Cryptofinance Infrastructure Development
Using trust-minimization techniques to solve difficult problems in finance
The internet of money is here, but the infrastructure to take advantage of it at scale is not.
Interesting Problem Areas
Over the Counter Trading (OTC)Enable back office automation, remove counter party risks, remove intermediary costs and risks, make exotic products more liquid.
Central Bank Issued Cryptocurrency (CBIC)Sovereign digital cash for remittance, cross-border trade, financing and investment.
Over the Counter (OTC)
The majority of the world’s wealth is traded by telephone, often recorded on paper, and reviewed manually by lawyers. In many jurisdictions, these trades must also pass a regulatory review to ensure counterparties are liquid.
- High transaction costs
- Illiquid, unstable markets
- Discovery can be very difficult
- Trade is separate from settlement
- Settlement is slow and expensive
- Counterparty risk is significant, collateral is required
- Custodians are required to ensure trades settle properly
- Politics play a role in disputes (unfair!)
- Settlement across borders can be difficult or impossible
Cash for Cash Trade
Imagine you have recently returned to Europe from a trip to Africa, and you find 37’000 Nigerian Naira (NGN) cash in your pocket. You meet a stranger in an anonymous chat room on the internet. After some conversation, you agree to mail the stranger NGN 37’000 in cash, and they agree to mail you EUR 100 in cash.
Would you mail the NGN cash? How likely is it that you will receive EUR?
Hashed Time Locked Contracts
Bitcoin lets you construct transfers with multiple encumbrances.
With a hashlock funds cannot be spent until a specific piece of data is publicly revealed. Once revealed, any hashlock locked with the same key can also be opened.
A bitcoin transfer can be "locked" for an amount of time, impossible to spend until after some point in the future.
Crypto for Crypto Trade
Imagine you have Ether and you wish to buy Bitcoin. You meet a stranger in an anonymous chat room on the internet. After some conversation, you agree to send the stranger 100 ETH, and the stranger will send you 1 XBT. Because both Bitcoin and Ethereum support HTLCs, you can create an Ethereum transaction which guarantees you cannot be cheated.
This means that as long as you can trust Bitcoin and Ethereum to continue working as expected, either your trade is guaranteed to complete or both parties get a full refund (minus miner fees).
Cross Chain Atomic Swaps
Trade any cryoptoasset completely peer to peer with realtime physical settlement, post no collateral, and take no counterparty risk. The speed and security of each trade is regulated soley by the blockchain protocols running on you machine.
This yields permissionless swaps of tokens which represent interest in any real contract.
Summary of peer to peer cryptoasset trading advantages
- Eliminates counterparty risk
- Enables uniform trade execution
- Provides transparency for automated audits
- Consolidates/automates some OTC trading operations
Central Bank Issued Cryptocurrencies (CBIC)
Digital cash should inherit the same properties as physical cash
- Mimic as perfectly as possible the properties of physical cash notes
- Add “receipt” feature
- Add “transmit at a distance feature”
- Deploy the infrastructure first, make the public aware of the financial cost
- Small regional pilot programs can succeed