J2 AG 11 Alexis Collomb Blockchain Research Topics in economics and finance

Transcript

hello to all I'm alex ikonn I'm the chair I'm the professor of Finance here and I'm also the coordinator of the economics finance insurance and banking department at Nam so you know I'm particularly happy to see you all and to see this aetherium community conference here within our walls this year so I would ask to give you you know brief talk and say a few words about the sort of research that we are doing that we're trying to do on blockchain topics so

just to give you a bit of background I have not prepared any slides you know I'll be quick I think 10 minutes because I'm you know for short talks I'd rather try to capture your attention just hopefully with my voice and you know not get too distracted by my slides so you know just to give you a bit of background we we've started a research initiative with something which is called Institute we bachelier for those of you know Weber CDA was one of the I would say forefathers of modern finance with his PhD dissertation which

was called theory of speculation which was published actually in 1905 where to my knowledge it was one of the first actually to use Brownian motion and not to metric Brownian motion to model stock prices with the Institute about strategy we started this this partnership which is called blockchain perspectives joint research initiative we have you know various researchers involved one of them is Primavera the Philippian many others we have doctoral students and we also have you know various sponsors it's actually one of them is BNP and another one we have cities ourselves which is

like the research of the city scenic SD Depot a constellation which is a bi centenary French institution so you know just to I can short we I'm just going to briefly cover where I think the interesting action is going on in you know whether it's economics finance or insurance and I will be happy to answer questions afterwards especially as we fund you know we have the ability to fund selected projects if any of you happens to be interested and that's also

one of reasons that I wanted to give this brief talk to try to you know capture talent sort of speaking there's there's a nice a great German actually writer that I like whose name is iron-rich von Kleist and I don't know if I guess that you know a few of you know who is but he's sort of forgotten now but he's written a great treatise on how ideas come as you speak so you know my speech is not so well prepared and I will see and I'm gonna see if it if it works so within you know economics just to go briefly I mean I think there's actually there's a

talk on game theory in some other auditorium you know I'm sure you've all heard of you know crypto economics and game theory and so forth I think you know one of the the great values of blockchain and especially consensus protocols is that you know it's showing again I mean it's sort of reviving in some respect some game theoretic aspects and giving them a sort of live experiment to to study so to the best of my knowledge at least as there's work which is been done recently actually published by people at the to do School of Economics

on you know stochastic games and how you can view the the proof-of-work protocol as you know stochastic game and how actually what they proved which I find particularly interesting because you don't hear it so much is that you know it can lead to multiple equilibria hence you know there's some you know potential source of instability there but one of the things that we are most interested here is really on and particularly myself is on you know monetary policy so what I would call the you know the macro aspect really what

impact blockchain is gonna have on the monetary policy and you know I don't like to phrase it as a as a truth because I have absolutely for me it's it's really an ongoing research and you know if I come with strong conclusions maybe I'll have give a talk in six months but you know what I for me you know it's sort of clear that the one of the potential weakness of you know cryptocurrency systems as you see them now is that there's no link to you know this usually no formal link to macro data and macro indicators so you know to make it very short the you know I think

that when you looked at the way central banking operates and the way for instance the you know the different board of governors of central banks and so forth you know gather on a periodic basis to decide upon you know the for instance quantitative easing and things like that you know I think it's it's sort of trivial to say that if you look at the origins of Bitcoin and so forth this was you know precisely the thing that you know one should avoid at all cost and so you know there's a lot of attractiveness obviously in having an automatic dramatic monetary policy now you know from my standpoint one of you know what

I see is really lacking right now is you know the connection between the sort of closed system and the real economy and how you know for instance you could have a protocol that modulates some of the for instance the minting you know depending upon some macro data and you know I'm working with a group actually which is advising you know potential IC o---- and I was asked to think about a little bit about these questions and you know what we call the token economy and for instance you know if you do a nice view on the way to reserve what is called the

monetary reserve works and it's program is I think right now a great area of research now you know if you look at ICUs there's also obviously things like you know auctions and so forth and you know the economic literature is extremely rich with you know with auction mechanisms and and we says less I think too many interesting papers with respect to you know talk and sale mechanisms but you know for me the really one very interesting thing is the the monetary policy now another subject a research and I've got one of my doctoral students who's working on it and you actually may know her because it's well I won't mention their name but

she's working on the value of intermediation so you know I used to do a bit of trading before and you know it's always interesting to have a contrarian perspective you know most of the conference that I've attended in over at least not so much now but let's say you know in 2016 and 2017 when I went there I always had the sense that it was taken for granted that decentralization was a superb thing no matter what you know and so you know I think it's also interesting to really understand the advantages of something to look at

the also the merits of its opposite and you know so the value of intermediation and these value of centralized apron or really understanding in economic terms what you gain with the centralization with respect to you know centralized systems and vice versa is I think another actually very interesting area of research upon which I've not read yet you know to the best of my knowledge any you know any paper that I find particularly you know compelling if you look at you know intermediation if it has existed let alone because of the you know

technological inability to have decentralized systems you know before Satoshi nakamoto's paper and so forth and you know the technological solutions that have been found you know let's say within within the last the last ten years but if you just look at the you know the intermediation you know it has existed because it has some degree of merits and it has some you know one of them is specialization you know I'm sure you've all read about you know you remember economic courses on you know Ricardo and how you know economies in countries tend to specialize and how it you know drives international commerce and so forth well you know intermediation in my view is

you know one of its merits and is one of its reasons is really specialization so you know that and stop on that but i think that's you know that that's another great area of research and i think understanding that really helps you understand actually what you gain by having completely you know decentralized systems or you know partially partially decentralized systems now in you know with respect to finance I'm you know I teach derivative schools here I used to work you know in options and in derivatives before you know as you've probably there's been some talks

actually and they will be you know throughout these three days you know what people like very well and so forth and you know I think they they're doing a very interesting and and a great job but you know that there's lot of applications and research going on in finance right now you know obviously one of them is you know it's not particularly the sexy sometimes for you know some people because it's you know what it's called post trade infrastructure or in other words you know the fabric of financial markets and the you know the infrastructure of financial markets so one particular interesting area is one particularly interesting area is whether we're gonna

be able to get rid of you know central clearing counterparties and you know to some degree of clearing houses now if we design a system from scratch using Brock trains well you know we'd probably be able to to achieve you know great things now the fact is that you know as you know you have legacy systems with very demanding you know throughputs and transaction flows and so you know I think the transition is you know if it happens and I think you know it I mean there's there's one thing that I'm sure of is

that black train is having already a great impact on financial structure what I'm not sure off is you know either the speed or what the end result will be five years from now but but anyway you know the the the subject of using you know the the impact of blockchain on the post rate infrastructure you know it's really crucial and it's a it's sort of a low ending Happel to work on when you work on Finance because that that's you know that's something that everybody involved in finance you know as well as concerned with it's been there's been work for instance by I think Italian professor Massimo nor any more any sorry with which is with Bank

ome and and other people but you know research has been I would expect that within the next 18 months a lot of work should be should be published on the subject now another you know also I think sort of easy area of research is corporate governance you know clearly I mean you've had talks you know voting systems and how you can have some super fine voting systems to deal with with corporate governance well you know so there's been a lot of work already on

this I mean work by people like for instance David Ermac at NYU I think also Harvey Campbell from Duke and you know other people have gotten too into this topic I mean clearly if blockchains end up being used massively you know within finance and for all that is called you know securities tracking so forth and if they end up replacing partly or you know all greatly the current financial infrastructure I mean it should have a huge impact on corporate governance because of all the technical things that it will allow that it should allow either treasurer's or CFO's to do you

know you just click on a button and you can for instance consult your shareholders and so forth preserving the privacy of their vote and and so forth so you know that that's another I think very interesting area though the another area and I won't be too long but which which I think it's particularly you know interesting is clearly you know the using smart contracts for automating you know things whether it's you know margining for derivatives and or so forth and so you know I think the what I call the concept of Smart Security you know it's also quite interesting I mean for

instance if you deal with options I'm sure that you know some of you have maybe have traded options who have bought or dealt with with options before one of the central question for an option or a convertible bond or a contingent convertible bond or you know any kind of equity link security is the question of like optimal exercise and so you know if embedded within your smart contract you had some you know intelligent algorithm for and it's you know it's very easy to do for you know making sure that whenever certain conditions market conditions are met for instance the option is automatically

exercised and you know hence the security a smart behavior then you know you capture a lot of value and you know if you're the investor you don't have to deal with that aspect which is currently dealt with actually by by fund managers so that that I think you know there's I won't be you know I'll stop at that but I think it's you know it's a huge huge field now the last thing that I want to mention with respect to finance and which I think addresses more the fundamentals of Finance is the link between debt and equity so you know as you know you've probably maybe remember from finance 101 or you know if you look at a balance sheet of a company

you've got the assets on one side and then you know you've got the liability and equity on the other and if you look at the law is currently structured fairly uniformly across you know at least well certain jurisdictions the debt is not treated as equity clearly and also the tax is not the same so actually you know you've all heard the Miller Modigliani theorem which you know essentially says that the value of a firm is sort of independent of its capital structure I think in practice I could you know exhibit a lot of things to

contradict this this principle you know if you have 10% equity and 90% that you don't behave the same as a decision maker you know maker sorry as if you have 10% debt and 90% equity so now you you see if you look at the you know the the liability side of the balance sheet the the way that is structured and you know you've got senior debt and unit debt and you know junior subordinated debt and so forth and then you've got preferred shares and your standard shares and so forth the the voting rights are typically with the equity the economic rights as well with the equity

you know that for instance the dividends that you can get and so forth and you know the debt is you know some just as we know it some straightforward you know liability needs to be paid back I mean you know it can get fairly complicated but anyway you know in the treatment of the you know the for instance in the case of liquidation the way priorities are established are you know fairly standard right now but I think that there's not you know necessarily as much granularity as we could have so I think actually with tokens and you know with the

development of blockchain we could probably potentially change that or address you know and make obtain a continuum of securities where you can you know select and play on okay we want voting rights and we want particular economic rights and we want certain holding periods and we want you know lockup periods and we want you know so we can sophisticate almost you know in a limitless fashion the sort of features that we want to attribute to these security so I think that's that's from a

technical standpoint it's very interesting but also I think from a much more fundamental standpoint if you look at the the fundamentals of corporate finance the last area which I think you know is extremely promising and you know I'm I think it's obvious to all or maybe not but you know it's the the applications you know the applications in insurance and you know I would say the first and foremost is obviously in terms of applications in terms of business opportunities there you know just the fact that with black trains and the true you know the traceability that you that you can get on for instance

objects of value you can do probably amazing things that are just very hard to do now because of the the huge amounts of paperwork that are involved so you know this is this is mine you know I think application driven I could give you you know in the provision space five or six startups that have that are very you know involved with with insurance but you know I won't I won't be any longer so anyway again if you you know interested in any of these topics you know whether it's economics finance or insurance you know don't ask

too don't hesitate to ask any question and again I will be available for the next few minutes you know to discuss with whoever once