Name: Balancing the Ledger: Compound CEO Robert Leshner
Uploaded: 2018-11-02
Duration: 10 min 11 s
Description: Leshner shares Compound's vision for creating interest rate markets for tokenized real world assets. He also breaks down stablecoin mania, and why the technology could be beneficial.

[ MUSIC ] Welcome to Balancing the Ledger, where tech and finance intersect. I'm Robert Hackett. And I'm Jeff Roberts. And today we're joined by Robert Leshner, the CEO and Co- founder of Compound. Thanks for joining us. Glad to be here. So let's kick it off. What is Compound? Tell us about your company. So compound is a protocol built on theory in block chain to create interest rate market for a theory and ticket, what I mean by that is, we are creating a short term credit list spot interest rate that fluctuates in real time based on supply and demand, so a user can earn. Interest by supplying an asset to one of our markets. And some [ UNKNOWN ] user can borrow an asset from one of our markets. Assuming that they have enough collateral such as there's no credit risk that they expose to protocol to. To simplify it for [ UNKNOWN ] though, the idea behind this is that you don't get any interests hold in crypto, [ UNKNOWN ] savings accounts from the world of paying interest But right now, if you have your crypto with an exchange in a wallet, you don't get any, right? That's right, the interest rate on most crypto is zero because you're not able to let other traders or individuals use your crypto. And so what we're trying to do is to create a marketplace where All crypto's used and is interest generating. And this is focusing on coins and tokens that are not the value, they don't have the same value proposition of a Bitcoin. Where you're not really seeking an interest rate on Bitcoin because it's a speculative bet that you're expecting is going to appreciate in value, given the deflationary aspects of the system. So, this kind of solves us separate problem. It does, although I would love to point out that BitCoin assuming it can be recognize at some point as a currency, should have an interest rate because there should be demand for that currency from Other individuals traders and funds. And the interest rates should vision. They're almost like repos. This is a very short term, right? That's right. They are designed to be extremely short term and without credit risks. So the alternative approach to creating an interest bearing instrument is a loan to another trader or another fund. Our system, you're not interacting with other peers directly. You're simply supplying assets to a market which is liquid. You can redeem your assets at any time. It's also short term. You can supply assets for five minutes, which is appealing to problematic traders and arbitrators. And it allows there to be a lot more flexibility in locking up an asset and a loan. We've tried it before and we've been catching up on some of your own views on Crypto, and you're actually a skeptic of a lot of the Crypto assets that are out there. Can you speak a little bit about your thoughts. Yeah, so I'm a little bit skeptical of crypto native assets in general, simply because a lot of them have been designed for capital formation and not for fulfilling a specific or, an easy summary is a lot of the tokens have been created in the last two years are pretty much everywhere, I don't mean that for every single one there's obviously some projects that are some You know of extreme caliber and integrity but for the most part tokens have been used to raise capital, not because they're needed. I think we're approaching an era in which eventually there's going to be a come to Jesus moment where projects have to put up or shut up and their token has to have value or create value Or it will eventually become extinct. Sounds like the long game for you might not be a lot of these Vaporware tokens, but you're talking about real currencies, like Yen and Euros and Stirling and Dollars. You wanna tell us some more about that? Yeah, the overwhelming trend we see is the tokenization of real world assets. You're starting to see that with the US Dollar in the creation of stable coins. The next step in this is the tokenization of other currencies. Eventually other real world assets and eventually securities. In a 10 to 20 year spectrum, we believe most asset's are gonna be tokenized. And in that universe all the cryto- native tokens that have been created over the last couple of years will look a lot less appealing. And so what our vision is it that eventually we'll be creating interest rate markets for The real world assets that happen to exist in crypto form. There are a number of different stablecoins right now. There's actually like this mania going on. Everybody seems to be releasing their own. What is your opinion of them? Do you value some more than others? Yeah, so, right now there's a lot of stablecoins that are being created with the same model which is collaterizing dollars. And being able to demonstrate that the dollars exist and issuing a token against them. There is starting to be a lot of competition for this because the barriers to entry are relatively low. It's a process that the community is becoming comfortable with. Tether had a lot of difficulty with transparency and there was a lot of distrust about their mechanism of tokenizing a dollar. But a lot of newer projects are doing this in a much more transparent fashion. And my belief is that there's going to be continuing increase in numbers of stable coins that exist because the barriers are low and the upside to successfully creating a stable coin is huge. Namely? Namely if you hold the dollars and issue stable coing against them, You benefit from the interest rates inherent in dollars, eventually. And you can also benefit from transaction costs that you build into the Stablecoin for the creation, redemption or transfer of them. So if you're saying if I create a stable coin the advantage is people will basically lend me money for free. They'll give me their dollars and I don't have to give them any interest. Right, if you can be the central bank There's a lot value there. And so I think that's really attractive goal that a lot of projects are marketing towards. Do you expect a Fed Coin to obviate the need for many of these stable coins in the future? It's going to be a long time before we get to that. I do think that we're gonna have more and more fragmentation of the US dollar. There's no reason why we couldn't see 50 stable coins with the exact same model. Which would eventually, you know, incentivize the US government to intervene. You know, we saw this with the myriad versions of the dollar that existed up until the National Banking Act in the 19th century. They same thing might happen again, where we see, you know, 50 different stablecoins, and we eventually say enough is enough. There can only be one Tokenized version of the dollar. But right now who's winning, are you making any bets? It's hard to say. A lot of these are so new. Stablecoins have had such growth over the past eight weeks alone where volumes have gone from essentially zero to hundreds of millions of dollars for a lot of these stablecoins. It's too early to say. One of the things that we're doing is we're allowing our community to vote On which stable coin we created into market form simply because it's hard to pick, the best way to pick at this point is to let the community express its opinions who's on the lead right now. Right now with two weeks ago it's actually dive which is a completely centralize decentralize stable coin. It's the only stable coin on theorem that doesn't follow the same mechanism of collaterolizing the U. S dollar and issuing a token against it. It's entirely encapsulated on the block chain with no offline components. I'd like to bring it back to interest rates cuz you describe yourself as an interest rate guy. Yeah. I'm not sure I've ever met an interest rate guy before but it's kind of cool. Yu said economax, and you forecasted them and predicted them, but do you think like the actual real world interest rates are increasingly gonna have an impact on the crypto world. Do you wanna unpack the first bit? Yeah absolutley, so crypto has grown up in an era of what was a zero interest rate policy environment, you know if the bitcoin white paper is now 10 years old, you know we've. Always known crypto in enviroment of essentially zero or low interests rates. And that's enviroment of easy and loose money where capital has been prolific and working for returns wherever it was found. We're finally starting to enter an enviroment of rising interest rates which crypto has never seen before. And it's gonna be potentially challenging to the price of a lot of crypto assets. Just like it will be for a lot of assets in general including equities in the same way. The great dream of Bitcoin when it launched was this libertarian vehicle that would be totally divorced from Central Banks, and now you are saying that actually interest rates and the hikes that are coming by the Fed could negatively impact crypto, is that right? right. Crypto's starting to look like an asset class just like many other asset classes, and a lot of asset classes move together. The impact of the federal reserve increasing interest rates has ramifications for eery asset class. And it's hard to say crypto can exist independently of every other system And your long term goal is to tokenize a whole bunch of currencies, greenback and yen and sterling and so on. But I guess to sort of put on the skeptic's hat for a minute, what's the point? Don't we already have big four x markets? Why do we have to go sort of tokenize things when there's already an immensely liquid mess of market for four x So the advantages of tokenization are that it brings transparency and programmability to currencies in ways that don't exist right now. Having a token dollar, and there is a lot of stable coins creating tokenized versions of the dollar, allows users to not only send them around the world more easily and more transparently, but to also interact with smart contracts and computer programs. It's very difficult in the traditional financial system to program dollars. FinTech startups in general have a small surface area by which they can truly innovate. But when dollars are actually open to block chains, there's so much more innovation they can occur. Don't you request regulatory hurdle in that if I want to move $ 10, 000 across the border from here to Canada, that sets off red flags. And if I start whisking tokenized dollars around the world isn't the treasury going to show up at your door at some point ?>> It seems the regulatory Environment that we're entering into is one of which the on and off [ UNKNOWN ] between fiat and crypto assets are highly regulated. And it allows governments to actually step in when assets are moving in and out of the financial system while allowing them to move more freely in the crypto system. It still adds a lot of control But at the same time not hampering too much of the freedom or program ability. Well, that's all that we've got time for. Thank you so much for coming on the show Robert. Compound is a very interesting company. Good one. You see what I did there. I'm Robert Hackett. And I'm Jeff Roberts. For more bouncing ledger please go to fortune. com. See you next time. [ MUSIC ]

Balancing the Ledger: Compound CEO Robert Leshner

Leshner shares Compound's vision for creating interest rate markets for tokenized real world assets. He also breaks down stablecoin mania, and why the technology could be beneficial.