The first episode of Blockchain Meditations is dedicated to stablecoins which are cryptocurrencies that are pegged to another stable asset such as gold or USD. Their emergence has probably been one of the most significant events to occur in the crypto space.
Our guest on the show is Ashleigh Schap. She is heading the Business development department at MakerDAO. She will be talking about one of their products – the Dai stablecoin which is an asset-backed, hard currency and the first decentralized stablecoin on the Ethereum blockchain.
Nick Todorov: Hello everybody! My name is Nick and WELCOME to this episode of the Blockchain Meditations Podcast. On this episode is joining me, Ashleigh Schap of MakerDAO, me and Ashleigh will talk about stablecoins and what Maker are up to these days. Enjoy the episode.
Nick: Hello everybody is the blockchain meditation podcast and it’s my pleasure to welcome to the show Ashleigh Schap of MakerDAO. Ashleigh, welcome!
Ashleigh Schap: Hey! Thank you so much Nick! It’s nice to be here.
Nick: Ashleigh, can you tell me a bit more about yourself? Actually, I did my research and not talking here, but, you used to be part of the corporate world working for one of the big financial institutions and now you changed to the blockchain/crypto world. What made you drive this change?
Ashleigh: Yeah, it was, it was kind of a circuitous path to get here. So I, I was a philosophy major in college, but you know, I always had an interest in finance. Uh, grew up in a, you know, entrepreneurial family. So ended up going to work in finance after school. But while I was in school was when I actually discovered bitcoin. So I had a pretty, pretty intense World of Warcraft year, around 2012, 2013 and so early 2013, I learned from some people on, on WOW about, uh, about bitcoins. So, you know, I bought some and kept up with it over the years. And after a brief stint in finance at JP Morgan, I really wasn’t a fan of it. So I went to go work for a fin-tech startup, which was helping connect buyers and sellers of companies around VC and private equity deals. And I actually ended up from there, I’m going to work for one of my clients. So, in the two years leading up to me joining Maker, I was an investor for a VC private equity style family office. So doing direct investing and on the side, I was very focused on the crypto world and working with crypto focused other crypto focus, family offices, etc. And ultimately through a contact of another family office ended up coming into a, coming in, getting in touch with Maker and they asked me to come on and focus on business development. There aren’t that many people that you kind of understand finance and understand crypto and have business development type experience. So it seems like a perfect way to jump in two feet first and never looked back. It’s been a really fun year.
Nick: Nice. So you get the blockchain sorry, the bitcoin early on, the bitcoin fever?
Ashleigh: Yeah, it was. I mean, you know, like most people, I discovered it went down the rabbit hole for a long time. And then, of course, you know, Mt.Gox happened. It’s pretty, it’s pretty good at about all my coins going missing. Not all of them, but a decent, decent chunk. So, you know, the next year or so, year and a half I wasn’t too involved, but it kind of started to get back into it once until Ethereum started to pick up some steam and got much more interested in it at that point.
Nick: How would you describe, and could you describe stablecoins in two or three sentences? What’s a stablecoin?
Ashleigh: So stablecoins, they come in different shapes and sizes. You’ve got what we call IOU coins attractively backed by dollars in a bank account or you’ve got things like DAI, which are, you know, backed by a pool of different collateral assets. But the one thing that they all have in common is that they are a form of digital cash. So that means that they are stable in price so that you can actually spend them. It means that they are fungible and ultimately, you know, we at Maker sort of feel like without stablecoins, you know, Satoshi’s original vision really can’t be fulfilled. Nobody wants to spend their Ethereum or their bitcoin if they’re afraid it’s going to go up 20%, you know, in the next week or whatever it is sometimes in the next day. People are very hesitant to do that.
So it stands to reason that this ecosystem can’t grow very much unless there is some kind of stable store of value; something that approximates dollars or euros or pounds or whatever it is that we’re all used to using in our day to day lives.
So there are very different schools of thought on how, you know, what those, what those tokens and what those technologies out to look like. And we can talk more about that later. But you know, I guess simply put, they are digital cash.
Nick: Actually Forbes called them I quote “The Holy Grail of Cryptocurrency. What do you think about that?
Ashleigh: I mean, I think it makes perfect sense, right? The reason that, so MakerDAO is an open source tool which has allowed for the creation of DAI, which has a dollar pegged stablecoin. The reason for MakerDAO was built is because the founders realize that essentially if you’re going to have businesses built on top of this blockchain, then the native currency needs to be something that people recognize. It needs to be something that people feel comfortable spending. If I’m a business that wants to build a ticketing business or any kind of payments business on the blockchain and have that be adopted by the mainstream, that’s not going to happen. If there’s no stable store of value or digital cash, like a token that people actually feel comfortable spending. So those businesses are going to fail. And ultimately, you know, the blockchain is going to end up being just another fad. So Maker feels very strongly that, you know, I don’t know about, the Holy Grail, but it more being as a necessary infrastructure layer in order for us to realize the full potential of blockchain technologies and all the businesses around that
Nick: Actually you started taping more about Maker and what was the original idea behind it? Could you give any more details about that? And actually tell us more about DAI, what actually DAI is and how it works.
Ashleigh: So Maker was, the project is actually the oldest project on Ethereum and it was actually started before the Ethereum on the BitShares platform, when it was intended to be what you can think of as a smart contract version of a bank, essentially that issues fully collateralized loans, in a stable currency called DAI. So what this platform allows you to do in it’s in its current implementation is to lock up some valuable tokenized asset. In the case of selling single collateral DAI, which is where we are now, that would be Ethereum, When multilateral is launch this year, you’ll be able to have a multitude of different types of tokenized assets that you can borrow against. But what you’re doing is you’re essentially sent your trust asleep collateralizing and borrowing. So you can think of what’s happening is let’s say you send $100 worth of Ethereum to, uh, what you can think of as a digital safety deposit box essentially. We then use price Oracle’s to assess all on chain what the actual value of what you’ve sent to that smart contract is, and keep in mind,we’re not Maker the company or the foundation isn’t holding that for you it’s sitting in a smart contract, right where you can see it. These Oracles say, okay, here’s the value of what’s in here. Each asset is assigned a collateralization ratio requirement and a, what’s called a stability fee, which is effectively an interest rate. In the case of Ethereum, it’s 150% collateralization ratio requirement and I think right now it’s about a 1% interest rate. So what that means is I can borrow up to $66 worth of DAI against my $100 worth of Еthereum and pay 1% interest on that, which is really exciting. A couple of other implications: 1. Because of the over-collateralization, all DAI is backed by more than $1 worth of collateral, which is really important and helps to stabilize DAI. And in fact, we’ve seen the price of Ethereum go down 90% in the last year and still the price of DAI has remained stable. That’s because of this over-collateralization theory. And then I guess, you know, another point to highlight is that all DAI is created at the time of borrowing. So it’s not as though we have a, you know, a big store of DAI sitting in a smart contract somewhere that’s already made, ready to give out to people that have hand in their collateral. All DAIis actually created by these smart contracts at the time of borrowing. And when the user is ready to retrieve their collateral, they’ve only to repay this DAI and receive their collateral back from the contract.
Nick: Got It. So they say that the optimal cryptocurrency should have the following four traits, which is price stability, scalability, privacy, and decentralization. And from what you actually outline here, understand that the price stability comes from the, from, from the DAI scalability as well being committed on the spot. And we’ll have the privacy and decentralization by default because of the blockchain and more particularly the Ethereum. So we could say that this is the one stepping stone to the more widespread adoption of, uh, of everyday currency. If I have, we can say that.
Ashleigh: Yeah, we’re actually, you know, we’re already seeing it. We’re seeing DAI adoption usage starting to pick up, particularly in places like Venezuela or Argentina that have really unstable currencies in their local economies you know, a couple over the last several years you’ve seen a lot of headlines coming out of that part of the world saying that, you know, people are investing in bitcoin. And that was certainly true, but I think increasingly you’re also starting to see people invest in or just hold things like DAI and other stablecoins as a way to protect against inflation in the peso or an in their own home country currency.
Nick: That’s pretty awesome by the way, because most of the times when we talk about blockchain cryptocurrency, we cannot detach it from the real world. This is just something from the techno-tech people and people in all the really tech savvy and watch actually outline with Venezuela was a really good case. Can you go in more details about that and tell us more about this story?
Ashleigh: Yeah, sure. Yeah. Actually, uh, people, people getting too intense with the jargon and the lingo is one of my, one of my pet peeves, I’ve been trying to get people to speak in plain language more often. I’m guilty of it too. We, we talked to each other about this stuff all the time. Right. So it’s easy to get caught up…but with regard to Venezuela, we’re also working on projects in Africa the issues are there, Argentina had, for example, I think has had 47% inflation in the last year. That means if you are assigned a salary today and you work for an entire year, well you actually have in terms of value 50% less than what you agreed on. And so, we’re seeing some signs starting to pick up of people actually converting. They’re finding ways to convert their pesos to DAI, hold it. And because it’s also not, strictly speaking, they’re just some tricky issues around… The government of Argentina doesn’t want everybody to be holding dollars and so DAI is a good way for people to kind of avoid any issues around that and not to say anyone’s breaking the law necessarily, but it is a, it is a good substitute it particularly cause dollars can be, you know, difficult to get depending on what part of the country that you live in. And so we’re seeing people starting to save and in fact, you know, financing, financing, everything is huge in countries like this that have massive inflation. There’s really no point in paying cash value of something right now in pesos if the, if the, uh, if the value of those pieces is going to continue to go down. So for example, if anyone in Argentina wants to buy a television or you know, something that you or I, or maybe we just go to best buy and pick up . it makes much more sense to finance it now because the price of the currency is going down over time. And so they’re ultimately locking in a lower price on that item. And as part of that, you actually have a, there was a recent article, Marianna Conti who works on our team actually used MakerDAO’s lending system to create his own financing tool for, uh, for purchasing a car, which was pretty interesting. Instead of paying, you know, whatever the prevailing interest rate is there, he’s paying 0.5% on collateralized, or 1%.
Nick: Well, this actually least naturally to my next question, which is about the blockchain adoption and you know, the stable tokens and DAI, in particular, being a, you know, the path to mainstream adoption. But what do you think about such countries in distress? I think this might be a good flagship for the technology and something that, you know, it has widespread adoption. What I mean by that is just a regular Joe goes to the store and buying just bread or something with, with, uh, with coins and not, you know, just holding bitcoins or whatever. So what do you think about that and what we think about stablecoins being, you know, a stepping stone to mass mainstreaming the nation?
Ashleigh: I think, you know, I think that was most mobile technologies that we’ve seen in developing parts of the world. What actually end up doing is allowing those economies to sort of leapfrog infrastructure. So for example, in Africa, you’ve seen, things like in Paysa and SMS money. Africa’s been doing, the concept of digital money is so native to Africa. They have that its second nature, right? Whereas to us, we didn’t get SMS money, we still don’t really use that. Venmo and those kinds of things have come into the mainstream here, but a big reason for that is because we have all of this banking infrastructure that’s in place, right? Africa didn’t ever have that. And so, but when they got smartphones and when they got SMS, they were able to make up for the lack of infrastructure thereby sort of leapfrogging to the next level of, of financial innovation. So in places where the population is really underbanked or the financial infrastructure is not there… for example, we work with a partner called Atlas Money and, uh, and their operations are largely in, in Ghana. Well, there are Barclays banks in Ghana, but they’re expensive to open a bank account; the local people tend not to trust, uh, you know, European banks for obvious reasons, and so they’re not really, they’re not really used. Instead, what they’ve done is created a local network of what you can think of as like Uber for, for a banker, right? So if you have, if you’ve made some money in the market today, you can go and put you’d go and put your money in basically what you can think of as a savings account with your friends, someone from your local community that you know, and they keep a, a mutual ledger to keep track of how much everybody has, and when you’re ready to go into withdraw some out, you call your friend up to come and meet you and he brings you your cash. Well, they’re starting to replace the, you know, there, we’re working on a process to replace this with DAI. So that’s, that’s very exciting and I do think that we’re going to see the fastest adoption in those kinds of places, but, um, that’s sort of the most obvious use case. At the same time, I think we’re going to see over the next 12 to 24 months, it’s going to be something that’s not just for developing nations. So we’re also working on projects with um, global remittance companies and supply chain finance technology companies that have, there’s a lot of, a lot of good things about having such good banking infrastructure and there’s some bad things about it, which makes, which means that it’s very slow for small to medium businesses with a global supply chain to say send money through their supply chain and can take, you know, between three and five days sometimes to actually get money from place to place, which slows down supply chains, who brings up the costs of everything. Um, so ultimately we’re starting to see some interest in using something like DAI to, um, be the money of places. And so far so good. As far as mainstream adoption in first world countries. You know, I’m not sure that you’ll see. I’m not sure you’ll be able to buy a, a latte in too many places with digest yet, but as Ethereum starts to scale, I think that that’s going to become more and more viable. Um, and as you see user interfaces, it started to improve and you know, private key management solutions being figured out in a way that actually makes sense for your average user will start to see some mainstream adoption and sort of the first world as well.
Nick: So for this particular industry we can see the actually the new things come from the developing world rather than the developed world.
Ashleigh: Yeah, I mean definitely a lot of the technologies are being built in the developed world, but I think we’re seeing increasingly that they’re best to use cases for at least for now are actually in the developing world. Um, there are the easiest places to prove out, right? Because there’s nothing to compete with it. There is no place. Um, there is no way in Ghana for people to just borrow against their assets. And so if we can provide that in a way that is easy and inexpensive, then, of course, I think that will drive adoption. But I do think that you’ll see adoption in the first world, as well as more and more people, start to realize, you know, how easy this actually is and what hour it can be improved. But that’s my job to go out and tell them about it.
Nick: And, by the way, what we think about stablecoins? Are they here to stay or dirge of the stepping stone-wow-mass adoption of, you know, the native cryptocurrencies for the blockchains for example, bitcoin being more widely adopted. Is there a future for the stable tokens? How generally you see the future of that?
Ashleigh: Absolutely. Like we’ve been saying, there’s really no way to conduct business on a platform where the only currency, it fluctuates as wildly as Ethereum or Bitcoin. So, if I think stablecoins are here to stay, if, if crypto, in general, is here to stay right. If it does turn out that there were some viable business models to be created on top of this technology, then you’re going to need a stablecoin in order to make it work. So, um, yeah, personally I’m, I’m bullish, I think, uh, I think we’re gonna see some really interesting businesses coming on blockchain and crypto verse here soon. Um, so I think, yeah, I do think stablecoins are here to stay.
Nick: And here’s one more speculative questions. What do you think about the government back stablecoins, for example, a digital euro or digital USD, but backed by the government? Do you think that such use cases, you know, might be viable? Might see this in the future? Of course, not from a big economist I would say, but like from one of the smaller ones being, you know, leading the way.
Ashleigh: Yeah. I don’t even actually think that it’s a, I don’t even think it’s that crazy, right? Governments are always having problems with cash – it’s expensive to print; It is hard to assess how much of it is in circulation; It’s hard to track, so it needs to, yeah And it’s easy to launder essentially. So it’s, you know…
…there are lots of lots of hundred dollar bills in the world that are used to buy drugs and weapons and, and human trafficking and all of those things. So it makes perfect sense to me why a government would want to issue basically the dollar, but instead of it being, you know, a piece of paper you keep in the back of your pocket, it’s something that’s, that’s on chain.
We were already evolved, pretty much moved to digital banking, not everybody, that’s, that’s, that’s true. But I definitely see this as a future. In fact, during the Singapore Fintech Festival Christine, the guard was talking about how, you know, she thinks that potentially Europe should you know, start looking at these options more, more seriously. Now. I don’t think that that’s a bad thing. I think that you’re always going to have, maybe not always, but for the foreseeable future, you’re always going to have what we call CRM currencies, whether they’re government-backed or stablecoins or whether they’re there, like you say actual bills. Um, the government that stablecoins will be interesting because essentially what you’re doing is you’re, you know, cash is, cash is a privacy solution for a lot of people right now. Right. Particularly in places like Germany where they really don’t sort of trust the government, um, and you don’t appreciate surveillance on, on their spending, et cetera. I think a government-backed token, um, without the proper privacy measures implemented will actually allow the government to have more insight into how money is being spent is spent. And that’s not necessarily a bad thing. Um, but I also think that because of that you’ll have, you will always have currencies like dye, which are global, borderless currencies have not controlled by anyone. Um, you know, anyone jurisdiction which will be important for global commerce.
Nick: All right. Then my last question, what’s next for Maker and for DAI. Tell us something from the kitchen?
Ashleigh: Yeah…we’ve got a lot of exciting things coming up. So as I mentioned right now it’s just single collateral of DAI. So all DAI is backed by ether. Uh, coming up in the next few months, we’re going to have multi collateral DAI coming on chain, which means that any type of tokenized asset that you can think of from Augur’s token rep and some of the other, you know, big tokens that you’re aware of on Coinmarketcap to securities tokens, whether their stocks and you name it tokenized commodities, tokenized real estate, tokenized derivatives even – those are all going to be able to become really interesting collateral types. And in particular, I think Maker will be focused on areas where we can provide specialized finance. So things like invoice factoring for small and medium businesses. That’s a very low-risk business, but for some reason, the interest rates are really high and we can use this technology to essentially consolidate some of the risk in that industry and, and lower the interest rates, then that’s better for small-medium businesses everywhere. And that’s where you’ll really see a big impact.
Nick: Awesome. Can you elaborate more about the multi collateralization? You said that been backed by one of the other currencies in the market. Does that mean that Maker will operate on other blockchains apart from Ethereum?
Ashleigh: Hmm, that’s a good question. So we’ve actually been in several talks with other blockchains about this. I’d say, you know, in general Maker is very, uh, you could say blockchain agnostic, right as I mentioned with this first started to be built on BitShares and now it’s a, it’s built on Ethereum, but ultimately Maker will most likely tend to stay mainly on whichever blockchain has the most collateral assets, because basically the mountain, the supply of dye is constrained by the amount of collateral in any given chain. And so what that means is that if Ethereum is where many of these security tokens and other types of larger size collateral tokens are going to be created, then that’s where we’re going to, you know, keep the, keep the core contracts. But we’re also developing bridges for some of the other blockchains so that they can basically collaborate with our ecosystem. And where, uh, again, fairly agnostic about this. We don’t have any concrete plans with any particular chains, but we’re excited about some of the interoperability solutions out there – Polkadot, Cosmos. And we’ll be certainly thinking a lot about how to utilize those to make sure that we’re not missing out on any collateral opportunities, while still, you know, maintaining the security of the system.
Nick: Alright, thank you! Thank you, Ashleigh, for joining our show. This was really, one, one of the truly great discussions I’ve had so far. So yeah, thank you again for joining us.
Nick: …And…yeah, hopefully, talk to you soon.
Ashleigh: Likewise. Thanks so much for having me on.
Nick: Hey guys, thank you for listening. I hope you have enjoyed this episode of the Blockchain Meditations podcast. Please make sure to subscribe and comment and stay tuned for our upcoming episodes. See you soon.