Rafael Cosman on TrustToken's stablecoins and lending protocol

0:01i'm ashton addison from block west capital for investmentpitch media and today on the Crypto Coin Show we have raphael cosman the ceo of trust token raphael welcome to the show and thank you for taking the time thank you ashton it's great to be on likewise i'm excited to dive into your insights into the d5 space and what trust token and trufyz is working on

0:24let's just dive into your thoughts on where you see the d5 industry right now and then how trust token is fitting into that yeah so and briefly on my background and involvement in the space and the ceo trust token we're about 100 person team in the d5 space and we're the makers of both the true usd stable coin which is a billion dollar fiat back stable coin as

0:48well as the true fi uncollateralized lending protocol so it's an unsecured lending protocol directly on the blockchain has originated 1.6 billion dollars of loans in the last 18 months since it launched and has really pioneered this sector of on and under collateralized lending on chains that's what we're very excited about that's great to hear and yeah i would

1:12love to dive into the stablecoin discussion in a little bit and first i'd love to know you know about trufy just growing the uncollateralized loans how have you seen the d5 space growing and true fight growing with that yeah so we've we've been seeing this as one of the fastest growing sectors within d5 and it's become it's gotten a lot of recognition so for folks that are

1:37not as familiar with d5 you know d5 decentralized finance is about taking the things that were used to be done by traditional financial institutions and starting to do them in smart contracts on blockchains and most of this is happening on ethereum which is the largest smart smart contract supporting blockchain in the world today but of course it's starting to happen on

2:01some other important layer one chains like solana and avalanche as well but you know what we're seeing on ethereum is billions and billions of dollars moving into d5 that's definitely taken a step back with this recent crypto crash and what's happened with the ust and luna and that's something we can definitely touch on today ashton but you know even with some of the recent

2:23setbacks it's still amazing to see billions of dollars being deployed in some of these decentralized finance protocols when it just feels like just a few years ago we were talking about thousands or millions so the scale of this industry has grown massively and we think it is still less than one percent of where it's going to be when it has truly made an impact on global

2:46finance that's where we think defy is really headed incredible and yeah i feel like you know it's possible to tokenize the entire capital markets in one way or another and i feel like there's a lot of new financial products coming out that have you know advanced financial products that are all over the tradify space right now that are just sort of

3:08growing into d5 and getting more institutional people involved in d5 and i feel like this crypto crash might be a good thing for institutional investors usually they're not the ones who bought at the top and crying on the way down they see this as a buying opportunity would you say that so yeah i think that's true you know the so the crash that happened is very

3:31interesting one of the major events is the fall of the ust and luna system so there's this algorithmic stable coin called ust and you know was used in a bunch of different d5 protocols and it had a major major collapse there's you know there's a whole bunch of different stable coin models and stable coins really provide a lot of the infrastructure upon which d5 rests

3:59because you can't do a lot of lending and trading and other things you'd want to do on the blockchain in d5 if you don't have stable coins if you don't have you know a us dollar equivalent or a euro equivalent to be able to work with and so that was one of one of the major pieces of this recent crash was the fall of this stable coin called ust which was an algorithmically backstable

4:21coin so it was redeemable only for luna which is another very volatile cryptocurrency and you can of course see why that could become a problem once you will start redeeming it for the luna then then they sell that luna the price of luna goes down pretty soon there's very little backing billions and billions of dollars of what people thought were stable coins so that is

4:45a somewhat different model than the fiat back stable coins which is you know my company has produced several products of that kind fiat back stable coins are backed by actual fiat currencies and so as you said they are truly the tokenization of a real world asset so you hold one tree usd it's backed by one actual u.s dollar and the same goes for usdc and many other fiat back stable

5:06coins they're backed by us dollars sitting in an actual bank account and it's really just a way of taking those assets those real world assets whether it's fiat currencies or people are starting to work on commodities and securities and even real estate and just be able to trade those on the blockchain and use them in decentralized finance protocols so we're connecting

5:28this layer of real world assets into the blockchain and getting a whole bunch of advantages from doing so a great explanation there raphael and speaking about algorithmic stable coins versus fiat backed and there are crypto backed stable coins as well absolutely a lot of people in the crypto industry you know researching more into stable coins and you know what's

5:50actually backing it because i feel like a lot of new investors and experienced investors as well were in the ust stablecoin and just didn't see when it all toppled to zero that you know how could this happen to my funds and you know personally totally i was also wanted to give more education to people about different stable coins after this

6:13happened on you know where what's the best stable coin where do you put your money to ensure that the one dollar is going to equal one dollar and i like you know the name rings well true usd that's like truly backed by a dollar however i'm curious yeah i'm curious on you know the details or the fine print behind that as well because they say with usd tether and usdc

6:38being some of the major stable coins that there it's not 100 percent you know us dollars in paper form that's in a bank account there's also commercial papers and they actually have treasury notes and other you know backing by large corporations that aren't actually in us dollars and i'm curious is that the case as well for true usd or how does that work

7:01yeah so all the funds from from true usd are held with our actual banking partners now you know what you're describing is a complex question because you know in modern accounting you know when people say cash and cash equivalents they'll include things like treasury bonds which of course you know are not truly completely risk-free but are very

7:25close and so i think that you know with stable point issuers like true usd and usdc you know are are generally being very careful with you know making sure that they're only putting that capital into you know completely liquid assets that ultimately their banking partners feel very comfortable with backing and that's part of the key thing here is you

7:44know this is not just like a technology company saying hey we're going to launch this product but working with actual regulated banks and those banks you know are holding that money in accounts and are being extremely conservative with that under the hood that's kind of part of the nature of being a bank and making sure that you don't implode as a as a

8:00very regulated institution so i do think that there is some important regulation that's going to be coming out pretty soon probably on the back of this ust situation and saying okay what really is a stable coin you know what do you have to be transparent about so true usd has aimed to be one of the most transparent stable coins in the world and actually is the only stable

8:25coin that does real-time 24 7 live attestations with a third party accounting firm you can actually find those directly on our site and so those that's an accounting firm that is actually in real time inspecting the via api the balances held with our banking partners and reporting those to the public so you don't you don't just have to trust us that those

8:47are backed by actual funds held by actual banks you can you can see this report from an independent auditor so that's that's just an example of how we're trying to take trust to a really really high level but i do think there's gonna be some important lines that need to be drawn about you know what can call itself a stable coin what does that term mean what are people

9:09being transparent about can algorithmic stable coins or crypto back stable coins use that same terminology and how do they make sure they are educating their users about what sorts of risks they are taking if they choose to hold a stable coin like usd definitely great points there raphael and further to that i've seen that even though you know there's contemplation on

9:36on for example usd tether being one of the oldest stable coins whether it actually has 100 backing or not it's still around today but importantly the reason that a lot of people are using it is because it is some of the default trading pairs on a lot of the exchanges and in d5 and you know there are other stable coins like the one that binance is working with

10:01with paxos that is supposed to be you know even more backed by actual us dollars than other commercial papers and whatever else they say but it's not as used as much because it's not adopted into the d5 ecosystem and into all these exchanges so i'm curious on how exactly sd is approaching that in bringing in you know more availability for people to actually use it on

10:24all locations yeah so it's a good question true usc definitely does not have the penetration that usdt does and you know at the end of the day we work on that you know through having strong partnerships and also just making true usd the most transparent and high quality product that we can but i do think it is a really interesting question for the entire

10:48crypto world that we have so much of our global trading volume relies on tether pairs and tether is almost certainly not the most transparent fiat stable coin on the market today so are we able as an industry to make a switch off of that does that present an existential threat or at least a catastrophic threat to our industry if there were to be an

11:15issue there and we saw just recently tether trading at something like i think it was 95 96 cents so it's not it's never had a you know serious crash or default the way that ust did as it imploded recently but tether definitely has been shaky at times in a way that many other fiat stable coins such as true usd and usdc have not good point raphael and i would love to

11:43jump back to you know the overall d5 space and i guess taking an analogy from the ust luna you know debacle on how a lot of people are sort of even borrowing and using ust and then having to sell it and then because of that there's sort of a cascading effect in d5 overall you know there's there's people staking and they're liquid staking and they're able to you know

12:09that you've i've seen the memes about people are able to borrow from here and then stake here but then that gives you another token that allows you to stake over here and that gives you another token allows you to stay over here and you know with the percentage of collateral if there's any of those volatile assets that go down then there can be like a

12:28margin call that sort of cascades through a bunch of different assets and i'm curious on your take on the d5 space and how risky it is for you know when bitcoin crashes and alt coins crash even more and people are using those in d5 if there's a cascading effect it seems like all coins are much more volatile than bitcoin they seem to crash a lot

12:55good question so ashton there are definitely some very valid concerns about how reliance defy is on some of these volatile cryptocurrencies and that's part of why at trust token we've tried to build products like true usd and like trufi our lending protocol that do not depend upon the success or failure or any of the of any of these volatile cryptocurrencies it's actually

13:23if i could just show you a brief run through and how that works so true fi is our protocol for uncollateralized lending on the blockchain and we've got a whole bunch of different lending portfolios some of which just went live as recently as last week and present some great lending opportunities for any any folks that are interested in participating so

13:48if users are looking to deploy capital please definitely consider what we've got going here basically the idea is you know we see d5 not primarily as a way to speculate on various volatile assets we really see it as better financial infrastructure so we can move d5 can allows us to move money around the world in a simpler faster more efficient and more

14:15transparent way and so we are interested in applying that to lending so there have been a bunch of protocols that have done it was essentially margin lending these are the overclockerized lending protocols things like compound and ave it's on compound you can put up let's say 120 worth of ether and then borrow 100 of usdc a stablecoin or you know many other

14:41assets and so it's over collateralized lending compound does not need to have any professional asset managers or underwriting on the platform because they're always holding you know 120 or 150 you know very significant amount of collateral that they can liquidate if someone doesn't repay their loan that was kind of a first generation of d5 protocols compound of a some of these

15:05other models but trufy and some other more recent protocols that have come out are doing is taking the next step and saying okay can we bring actual underwriting onto the blockchain and have lending pools that are pursuing interesting differentiated lending strategies and leveraging the advantages that d5 presents so just as an example here so here's

15:31here's a portfolio that we recently ran it's now it's now full it was very successful this is a portfolio we ran with alameda research where you can go through a kyc process on our website deposit uscc into this portfolio and then it will deploy capital directly with alameda research which is one of the top names one of the most legit trading forms in the crit in the crypto

15:56space and you know it's making these loans at eight percent apy there's some tru incentive tokens that's the governance token of the protocol that are added on top of that for a total roi of 9.94 right now and that's what you get as a lender so what's interesting about this is this is an interesting lending opportunity it's differentiated it's not something that

16:21you're going to find on a vanguard or whatever your you know wealth management platform is and you know we think it has very competitive returns very attractive risk reward here and it's facilitated through the blockchain which allows us to really reduce the cost of managing this kind of investment so if you think about let's say a blackrock credit fund

16:48right you know these folks raise and manage billions of dollars off-chain do you think you know what is a small check in a black rock credit fund maybe it's you know a million million dollar check is a small check for them right they would probably never consider taking you know a ten thousand dollar check or one thousand dollar check or anything like

17:09that it just wouldn't be worth the overhead for them right and that's because running on running off the blockchain there's just all of these costs these operational costs to be able to move money around and deploy capital and on the blockchain we don't have that or at least it's much much smaller and so we have lenders on our protocol that deploy nine figure checks you know 100 million

17:35dollars plus and we have people that deploy a hundred dollars and everything in between and that is part of the power and the flexibility of this kind of technology and some of our some of our portfolios that are liquid you could actually deploy capital and decide that 15 seconds later in the next ethereum block you want to pull that capital out that's how fast this kind of technology

17:59is where if you think about okay if you want to transfer us dollars via bank wire or send money to a financial institution just how slow that is compared with how instantaneous things can be on the blockchain so you know here in d5 interest is paid out you know instantly 24 7 block by block you know depending on the protocol you can oftentimes deposit and with

18:22bra immediately anytime you want move your money elsewhere it just creates a much much more efficient much more streamlined system and this is really what we see as the future for finance in general we think everything in finance is going to work this way is going to have this level of transparency and efficiency and that someday we're going to look back at the

18:42way finance was done before and we're going to say wow that was crazy the idea that something's going to take hours or days instead of seconds it's going to be like it's going to be wild incredible raphael and thank you for explaining all of this and you mentioned at the beginning about uncollateralized lending and we spoke a little bit about

19:03you know collateralization and having 120 150 percent i'm curious on you know uncollateralized lending and how that would work totally so the way that true fi and a bunch of other of the newer lending protocols work is that they do actual underwriting on borrowers so we've got for we've got portfolio managers that are generally professional asset managers they will work with

19:30borrowers review their balance sheet and their income and what risks they're taking and so on and then determine what kind of credit they want to extend and in some cases they'll take some collateral in some case they won't take collateral but it's not like com pound or ave or maker where the protocol is saying hey you got to put up 120 collateral in ether or bitcoin or some other asset

19:55before we can extend you alone because in this case we're actually doing an underwriting process and really understanding that those borrowers are are likely to repay that loan this of course you know if you're if you don't if you're not holding that 120 100 collateral there of course can be more risk but you're oftentimes getting more reward as well so if you look for

20:15example you know many of the lending pools on trufy you can see here let's say our uscc pool one of our major pools 6.33 apy unboosted and with true that's boosted up to 8.54 here's our busd pool another stable coin that you mentioned with binance and paxos eight point six four eight point four six percent apy unboosted with the

20:43tru token incentives the governance token on top of that 11.5 percent these are some very attractive yields when you compare them to other opportunities whether within d5 or within tradify if we go over to compound for example you can see here you know right now on true usd you can make 1.55 tether 1.93 die 1.4 usdc 0.81 you're not even making 1

21:09on usdc and then you see you know with the boost of the comp token which is the governance token for the compound protocol that's going from 0.8 up to 1.28 so that's better but still compare you know an all-in 1.28 with an all-in you know 8.5 or 11.5 right huge difference so compound protects itself and ave protects itself by accepting

21:38this collateral but of course they can't they can't command the same kind of pricing power that someone like a trufy can command because you know if you think about legit trading firms big borrowers these folks they aren't going to be willing to put up if they want if they want a 10 million dollar loan they're not going to be willing to put up 12 million dollars

22:00of ether they either don't have it or they want to be put in that capital to work doing other things for them you know they want working capital to be able to trade to be able to provide liquidity you know they need to be working with their capital not locking it up in a d5 protocol so i do think that you know margin lending and over cloud wise lending what

22:21many of these other d5 protocols are doing is very important i think it's going to continue to be an important sector within d5 but the thing that's innovative about what my team and you know what trufy is doing is that it is able to actually do underwriting we have professional portfolio managers that launch portfolios on the protocol and do actual underwriting they can vet

22:44borrowers make loans that accept and make loans that accept little or no collateral and ultimately provide what we think are much more attractive risk-adjusted returns to lenders and just to give you a sense of how that's turned out if you take a look you know the protocols already had 1.19 billion dollars repaid all in uncollateralized loans on the

23:07blockchains in stable coin you know directly from the protocol to a borrower's ethereum address then back to the protocol that's 1.19 billion be paid with zero defaults and an average interest rate that i think is somewhere around nine percent so that's pretty attractive and so you know we think this model has a long way to scale orders of magnitude to scale

23:27before will really be impacting how lending works globally at the same time we feel like it is it's already proven itself as a model that you know this can work we can do landing on the blockchain we can do it in real size and it can provide very attractive returns incredible rap file and thank you for showing those differences and you know we don't have a lot of time

23:49left but you know we talked about how d5 is really just like less than one percent of what you think and we think it will be and that this is poised to scale how do you position trust token moving forward to be the number one go-to d5 platform as all of this capital comes in and hopefully you know 100 of the capital markets become move into d5

24:18good question well for us a lot of it is about just continuing to execute well you know we're very focused on this under collateralized lending use case we think it's a giant market and that you know a simple well-built protocol that is being thoughtful about risk being very thoughtful smart contract security being thoughtful about regulatory and legal risk you know that

24:43that a protocol that kind can absolutely win this so that's where we're looking to position ourselves just to give you a sense we actually just our company trust token just signed a very big partnership with a major broker dealer in the space to be able to do compliant securities issuance in the united states so that is part of how you know we have our core

25:07uncollateralized lending protocol that's a piece of open source technology that anyone can use but then on top of that we're looking to build the entire institutional platform everything that more traditional financial technology and traffic companies are going to want to be able to use this kind of d5 protocol because a lot of these folks are not going to be

25:28just downloading metamask and you know depositing some stable coins or borrowing some stable coins from a protocol they're going to want a lot more than that in terms of security there's a regulation in terms of licensing in terms of additional software for auditing and management and so that's a lot of what we're working on in addition to developing the core

25:48protocol is what do we need to build on top of that to really bring in the next 10 billion 100 billion trillion dollars that we think is going to come into d5 and ultimately spur the transition from d5 being a niche area of asset management a niche investment class a niche tool for folks like you and me to have fun with to really being something that changes how

26:14finance works around the world incredible raphael and you're right i think people are going to want a lot more information instead of just opening their metamask and jumping right in and you know with that said how can the viewers learn more and follow along with all of the updates that your team is making at trust token and get involved good question

26:36so please follow us on twitter i'm at rafael cosman and our company is at trust token and we also now have at trufy dao for our protocols dao if you go to trufy.io just t-r-u-e-f-i dot io we've got all the links there we would love to have you join our discord have you join our forums we've got a very engaged

27:04community that is setting up all different aspects of this protocol and so if this is something that you're excited about if you are interested in building the next generation of d5 protocols and how the future of lending is going to work please come and get involved with us we would love to have you thank you so much raphael and i will leave those links in the description box

27:25below as well to make it easy for the viewers i really appreciate all of your insane insights into the d5 industry and wishing you the best on trufy and trust token and let's follow up in the near future that would be great thank you for having me on ashton it's a pleasure