Stablecoins face censorship risks due to issuer control, which can undermine decentralized infrastructure. Moving financial services on-chain requires solving privacy issues and careful problem identification. A conservative approach to blockchain development, involving extensive testing, is cruc…
Key takeaways
- Stablecoins face censorship risks due to issuer control, which can undermine decentralized infrastructure.
- Moving financial services on-chain requires solving privacy issues and careful problem identification.
- A conservative approach to blockchain development, involving extensive testing, is crucial before launching networks.
- Ethereum prioritizes freedom and censorship resistance over speed, setting it apart from traditional finance.
- The crypto industry should focus on transparency about the problems technology aims to solve.
- Real world assets on decentralized infrastructure are still vulnerable to censorship.
- Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets.
- Privacy and anonymity are distinct concepts, with privacy involving selective information sharing.
- Governance is critical for blockchain networks, especially those supporting significant infrastructure investments.
- Blockchains are not inherently immutable; immutability is a social construct.
- The integration of traditional finance architecture into crypto creates friction with the community’s cypherpunk values.
- The crypto industry has created excessive noise without delivering substantial products.
- Long-term sustainability in blockchain requires real utility and cash flow businesses.
- The market cap of a network should reflect its utility, or it risks going to zero.
Guest intro
Yuval Rooz is the Co-Founder and CEO of Digital Asset, the company behind the Canton Network, a privacy-focused federated blockchain platform for capital markets. He co-founded Digital Asset in 2014 to apply blockchain beyond crypto to financial services efficiency. Previously, he managed an algorithmic trading desk at DRW and worked as a trader at Citadel.
The risks of stablecoin censorship
- Stablecoins can be subject to censorship by their issuers, undermining decentralized infrastructure.
- “The issuers of those stablecoins pretty confident having the smart contract a feature that allows them either to freeze your stablecoins or to in some cases even burn them out of your wallet” – Yuval Rooz
- This vulnerability is critical for evaluating the reliability of decentralized finance.
- Real world assets on decentralized infrastructure still face censorship risks.
- “The second you have the world’s real world unfortunately you open yourself to censorship resistance by the issuer doesn’t matter that you put it on a decentralized infrastructure” – Yuval Rooz
- Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets.
- “As long as we are in agreement that the second you have an issuer you are exposing yourself to restrictions beyond the permissionless world” – Yuval Rooz
- Stablecoins can be controlled by their issuers, which undermines the benefits of decentralized infrastructure.
Privacy and anonymity in blockchain
- Moving financial services on-chain requires solving for privacy.
- “In order to move everything on chain you need to solve for privacy” – Yuval Rooz
- Privacy is about sharing information on a need-to-know basis, while anonymity means no one can see the information.
- “To me privacy is the ability to share information on a need to know basis” – Yuval Rooz
- Privacy is a significant differentiator for Canton compared to public permissionless blockchains like Ethereum.
- “Privacy is probably the easy one” – Yuval Rooz
- Privacy in transactions can be compromised even with strong encryption due to potential future decryption capabilities.
- “If I took your personal information I encrypted it with the best encryption in the world and I send it to Ryan I have invalidated your privacy” – Yuval Rooz
The importance of governance in blockchain
- Governance is critical for the success of blockchain networks.
- “One of the things that we looked at throughout the years is governance of these networks” – Yuval Rooz
- Governance is crucial for networks that support significant infrastructure investments.
- “For us governance and the ability for people that are putting significant bets on the network” – Yuval Rooz
- The distinction between governance and code in blockchain networks is crucial for their future development.
- “The decision to formalize it and put it as code formal code in the system” – Yuval Rooz
- Canton’s governance model aims to reward those who contribute effort to the network rather than just financial investment.
- “We want that the super validators are going to be those that are aligned with the network” – Yuval Rooz
The role of super validators
- Super validators have specific roles that differentiate them from regular validators in a blockchain network.
- “The super validators in the case of canton do two operations” – Yuval Rooz
- Super validators in the Canton network provide a guarantee that all counterparties to a transaction receive the transaction information.
- “The super validators are those that run kind of the glue as we talked before” – Yuval Rooz
- Becoming a validator should be accessible and not require significant financial staking.
- “Our view is that becoming a validator is a commoditized product” – Yuval Rooz
- The concerns around super validators may not be as significant as perceived, especially in the context of the Canton network.
- “I’m not even sure that I share the concern that David has around super validators” – Yuval Rooz
The evolution of financial services on blockchain
- The next generation of ETFs and financial products will be natively on-chain.
- “I think you’re gonna see the next generation of etfs and other products that are natively on chain” – Yuval Rooz
- The DTCC is a central hub for capital markets, representing a massive concentration of assets.
- “If you try to bring capital markets like I said you go to where the balance sheet is” – Yuval Rooz
- Canton Network is one of the first pilots for tokenizing securities with the DTCC.
- “The announcement that canton network is one of the dtcc’s first pilots to tokenize securities” – Yuval Rooz
- There will likely be additional blockchain networks involved in tokenizing assets based on customer demand.
- “I expect that based on you know customer demand and opportunities there will be others” – Yuval Rooz
The impact of traditional finance on crypto
- The integration of traditional finance architecture into the crypto space creates friction with the cypherpunk values of the community.
- “You have the old style architecture but you are marketing it to our industry” – Yuval Rooz
- Canton’s approach to blockchain is seen as an upgrade to old systems rather than a revolutionary change.
- “I see that’s what canton is trying to do… it’s doing it inside of the confines of the old rules” – Yuval Rooz
- Canton’s architecture is perceived as relying on established companies rather than empowering individual validators.
- “When they look at the architecture of canton and they see the words super validators” – Yuval Rooz
- The technology in crypto is creating new intermediaries rather than removing them.
- “A lot of the intermediaries that have been created in crypto are even more centralized” – Yuval Rooz
The future of blockchain networks
- Blockchain networks must evolve to remain relevant, and Bitcoin’s inability to upgrade poses a significant limitation.
- “These networks have to evolve… the only blockchain that I as I know it that can’t upgrade” – Yuval Rooz
- By 2030, Canton could facilitate trillions of dollars in daily settlements.
- “I think that canton will be driving you know not 300 billions but potentially a few trillion of dollars” – Yuval Rooz
- The market cap of a network should reflect its utility, or it risks going to zero.
- “If we don’t bring utility to this network we think that the market cap of this network should go to zero” – Yuval Rooz
- Long-term sustainability in blockchain requires real utility and cash flow businesses.
- “For the most part I would say that there haven’t been really long sustainable business models” – Yuval Rooz
The impact of regulation on blockchain
- US laws restrict equities from being permissionless or bearer instruments.
- “There’s a law in the us that says that equities in the us cannot be permissionless” – Yuval Rooz
- Regulated institutions currently cannot rely on blockchain social contracts to convince regulators.
- “I don’t think in today’s world a regulated institution would be able to convince a regulator” – Yuval Rooz
- The DTCC is a market-neutral financial market infrastructure, which means they do not favor any specific blockchain.
- “The dtcc is a market neutral financial market infrastructure” – Yuval Rooz
- Real world assets on Canton are being maximized through partnerships with regulated institutions.
- “We are trying to maximize real world assets on campton with regulated institutions” – Yuval Rooz