some some counterparties who support us and we are growing but I agreed to my to my actually when I thought about a stable

coin five years ago I watched Tedder and I saw how one could touch this disastrous asset is I mean its credit risk its enormous I wouldn't hold it even overnight for a second but apparently people hold it people think music plays chairs are standing when the ass hits the fan will be able to find our chair I watched the 2008 meltdown where people could not find a bid for a triple-a paper yesterday it was trading at par now it's trading at fifteen sixteen so I think the same thing will happen with Tedder although I don't know when it's impossible to predict when but at some point in time it will trade 98

97 and then all the way to 15 or whatever because nobody knows how much collateral they have available and the concept of the stable coin I created was totally contrary to tether the market was there it was obvious but I created an institutional friendly product which institutions can touch and feel comfortable trading now yes crypto market still thinks in dollars 95 percent of trades are still happening in dollars but it was the same with emerging markets when Russia started listing equities they were first trading in dollars but now most of the Russian equities are trading in rubles so I think crypto market is so young that's why it started trading in dollars but

once time goes on there'll be different differentiation also Europe is lagging Asia in u.s. in adoption so Europe is the lowest crypto adopted destination it was us with Bitcoin and then energy with etherium so it's now it's Europe's time to accumulate more crypto and start thinking in Euro terms so we'll think of Bitcoin in dollar terms that will change sorry so if I understand correctly there is no euro and a bank account it's instead euro are being used to purchase government bonds yes so when you hold euros in a bank account the maximum thing you can get if the banks

go goes under is a hundred thousand euros that's the maximum insurance thing but securities they they tend to remain in value for the longer term so securities are much better asset preservation collateral than just euros in the bank because with the bank it's not your money you store in the bank it's the bank's money it's the commercial bank risk you are taking we can talk about that we have several I'm sorry but we are running out of time and if you have any more question maybe it's you can reach so outside I'm sorry thank you for

questions guys [Applause]