[Music]
hello everybody my name is Andy
Millennia's and I'm here from Maker Dao
one of the oldest and most ambitious
projects in aetherium and today I'm
gonna be talking about the prospect of
financial reform in the 21st century and
to do that I have to bring it back to
basics in a few months the Bitcoin
Genesis block will turn ten years old
and I think that it will be remembered
as one of the few monumental events of
the first decade of the 21st century and
that is because it is so cool it is such
an interesting and fascinating example
of internet-enabled global coordination
right a peer-to-peer electronic cash
system and we've all heard this tagline
so many times it seems very familiar at
this point peer-to-peer it's our
bread-and-butter electronic we spend our
entire lives and electronic spaces but I
actually think cash system goes a bit
unexamined in this space and that is the
part that I want to talk about today
what is it that makes Bitcoin a cash
system right
Bitcoin at least in my opinion takes
advantage of a very ancient concept
called commodity money right this is a
concept that is at least nine thousand
years old corresponding with the rise of
Agriculture and it allowed groups of
people that otherwise didn't know each
other to interact and coordinate and
share resources right using a medium of
exchange that had value because of its
underlying usefulness just like Bitcoin
was originally attractive because of its
underlying usefulness in the form of
digital Portability and uncensor bull
nature and like a commodity bitcoins
fixed supply and predictable inflation
allows it to behave in a way that takes
advantage of these ancient concepts but
this is actually
only part of the story of cash systems
when we look at the historical record
because commodity money has not been
used as a dominant cash system for the
majority of human history and with the
appearance of aetherium we have an
opportunity to explore new types of cash
systems and that's where we get to die
see areum's peer-to-peer electronic cash
system what is it what makes it
different it is based on the concept of
credit it's a much much older tradition
that spreads back even farther than
commodity money and it is very powerful
and foundational to what makes us human
and it starts with the principle of
mutual credit this is even older than
the rise of Agriculture and in fact
spreads back at least to the appearance
of modern human behavior and the
principle is simple I know you will find
it similar because it is the simple idea
of thanks I owe you one
right this is probably how you interact
with your close friends and loved ones
thanks I owe you one right if I do you a
favor and you do Bob a favor and Bob
does me a favor then a whole bunch of
work got done and we didn't even need
any money at all and this is how humans
primarily interact at the human scale
when everybody knows each other and it
works really well but we want to
coordinate at larger scales something
has to change right and that's where
money comes into the equation and thanks
I owe you one
evolves into IOU five of something right
becomes quantifiable and that is when
the project of civilization begins five
thousand years ago and we see the first
credit backed ledger money as the city's
arise in the Fertile Crescent and the
first temples are built we see that they
serve a function as the first debt
clearing houses in the first writing
that we see on the Kuna farm tablets are
actually debt agreements so these forms
of commodity money are laid up in temple
warehouses and debt is issued against
these assets there's a 5,000 year old
concept that we're dealing with here we
see so many complex and sophisticated
instruments that appear
as the historical record comes online
whether it's long term debt agreements
annual crop finance or most importantly
IO use promissory notes for these
valuable assets that can then be taken
down to the market and exchanged as
money a very very old concept right and
credit systems are essential to what
makes civilization possible and the
together credit systems and civilization
go on many different adventures evolving
twisting and turning and eventually four
hundred years ago
it becomes the modern commercial credit
system and this does not coincidentally
correspond to the rise of capitalism
right there are two main characteristics
that we can point to when we talk about
the modern commercial credit system one
the rise of fractional reserve banking
and to the issuance of paper banknotes
and this was so useful so adaptable and
so decentralized that it was able to
keep pace with the all of the different
discoveries and innovations that
attended the rise of the scientific
method and because it was so useful
adaptable and decentralized it basically
remained in place and didn't really
change for most of the history of
capitalism until 40 years ago when the
internet first appears and this is when
we see monumental transformations in the
way that humans relate to credit systems
whether it's the rise of ATMs credit
card networks or e-commerce all of this
stuff is enabled by the Internet but
most of these networks the three that I
just detailed there talked about how we
can use the Internet to connect to
legacy networks whether it's the visa
Network or the New York Stock Exchange a
lot of times they're enabled by
cyberspace but they are rooted in the
logic of previous systems and it isn't
until we see cryptocurrency that we see
a financial system that is completely
endogenous to the Internet and can only
exist within the logic of cyberspace and
so how these cryptocurrency relate to
credit systems well that is where die
comes in the die credit system has been
live for almost one year
if you look at this diagram it should
look very familiar right it's because
we're dealing with five
thousand-year-old concepts here we're
using the blockchain to make them even
better here on the Left we see crypto
assets oddly all diamond-shaped
in the center we've got again a credit
Clearing House this time a smart
contract something that we can all trust
on a global scale and then on the right
coming out as debt against these assets
is die very very familiar very easy to
understand right and we can go deeper
how does this actually work on the micro
scale on the micro economic scale well
it deals with the concept of secured
debt most of the debt in the world is
secured against assets like I keep
saying and if you see here what the
diagram they have on the screen is
what's called a collateralized debt
position a CDP in maker lingo and like
all secured debt when a user takes their
assets and escrows them into the maker's
mark contract system they can issue die
against them as debt but they can never
issue more or die than the value of the
asset itself this is just a rule about
all secured debt nobody anywhere in the
world of secured debt ever lets you
issue more value than the value of the
collateral that you've locked up in this
case eath right and if you want an
example very simple example consider the
humble mortgage if you want to buy a
$200,000 house the bank will lend you
one hundred and sixty thousand dollars
to do it with the downpayment making up
the difference here on the right we see
our CDP with eath and died and the only
difference is that the ratio of die to
eath is a little bit different than the
ratio of dollars to house now why is
that it is entirely a function of risk
and volatility in the marketplace now
unfortunately I think that we can all
admit that cryptocurrency is a little
bit more risky than real estate and so
you cannot issue as
much died against it as you can issue
dollars against real estate but how do
we know this though how do we actually
make this decision you know more
importantly who makes this decision and
that is where we get into the mkr
holders
MKR is a second token it is the
administrative token of the system and
its holders comprise a decentralized
regulatory community that come together
and make those decisions about the
nature of reality the nature of risk in
the marketplace they are tasked with
coming to consensus about which types of
assets can be used as collateral in the
system and the ratio of dye that can be
issued against those assets and the fee
whenever somebody locks their collateral
up into the system if they want to
retrieve it later they have to return
the dye that they issued plus a fee
based on how long it was outstanding and
this fee is transferred to the value the
aggregate value of mkr as a reward for
their services right because they're
very much providing a service to the
network and in exchange no sorry on the
other side if they make a mistake and
they misjudge risk in the marketplace
then the aggregate value of MKR is
actually used to protect the integrity
of dye and this is very very important
right because if we look at the
responsibilities in the roles of MKR at
the macro level then what they're
responsible for doing is actually
protecting the integrity of dye and
protecting its stability and usefulness
in the marketplace we wanted to be a
useful cash system right it's very very
important and so when we look at the
macro level the job of the MKR holders
because dye is a unique currency the job
of the EM care holders actually looks a
lot like central bankers and so we can
learn lessons from central bankers when
the MKR holders do their job and the
most important one I think that really
has a significant impact is this idea of
central bank independence a few decades
ago it was discovered that
by making central banks independent from
the electoral cycles then they could
make more long-term decisions that would
be beneficial for the health of the
economy and I think that the principle
sort of makes sense if you think about
it right if a politician wants to be
reelected they might make short-term
decisions to kind of gas up the economy
to the detriment of long of the long
term right and so this idea of central
bank independence was introduced as a
tool in their toolbox to allow them to
do their job and maker takes it a step
further because not only are we separate
from any one country's electoral cycle
but we are independent from all
countries electoral cycles right in my
opinion maker Dow died and MKR is one of
the most international ideas of the
decade was literally started in a chat
forum in cyberspace in this
non-jurisdictional space that we call
the blockchain right and died and mkr
exists on every inhabited continent and
they are entirely in the space in
between these countries right it's such
an international coalition that we've
built here and that is a tremendous that
provides tremendous value to the
integrity of the project and it's not
just like a nice aesthetic it actually
goes a step further because there are
economic forces that we can use to our
benefit the most important one my
opinion is the trifid dilemma the trifid
dilemma there is a natural tension that
emerges when one currency is doing
double-duty both as a national currency
for some specific country and as a world
reserve currency the currency that
countries use when they interact with
each other whether it's the US dollar or
the British Pound Sterling or the Dutch
Guilder many many national currencies
have been world reserve currencies and
they have all suffered from the tripping
dilemma and this tension exists in the
space between the desire to curb
domestic inflation it's basically a
desire to control the money supply and
put a dampening on it make sure that it
doesn't overheat and over expand and
this global demand
four dollars bre four world reserve
currency because if everybody in other
countries is using it to interact then
they need it they need to actually get
it and they want to expand the money
supply to get it so there's global
demand for this currency and there's
national desire to keep it under control
and this tension has pulled apart every
single currency that has done this
double duty it's widely understood that
it's responsible for killing the Bretton
Woods system this rigid system of
exchange between gold and dollars and
when dollars were used as an
international reserve currency there was
simply too much demand for the amount of
gold that there was but this is not just
a historical fun fact it actually has
real effect in the modern day and if I
may quote directly from dr. Zhao Xiao
chuan of the governor the governor of
the People's Bank of China
he says the desirable goal of reforming
the international monetary system is to
create an international reserve currency
that is disconnected from individual
nations and is able to remain stable in
the long run thus removing the inherent
deficiencies caused by using credit
based national currencies I have simply
never heard a stronger call for exactly
what maker is trying to do if you look
at the date there you said it's in March
of 2009 that is incredibly important
right because that was one of the most
hopeless moments of the financial crisis
of 2008 and 2009 this is when this idea
first appears right and I think that
this sentiment sort of kicks off a new
age in global human coordination and I
call it the financial Reformation and I
call it that because I believe it bears
a lot of resemblance to the Protestant
Reformation if you think back to history
the Protestant Reformation was kicked
off on Martin Luther indignantly nailed
a public message onto the front door of
his church and we see the same thing
with Bitcoin right the Bitcoin Genesis
blog has this
Dignan inscription on the first message
what is the first idea of Bitcoin the
times o 1 o 309 Chancellor on brink of
second bailout for banks right like the
Protestant Reformation people who are
involved in the financial Reformation
are not asking permission nor
forgiveness from the large institutions
that they take issue with they are
simply reorganizing their society at the
grassroots level in a way that they can
have direct interaction with these
forces that organize their lives right
it was incredibly important this era
that has begun you know I think that we
don't actually give it enough explicit
respect when we talk about we're at and
why we're doing what we're doing because
the alternative is very very dire the
stakes are very high we all can admit it
the stakes are very high when we look at
global problems and challenges today and
the fact is if we miss this chance at
financial Reformation then the
alternative is unspeakable we simply
cannot miss this chance and we need to
seize this opportunity and reorganize
our lives right I don't even want to
comment on the alternative and if you
look at history you will see for
yourself what happens when humans miss
an opportunity at Reformation now this
financial Reformation is where maker I
think comes in the most and becomes the
most relevant and I think that there are
three main areas that actually highlight
the strong use case for blockchains
in the maker Duff system the first is
transparency this is the key innovation
in my opinion and it is actually I think
a bit underappreciated in black chains
but it is entirely essential to what
makes maker a compelling project this
idea of real-time auditability this idea
that anybody in the world any potential
customer of the system can look for
themselves and see every single feature
every single modern or sorry current
condition of the
and verify for themselves that it is in
fact trustworthy if I went to a
commercial bank today and I said show me
your entire loan book I'm gonna see all
the assets under management I want to
see your whole risk profile and I want
to see it real time they tell me to get
lost
right but in maker this is entirely the
logic of what's happening there's no
other way that the system can even
possibly exist it's incredibly important
when we talk about financial Reformation
right but it doesn't just stay with the
technology it actually bubbles up into
the culture and that's where we get to
decentralize scientific risk assessment
awhile back I said that the MKR holders
are responsible for coming to consensus
on the nature of reality right that
means that they have to share knowledge
and agree on what is the truth if we
look in history at decentralized
knowledge sharing systems in the past we
quickly arrived at the academic system
the scientific method the system of peer
review right this is what the mkr
holders are currently realizing that
they need to interact with each other
because this is a far-flung
international coalition who talked to
each other online remotely over the
Internet
possibly never having met in person how
are these people going to talk to each
other and come to consensus on the
nature of reality it has to be
evidence-based rational repeatable
articulate and candid right this is how
the MKR holders have already committed
to coordinate amongst each other this is
so important right because the
alternative to this the alternative to
this commitment to articulate to
communication is incoherence and
obscurity and I think that this culture
is actually what a lot of what made the
financial crisis of 2008 possible right
it was this culture of obscurity that we
saw in Wall Street this collusion with
the credit rating agencies this
corporate doublespeak
euphemisms this in
same concept of moving risk off the
books how they would shake quantum
models in your face if you ask too many
difficult questions and it was in this
culture that we could have an insane
phrase like super senior tranches of
high-grade multi-sector CDOs literally
mean the exact opposite right and what
we got was an imperfect picture of
reality where financial engineers were
hailed as masters of the universe when
it turns out they didn't know what they
were doing at all it was monkey business
the entire time this monkey business had
dire consequences right we quickly Swit
slipped into moral hazard territory and
this the taxpayers had to step in and
bail out all these banks the bailouts of
I remember the bailouts of 2009 and I
remember them as some of the most
profoundly unfair experiences of my life
right it was amazing this indoctrination
of free-market ideology for decades and
decades and decades suddenly
conveniently suspended when everything
went wrong
and profits after being privatized for
decades and decades and decades were
suddenly turned into socialized losses
overnight right this was very unfair and
I don't even blame the government
regulators and the agencies that did
what they had to do I understand that
the way that the system is set up left
them with no other choice but make no
mistake the problem did not go away and
if we don't take advantage of this
opportunity to reform the system then it
will come back because that is what a
moral hazard is exactly right like it
doesn't go away unless you take a new
look at how you're organizing that I
think is the second point that maker can
really bring an opportunity for in
financial reform and it's this idea that
we are bound by our rules
this idea of code is law it's so
familiar but when you apply it to maker
it makes so much sense because we're
talking about aligning incentives and
we're talking about a rational system
where we can understand the rules up
front and MKR restricts itself
intentionally and it can't do a lot of
things that normal banks can actually do
MKR holders cannot repos repossess the
collateral they cannot move debt off the
books they cannot create die
unilaterally against without without
following the rules of the system right
these rules clear as day and written
inscribed on the blockchain are what
make the system trustworthy on a global
scale because anybody knows no matter
where you're from no matter what walk of
life you are from you are going to be
treated fairly according to the rules
and you have enough VM Care holders
undertake to change the rules that too
is bound by rules
it is rules all the way down and these
rules based systems are such a huge
opportunity to create global
coordination mechanisms that are
trustworthy and this is really important
because it brings my third point of
financial Reformation and it's this idea
that die is globally accessible die
needs to be trustworthy but more
importantly die needs to be globally
accessible this is another cool sort of
fact about blockchain is a cool sort of
feature this idea that anybody I love
this about Bachchan's this idea that
anybody in the world matter where you're
from if you found out about a blockchain
if you found out the blockchain and
thought it was cool and understood what
was going on then you could participate
nobody could stop you you were invited
to participate and share in the wealth
that we're all creating this is really
really important because a large amount
of economic activity is not being
welcomed and included to participate
sixty-one percent of all workers in the
world are not formally employed that's
two billion people that were not on
boarded into the global financial system
they just were never invited right and
it is clear
after all this time that the top-down
pyramid-shaped system of nation state
capitalism that we have today is simply
not adequate to get these people on line
we didn't we need a new type of thinking
if these people are ever going to be
included in the global financial system
and all of their productivity and all of
their hard work will never be recognized
and they will never have the financial
tools to take control of their own lives
until we start thinking in a different
way and that is not an insignificant
amount of productivity we leave 10
trillion dollars on the table
by not treating these people with the
respect that they deserve the people of
the informal economy right
informal economy in aggregate is the
world's third biggest economy and these
if we can endeavor to come up with a
system that respects the sovereignty of
the workers of the informal economy then
global productivity will only benefit
right so how does the informal economy
actually relate to us sitting in this
conference hall right now well it's
typically through the global supply
chain this is how it interacts a lot of
goods are created informally at the
bottom of the global supply chain and
then they bubble up to the market places
like where we're sitting here in Europe
and this brings us back to history if we
look at the history of credit systems
then it is almost always the case that
credit systems experience initial
traction around the concept of trade
finance trade finance is very much
related to the global supply chain
because it's all about moving goods from
where they're produced to where they're
sold moving goods to market this is
exactly what the global supply chain is
all about and the fact that these
historical credit systems see traction
around here around this type of
financial activity gives me a lot of
hope and makes me very excited about
some of the partnerships that we've made
in 2018 whether it's with trade shift a
platform that is trying to digitize
supply chain interactions and has
already 1.5 million businesses signed up
or if it's wire
which makes it easy to translate dye
into over 30 national currencies these
are huge opportunities and more
importantly they're opportunities that
have a historical track record of giving
traction to these new types of credit
systems and this brings me I think to my
final point possibly the most important
it's this idea that maker symbiotic with
all other DAPs in the ecosystem this is
huge we need each other because maker
needs other daps
to create wealth and utility and useful
crypto assets to serve as the base of
Di's monetary supply and all of these
DAPs
need maker to issue to come together and
coordinate a useful cash system for the
etherion blockchain so we are so in this
together and I feel like this year was
the year that the flywheel started to
get going you know there's so many gaps
that came out this year that I
encountered that simply could not exist
without having died as a useful medium
of exchange to make everything work and
it's so exciting we've interacted with
these daffs and we're so committed to
incubating this ecosystem because it is
exactly where we are placing our faith
and our trust so if you have an idea and
you know how you can take advantage of
all the work that we've been doing on
die then please reach out and come and
contact us because we are so so
incentivized to make it work for you
right so please come to our booth up on
the third floor and say hello if you
have any ideas at all because we really
want to be at the center of where all of
the activity is happening on aetherium I
think this is a good place to conclude
right because what I'm seeing this year
with the rise of maker and all of the
growth that we've been doing in the
etherium ecosystem is this idea that
we're finally beginning to unlock our
potential there's so much
potential in what we're doing here and I
think that with maker and all of the
interesting projects that we are
enabling and working with I think that
that potential is finally being unlocked
so if you're ready to be a part of this
and unlock your potential then please
reach out and get in touch and thank you
so much I'm very excited about the
future
you