Balance introduces a novel way to buy, trade, and use a diversified basket of cryptoassets as cash.

In the spring of last year I started getting interested in cryptos again, after a 4 year mental break from the space. I like putting my money where my mouth is, so the first step was crafting a diversified portfolio and getting some skin in the game. To my surprise, after catching up with the news and analyzing the top 100 most popular projects on CoinMarketCap, I arrived at the following picture:

• consumer adoption and interest was skyrocketing (along with the prices), with crypto entering the awareness of the early majority market;
• merchant integration was severely lagging behind, mostly caused by high volatility and transaction fees. In the middle of a “crypto boom”, reputable merchants (eventually including Stripe and Steam) were *removing* Bitcoin payment support;
• the consumer experience in setting up a diversified crypto portfolio is downright horrific: open accounts on multiple unregulated exchanges, wire your money to one or more foreign banks you’ve never heard of, run your own trades, and cross your fingers, while having virtually no ownership over your assets.

This got me thinking: can we not build a consumer experience that my mom in her sixties would be comfortable going through, while simultaneously providing merchants with a high-velocity, stable, medium of exchange?

What if the future of digital money isn’t using a single currency, but instead holding, trading, and using a diversified basket?

Imagine this:

1. You create a diversified crypto basket by dragging a few sliders (“I want 30% Bitcoin, 30% Ethereum, 20% Dash …”). Your own private property, tailored to your risk appetite, rebalances automatically, generates returns while you sleep.
2. You go to a merchant to pay for your morning coffee. Receive a notification on your phone to pay $1.75, tap to accept, and walk out. $1.75 worth of crypto is transferred out of your basket while keeping your proportions intact.
3. The merchant receives the payment. Maybe they hold 50 currencies in their own custom tailored crypto basket to reduce volatility or maybe they just accept fiat currency as per usual. Regardless, they receive payment instantly, with virtually zero fees.

A consumer or merchant could create a personalized portfolio (which according to the Wall Street Journal is the future of investing) that generates market returns *and* could be used as cash. We could effectively eliminate the distinction between an investment account and a chequing account. A merchant could cut volatility by creating their own personalized “stablecoin”, through accepting a basket of currencies as payment.

Has anyone tried anything like this before?

Can this have a chance of working? Take the European Union and the International Monetary Fund as an example. The European Union member states traded internally a basket of currencies called the European Currency Unit (XEU) for close to 20 years. On January 1st 1999 the Euro was introduced as the official legal tender, and all baskets on the market were replaced at a 1:1 exchange rate. The global reserve asset of the International Monetary Fund called the Special Drawing Rights (XDR) is also implemented behind the scenes as a basket of currencies. Trading a basket to reduce volatility seems to work and in crypto land there is no need to issue any legal tender. We can fully automate and decentralize the trading of these baskets with today’s technology.

In a pure “memento mori” fashion, I called my best friend of many years Baha, and asked him to join me on this quest. On June 16th 2017, Balance was born.

Why does buying a basket of cryptos have to be so complicated?

Two main reasons: technical, and legal & regulatory.

Let’s break down the technical first. To buy a diversified basket of currencies you need to:

• create digital wallets for each currency, on the appropriate blockchains;
• source the funds and load each of those wallets in the specified proportions;
• be able to modify those proportions at will, to enable features like automatic rebalancing, or liquidating into a base currency (e.g. “sell everything into BTC”) …

… with a simple push of a button, while keeping the funds as secure as possible. Ideally:

• all private keys would be generated and managed offline for the lifetime of the key, and never put on any device connected to any network;
• all transactions sending funds out would have to be done offline, in a monitored, access-controlled manner.

Solutions like CoinCube or HodlBot just don’t cut it. My mom would still need to create an accounts on Binance, Kraken, and other exchanges. On top of it, she’d have to trust a third-party with API keys that have access to her funds, and pray that they don’t leak them, or their software isn’t buggy and won’t run bad trades one unlucky day.

While trying to put together a proof of concept we quickly discovered that the APIs and interfaces exposed by most blockchain daemons are fairly limited in functionality, not standardized, inflexible, and sometimes buggy. Implementing a robust solution for the above on a *per client* basis would quickly turn into a technical and unscalable operational nightmare, which brings us to topic number two, legal & regulatory.

Partly to avoid operational complexity, partly due to bias towards porting existing models from the traditional financial industry, most companies that have tackled this challenge (e.g. ICONOMI, Prism, Abra, Coinbundle) end up implementing a variation of the following:

1. The customer pays $5,000 and chooses their desired basket proportions.
2. They buy $5,000 worth of crypto, deposit it in a vault somewhere commingled with everyone else’s funds, as company property.
3. The customer gets back a digital token (e.g. ICNX) or some other form of representation of said assets (e.g. database entry, access to a smart contract of sorts).
4. The token gets listed on a crypto-exchange where it can get traded, or some other form of liquidity is provided (e.g. liquidate collateral from a smart contract).

What you buy is not what you get. While you think you’re getting a diversified portfolio, behind the scenes you end up being tied to the success of the company through a token, and/or fully exposed to a single currency (e.g. ETH in the case of a Prism). What you actually bought was a flashy Javascript pie-chart and a false sense of confidence. You actually want to retain the title for your assets? No problem. Gemini can do that for close to 1% a year. The caveat? They only deal with you if you show up with 10 million or more and pay a minimum of $100,000 in fees a year. Ouch.

Most existing solutions give the customer a false sense of diversification.

Not only do most existing solutions give the customer a false sense of diversification, but they also tend to create financial securities behind the scenes, intentionally or otherwise. Whichever way you dice it, commingling funds or issuing a digital token representation of said assets ties the customer’s risk to the rest of the customers, and/or the company, into what’s called a common enterprise. Combine this with an investment of money and an expectation of profit, and you’re guaranteed to have triggered some registration requirements with some regulatory body somewhere. Even if said body would entertain registration (which they don’t), you won’t be able to sell that crypto basket to retail investors easily, so my mom is still out of luck.

While the above is obviously a gross oversimplification of the story, this is the current state of affairs. Any place where you read the words “assets in custody with a third-party partner” or “you get exposure to the assets” (instead of you know … the actual assets) is most likely selling you a security. Not retaining the title on your crypto assets is like giving your cash to the bank, and the bank saying “Well, now it’s actually my cash not yours. I also just created some debt I owe to you for the same amount. I might or might not be solvent, and may or may not pay it back in the case of a bank run, depending on how my business is going”.

The next question therefore naturally emerges.

Is it possible to create a tradable crypto basket without creating a financial security behind the scenes?

Enter the Digital Asset Cache (DAC). A DAC is a self-managed collection of digital wallets that can be created, transacted, and liquidated as one single unit. A DAC is also a so-called “Layer 2 protocol”, that sits on top of existing blockchains, similar in that regard to the Lightning Network. A DAC is (at the moment) our own secret sauce that leverages cutting edge technology such as hashed timelock contracts (i.e. “atomic swaps”), argument based verifiable computation (a form of succinct, non-interactive arguments of knowledge with constant sized proofs), and smart contracts to expose a simple API to use.

A DAC can be printed on a piece of paper and shipped to you securely, or kept in storage with us. You retain full title and ownership regardless. It took us 7 weeks of pretty much non-stop, highly involved technical work, to build a proof of concept with support for 8 major cryptocurrencies: BTC, BCH, ETH, ETC, LTC, XRP, XLM, and DASH.

The photo below if of the very first such (printed per version) of a DAC, which holds my own diversified crypto basket to this day. The number 170802001 reads “2nd of August 2017, DAC #001”. We got better tamper proof stickers since :)

A paper version of the first Digital Asset Cache sitting in our secure deep cold storage.

We’re finally ready to come out of the woodwork and tell our story.

It took us another full year to build a fully fledged solution and navigate the legal and regulatory environment to bring this to market. We’re finally ready to come out of the woodwork and tell our story. We value trust, legitimacy, and fair access. We ask for you to join us as volunteers, investors, ambassadors, and beta testers seeking to bring crypto to the mainstream.

Who are we?

Balance is headquartered in Toronto, Canada and is co-founded by George Bordianu and Baha Nurlybayev. Both are 2nd time founders with strong technical backgrounds.

George (CEO) holds a MSc. in Computer Science from McGill University. Prior to Balance he worked at 500px as their Director of Engineering. Prior to that, he was the Founder, CTO of YourExtraLife, a mobile social app. which made the front page of the App Store in the US, Canada, and 75+ other countries.

Baha (COO) holds a BASc. in Management Engineering from University of Waterloo, and prior to Balance was the Founder, COO of nightlife and entertainment industry startup Niteroll.

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