The journey of building a private stablecoin / thefett

Transcript

all right test test how do I turn this thing on hello can you guys hear me okay there we are all right uh hey everyone welcome to my talk today uh so I'm Nicholas vet I am actually one of the founders of teller we're an oracle on evm chains and then I'm I'm also here to talk about Karen which is something else that I'm running and you're never going to guess this but it is a private stable coin all right so what's kind of the goal so whenever we talk about private stable coin I know it was actually a great lead up talk hopefully you guys were just

here for it um what's sort of the goal Ben and I would say that the goal has always been you know what's the Holy Grail of cryptocurrency and it's this you have a private stable coin you know the peer-to-peer electronic cash that it holds its value it can be used in any way as you know a currency or you can use it as collateral it's cross chain it's it's amazing and let's actually get into what exactly this means and how we're going to build it so the first thing is you want to store a value so this knocks out almost every single cryptocurrency out there at the moment uh ish whenever you're building a currency this is this goes back to kind of traditional currency design and this is probably what I'm going to talk most

about today you want to make sure that your asset is is worth roughly equal to what it is today or else you're just not going to hold it you're going to either want to get rid of it or it's an investment where you're going to want to not spend it the other thing easily transferable so this is why gold is not a traditionally a very good currency same with uh if you're talking you know barter system why why people didn't like using cows to trade for chickens they're not easily transferable actually you know it's not divisible but we're using digital money so we we sort of solve that natively but the big problems for when we have a digital money are how do

you make it private and then one that actually a lot of people don't necessarily talk about is how do you actually do it offline so you know we have we have a lot of problems when it comes to that um so there's actually two separate issues when you're making a currency so I really want to talk about whenever you know we're building this think about like how do we actually compete with the US dollar let's get back to to the old goals of crypto um you know the two separate issues whenever you're making any sort of money is who issues it and then how do you process the transaction so they're two completely separate issues the first one is almost always the government so you know they actually don't have this problem because like who gets to Mint

the US dollar well it's generally the treasury and then they hand it over to the banks to issue some debt-based currencies but you know like it's it's roughly centralized so you don't have to deal with that but if whenever we're making a decentralized one that's actually actually the prime problem here is how do you actually mint this in such a way that it's decentralized it's fair and sort of the values which is what I'm going to get into the values of your currency are actually baked in at the issuance of it and then the second piece is the processing so there you you want to make sure that you think about the processing whenever you're doing the issuance but but they're actually completely separate issues so you know like everybody knows now you you could take you know a stable coin and you could

lock it and say like railgun or tornado cache Nova or you know some account abstraction wallet and you can start getting some better processing of it and you know you want to solve those problems but I'm actually mainly going to talk about the first one today and then I think Fredrika who's talking next is probably going to talk about the next one um so if you you can listen to her talk on more of how we deal with processing these transactions um so okay okay on to so story time for you guys so this will be I want you guys to think about the values of whenever you're making a stable coin or whenever you're making a

money and and to do that I'll introduce the tale of the 11th round maybe some of you guys have heard this one before but imagine you have an island and there's there's 10 people on an island and um you know it's the classic economic example Island where you know you have the farmer you have the baker you have the Shoemaker and and an Explorer comes and he sees he sees this whole economy going on but they're all still using the barter system you know the the the one guy has cows and he trades a cow for a bunch of shoes who trades it for a bunch of chickens and it's it's very very inefficient and and you know the Explorer goes hey guys just wait just wait

we can do better than this so he he takes out a cowhide and he stamps out 10 rounds for each person and he gives these 10 rounds to each person and he says listen each one of these rounds is worth the value of a chicken you're all going to trade these around and then you know now it's going to be way more efficient you don't have to use this barter system and they're all like oh wow this is this is so so cool and he says okay but wait uh since this is such a great invention you guys obviously have to pay me for it so at the end of the year you guys all have to give me back 11 rounds so there's going to be 10 interest on these rounds okay so what's the obvious issue with this so he gave 10 people 10 Rounds each and

he wants 10 people to each give him back 11 rounds obviously where does that 11th round come from and this is actually the current debt based monetary system we have today there's two ways that you can sort of pay back those 11 rounds the first is if you constantly grow so if new people come onto the island and new people start taking out loans everybody who borrowed 10 rounds can sort of pay back their 11 rounds and it works as long as the economy is continuously growing but the way it might work if the economy is not growing is maybe if one of those guys goes out of business so if one of those 10 people just hands over you know they lose then you you can actually pay

back your 11 rounds and what this actually Fosters is it Fosters competition it Fosters this mentality for growth you need growth at every stage or else things collapse because you have to constantly be in competition with each other to pay back and this is baked into the system so what may have been a Cooperative economy at the start just by how you design the money actually can't be a Cooperative economy because you're competing so that's kind of why I want to think about you know what are the values of the currencies that we're creating and you know like how can we sort of when we're designing these things that are supposed to be used as currencies how can we bake our values in at the beginning or at the underlying layer so

you know we had kind of talked about some of the issues with gold um it's same same issues with Bitcoin you know if you need a flexible Supply how do you do that you know how do you the main reason that people tend to want to go back to some asset-backed standard is that if you go to gold or you you know you see this with Bitcoin Maxis now don't want to offend anyone but you know like if they want to use it as a currency or backing a stable coin a lot of times it's because you know it will enrich them in the future and they will be the chosen winners of the future whenever it goes to a trillion dollars and you know like that that's not necessarily the goal or at least I would hope it isn't for most of you um you know you you would want

currencies that you could you can personalize so you know I bet back to the the economic example the you know in in the 80s and 90s if you guys remember there was this big Trend in Central America of dollarization so the the currencies in Central America that basically the governments couldn't manage them because you know whether or not it was our fault for you know using the CIA or not but but they would destabilize their currencies and they said hey you guys obviously can't manage your own currencies why don't you just use the dollar and this is akin to what what you know a lot of times you see in Defy is we're just like well why don't you just use the dollar or you know something like that and well the problem is is that now you're subject to

the Dollar's monetary policy so a lot of times all these countries what you know maybe they wanted to lower interest rates to boost their economy maybe they were having inflation and they wanted to raise it well if you're using the dollar you're sort of subject to the Dollar's monetary policy and we want to make sure that we stay away from that and you also want to make sure that you build something that is sort of tailored to your ecosystem which sort of follows on the last presentation um and kind of the last Point here is just how much inflation do we build into our system so I know there was you know this is sort of forbidden in the libertarian Circles of crypto but like a lot of times you actually want inflation in a cryptocurrency the reason is is that or at least enough money because whenever

you whenever you have inflation incentivizes people to spend it if everyone is just hoarding their currency under their mattress or or in their you know their Ledger or whatever you're using that you're not actually spending it you want people to have currency but you want them to invest in productive assets you want people to invest in a company invest in your community and how inflation is actually one great way to promote that so you want to build these in at the base layer now on to uh my project so uh so doing okay on time here so this is uh Karen so uh a little bit of a background so I had

I'll kind of talk about how it works here um you guys can chew on this big diagram here but I was originally trying to build so it was a how do I do a cross chain tornado cache was the original idea like yeah two years ago and the the problem is is so what you would do is you you would take a take a tornado cash deposit if you guys I'm pretty sure most of you know how it works you deposit eth into a pool with a zero knowledge proof and then anyone can come and withdraw money to any different address as long as you have a proof that you made a deposit in this pool that's simplifying it but the idea I had was what if you put the proof on one chain then you could pass the

proof to say a whole bunch of other chains and then now you have sort of disappeared nobody knows what chain you're on and you can withdraw it the obvious problem is is that well the EQ locked is on one chain how do you withdraw it on a different chain and basically I just created a synthetic asset so you have What's called the Karen dollar and so you would have that's sort of what I tried to draw here but you would have uh Eve so let's say you have an e c Ethan polygon pool you would have eat CHD on one side and Matic CHD and the other you deposit eth to Mint a certain amount of CHD the proof is passed over so I use shocker uh teller as the Oracle to pass it over

um and then you can withdraw in a secret fashion or it's a tornado cachinova pool so you can also privately train to transact in a shielded State while you're over there and then you can withdraw over on the other side so that's that's the uh the Crux of what I built but the next piece is well okay well how is this stable in any way shape or form um well if you don't stabilize it you know if you just set it up as far as right now it's set up with on gnosis chain polygon on optimism so you have these three assets uh with pools linked and it acts as basically a multi-collateral LP token um amongst them that's like how it would

traditionally act so then how do you stabilize it the way that you would stabilize it is as more and more people pull CHD into or they're actually using it as a currency so it's it's in this shielded State it's actually not on the amms so if you pull tokens off the amms and you leave the deposited collateral on amms well what happens to the price also the price goes up so you know if you have a bunch of eth and then some CHD if you have a whole bunch of CHD the price of CHD is lower per eth so you basically you just want to you you need a way to incentivize people to deposit more CHD in a pool on one side and

that's what I do so this is basically you you manipulate the interest rates in such a way to incentivize people to LP in one way or another uh to simplify this and and the real world example so this will probably be more familiar for some of some of you if you're into like the mmt theory of how money Works um whenever like the U.S treasury so if you have a whole bunch of money out circulating and inflation's really really high how do how do you suck money out of circulation in your economy well you would want to raise rates and so if you raise rates then what's going to happen is is that more and more people are going to okay well we can pull money out of circulation and we'll go deposit it into treasury accounts and that's basically

what we're doing here is we're sucking money out of circulation hopefully lowering you know the economic activity lowering the inflation in your assets and vice versa um so yeah it's just kind of the trying to take the traditional economic way of lowering or raising inflation put it into this um so anyway uh the future so right now we uh the interest rate stuff it's still very nascent so I launched this completely decentralized so there's no upgrades nothing like that we'll just relaunch it whenever we we sort of tweak it um figuring out how best to do the

stabilization because there's an inherent trade-off between sort of stability and then collateralization you know if one of the big problems with a lot of derivatives right now is or a lot of derivatives is a lot of stable coins is that they're actually not stable coins they're just derivative instruments so you know you if you have like dye or rye like this is just an over collateralized derivative instrument that's meant to be short ethus dollar and the problem with it being a short eth US dollar is you know you you can be relatively hard pegged to the dollar but it's not necessarily a currency it doesn't really function like a free-floating currency and that that's what we're actually trying to create at least I think the

other the other problem with that is if you have somebody who's you know if you want to go shorty the US dollar you actually need somebody who wants to go long eat US Dollar on the other side of your trade and that that's a big problem for a lot of these stable coins is that you know you have a bunch of demand for people who are like of course I'll pay a dollar for die or of course I'll pay a dollar for Rye but then nobody wants to go Long ethus Dollar on the other side especially in times that everyone wants to go shorty to US dollar um other things that we're doing in the future so right now we use teller as a bridge obvious ways you know you can make it a whole lot faster people are working on like clamp Bridges lots of

cool stuff you can make this crazy crazy fast and then better processing which you know we're going to talk about how can you make this sort of how can you use hopefully we're going to be plugging in some account abstraction just natively into this so that way we can piggyback on all those relayer mechanisms that sort of make privacy work and you know we are I know like a lot of people would say like you don't have to build privacy into this but I think all of our protocols should just be building privacy natively in because then you don't have to do you know if people will natively choose not to do private things so make sure that you build it in right here so anyway I think I'm about done uh if you want to get involved uh feel free to email me if you

want to learn more about teller um it's just like a GitHub repo with the white paper now um but yeah would love to take a question or two anybody Frederica does the cross chain nature actually break the proof of Innocence Concepts that we've seen recently pop up so she asked if it's like the proof of Innocence so basically you can prove that you know your stuff didn't interact with anybody else's uh you could easily you could easily put that in there I didn't I mean I

come on like I'm just trying like I think you want to have fun with it and you know like I think ultimately I I don't think the proof of innocent like this is more just off topic completely but I think the proof of Innocence think doesn't actually solve anything like I don't I don't think Regulators are going to buy it in any sense of the word you know or like you know like oh you can prove that like ultimately you are providing anonymity to a lot of these people because if you're if you're going in there and they're going in there you you are providing anonymity even if you can prove that your funds didn't touch them so you know I think that's where Regulators are going to have the sticking point not necessarily like oh you can prove it so yeah anyway anything else

right here down front or am I done I don't know all right yeah share the question yeah yeah um we're also launched the protocol with no I mean he's no upgradability and uh ultimately when we go cross chain we also be like not to rely on Bridges uh so I know it's a longer answer and we can catch up later yeah we can get a little deeper but I'm wondering like how far do you go with your research on both of those topics like how do you actually you know migrate people and I mean that's simpler I think for us anyway but like how do you do cross-chain stuff basically but then the the bigger one is how we do crocheting stuff without Bridges like yeah but I just wonder how far do you go with your research yeah so I mean we

used we like obviously run teller so like we use it and I know it's decentralized which is why I like using it um and the the big issue with teller right now is that it's slow so you know you when you deposit like I make you wait 12 hours to go withdraw on the other side and there there's two benefits to this you know I I think a lot of people have sort of the dream ux that I'm seeing now that most most people are talking about is that like you would have this slower Bridge path so like teller or you know like Hashi is one like gnosis is doing like a bridge aggregator where it's this very slow super secure Bridge and the only people that would do that would be the big giant whales and then you would have much smaller more

centralized like really fast Bridges so like connects or some of these other services where like hey I want to go over there and they would just say okay here you go here's here's 20 bucks like you we'll Bridge you over in a centralized fashion for you know half a percent and then they take the slow route in a decentralized way so I think that's going to be the future but um yeah I would say definitely just just Build It Out Slow at first and then and then go go down down with speed because it's it once your users get used to really really fast you can't go back so you mentioned that a lot of stable coins are actually just derivative assets and you pointed out that they have

counterparties which is the protocol implicitly how is CHD different like it seems like the LPS would be counterparties to CHD yeah I I think more of what I was saying is it's more as far as the derivative goes it's much more like pegged as far as like you know that they don't allow for much free-floating in there um you know they're not trying to like if you have more demand for your currency your currency should sort of go up a little bit in value um and you should have some mechanic mechanism for stabilizing it but just sort of relying constantly on this Arbitrage opportunity without any ability to to let it go up or down um can sort of be a hard pill for to get

a lot of usage so anyway I think I'm good but thanks everyone [Applause] [Music] foreign [Music]