Tgrade Finance: Trusted Circles and a New Way to KYC
The Keplr team announces a new interview series spotlighting each of Keplr’s integrated chains. Through this series, we aim to foster deeper knowledge and interest in our ecosystem, starting with the teams that are shaping our interoperable future through Keplr Wallet.
Today we learn from Martin Worner, co-founder of Tgrade Finance, about the Tgrade platform and its solution to KYC compliance through Trusted Circles and Proof of Engagement.
Martin, it’s great to have Tgrade kick off Keplr’s partnership series, and we’re looking forward to the learnings. First off, can you tell us a little about yourself?
A 30 year career in capital markets and technology, covering many asset classes, at Morgan Stanley, UBS, and then running a technology company serving banks, asset management and hedge funds around the world. It was 2017 when I looked deeper into blockchain and in 2018 started the journey, which along the way led to meeting Ethan Frey and Simon Warta and set the path to Tgrade.
Exciting to know Cosmos is attracting experienced leaders like yourself, bringing more depth and value to the network. In brief words, how would you define Tgrade Finance?
Tgrade is a blockchain designed to help businesses solve real world problems.
What inspired you to launch Tgrade? What’s the problem Tgrade aims to solve?
We began years ago with ideas about consensus which evolved into Proof of Engagement and a version of a DAO which we called a Decentralised Social Organisation, which builds consensus off-chain and records the decisions on chain as opposed to the more economic nudges and “code is law.” The motivation for this was to create a highly robust and decentralised chain, which is the foundation. This gives businesses confidence to issue significant assets on chain which potentially greatly exceed the value of the chain itself.
There were many discussions about building a chain with a purpose, and seeing the innovations in DeFi in 2020, we were inspired and asked the question, “Why aren’t more institutions getting involved?” Traditional markets measured in trillions and at the time TVL was in the low billions, and it seemed obvious that there was a bigger market to target if we could overcome the barriers.
So what stops a traditional, regulated business from getting involved with DeFi and blockchains? One of the biggest issues is linked to the pseudo-anonymous addresses on public blockchains — regulated businesses need to know the origin of funds to help combat the flow of terrorist finance and the proceeds of crime, and have obligations to comply with “Know Your Client” legislation, which is not possible with a blockchain address.
At a stretch, a regulated business could claim their counterpart is a smart contract, but the underlying liquidity pool has a bunch of tokens that could be nice and clean... or be the proceeds of crime.
So what stops a traditional, regulated business from getting involved with DeFi and blockchains? One of the biggest issues is linked to the pseudo-anonymous addresses on public blockchains…
So, Tgrade aims to establish legitimacy, and safety, of blockchain addresses without sacrificing anonymity?
Right. The big question then is, where to build in the checks on the origin of funds and the KYC in a blockchain while retaining the decentralised ethos of blockchain? [We’re] starting from the principle that regulated institutions, by definition, will have a robust compliance department with processes and people in place and that introducing a further layer on-chain would only increase their costs and add complexity.
It came down to leaving the compliance off-chain in existing processes that complied with the jurisdictions they do business in. What we needed is to link identity to a blockchain address (again, this is captured off-chain).
The big question then is, where to build in the checks on the origin of funds and the KYC in a blockchain while retaining the decentralised ethos of blockchain?
We then designed the governance processes to be self-sovereign so that the creators of Trusted Circles (whitelisted groups) set their own rules and governance, add addresses (linked to identity) to that group and set permissions to the digital assets issued to the Trusted Circle so that only participants can swap and send them within the group.
Sounds like a great solution. Can you explain specifically for Cosmonauts how Trusted Circles could be applied?
Trusted Circles are a core part of Tgrade and enable people, businesses and communities to create whitelisted groups and issue, swap, and send tokens to participants of the Trusted Circle.
Having this mechanism in place means a regulated business can prove to their regulators that they know who they are transacting with, they can identify people who misbehave, and apply appropriate sanctions using the governance tools. A good example is that by using Trusted Circles there is the benefit of making Tgrade MEV resistant.
There are some interesting projects that are combining Trusted Circles with verifiable credentials (Self-sovereign identities and Zero Knowledge Proofs), which is a powerful combination.
In general, Trusted Circles can be used in Cosmos where there is a need to have a collection of known/identified addresses, which could be a subset of people or businesses as part of another Cosmos chain. Tgrade is IBC enabled so then connects with other chains. In the future, using multi-chain, IBC enabled smart contracts gets even more interesting as the Trusted Circles become the whitelists and interact with many other Cosmos chains.
And, what about Proof of Engagement? What is it, and why PoE?
Proof of Engagement came about when Ethan Frey and I asked the question, if we could design the best consensus algorithm in the world, what would it look like? We looked at existing models, such as PoS, dPos, and PoA and how the theory and practice matched. We found issues with PoS and dPoS around concentration power and the wider issue of incentives for all the community around a blockchain and not just a subset (validators, core devs, etc.). We wrote a paper, funded by the ICF, which included some scenario tests using cadCAD.
Proof of Engagement incentivizes collaboration through Engagement Points, and it maintains a diverse validator set as they are incentivised to be actively involved with Tgrade. In addition there are the vloggers, bloggers, community builders, evangelists who are now incentivised to be engaged and contribute to Tgrade.
What are some challenges you foresee for Tgrade? How do you plan to mitigate them?
One of the challenges Tgrade faces is that it is business focused and the adoption will be slower than we see with DeFi protocols in the last couple of years; however, in the medium term, a rich ecosystem of businesses running on Tgrade will mean a significant user base, and a range of digital assets being issued.
There has been regulatory uncertainty which is now changing with the MiCA legislation in Europe, and more certainty in the USA; this will all help with businesses adopting Tgrade as it becomes clear what the rules are and how to structure their business.
Some people get apprehensive when they hear ‘regulation’ or ‘blockchain for business.’ What would you say to these folks?
There are strong arguments for embracing “regulation” and “blockchain for business.”
The current environment of DeFi, and crypto in general is like maritime law where anything goes, and while the market size was small, the regulators were not too interested; however, as it grew, then the regulators started paying attention.
The argument for designing a regulatory friendly blockchain is to help shape the narrative and show regulators what is possible, and how to use blockchain to address their concerns. The alternative is to have “regulations done to us” and that leads to the introduction of intermediaries as they are easier to regulate, and the narrative of “if it walks like a duck, and talks like a duck then it is a duck” which would push blockchain towards the existing processes where it makes no sense.
The argument for designing a regulatory friendly blockchain is to help shape the narrative and show regulators what is possible, and how to use blockchain to address their concerns.
Regulations were first introduced in an exchange in Amsterdam in the early 1600s to address short selling, and for 400 years regulators have been legislating. While the regulated markets are not perfect, they are a response to bad behaviour, and better than no regulations. The regulations are designed to ensure fair markets and customer protection, and by starting with these basics, the case can be made for blockchain and how the processes work to mitigate the risks. A proactive approach to educate regulators will benefit blockchains with better regulations, and create an environment which gives reassurance to investors and issuers of capital.
Businesses building on blockchain bring their customers as they solve real world problems, and it is possible to imagine that their customers may only be vaguely aware of the fact that they interact with a blockchain as they are buying their goods or services.
There is room in the blockchain space for regulation friendly ecosystems and businesses building real world solutions, and this does not diminish the unregulated, the experiments, trail blazing innovation…
In other words, it is not a zero sum game.
You’ve given us a lot to think about… As we wrap up, can you share the upcoming plans for Tgrade? Where can users find roadmap information or latest news?
The initial phase of Tgrade was in building a robust platform to support businesses. The next phase will be customer driven, and as businesses onboard, their requirements will be driving the roadmap.
We will keep the news flowing on https://www.twitter.com/tgradefinance and more in-depth information https://medium.com/tgradefinance.
What are the first steps you’d recommend to readers to get involved with Tgrade?
Engagement Points are available to anyone for contributing to Tgrade and what form that engagement takes is only limited by your imagination! Engagement Points are used in the calculation of TGD reward distribution.
Beyond the community building, validator tools, blogs, and documentation, there are other areas to consider such as business development. If you introduce a business to Tgrade and they begin building, you are eligible for Engagement Points. We want to hear your ideas and have developed a simple form to submit a request for Engagement Points which the Oversight Community will evaluate.
Form: https://docs.google.com/forms/d/e/1FAIpQLScJxyazrE5XqhKPiU_3FAI1kuPdMUTnX3gUj_ZX3Q1vluZ0Dg/viewform
Our blog, as I’ve stated before, has a lot of information about the project and the themes of regulation: https://medium.com/tgradefinance
If you want to join as a validator, you need Engagement Points and TGD, which are available on Osmosis.
Great, and last question: what are some other Cosmos projects that you’d like to see Tgrade collaborate with in the future?
We are already IBC connected with Osmosis and have been speaking with Cheqd about collaboration. We are exploring how we can work with other projects like the lovely people at E-money, the great team at Cudos, and through our connections with all the chains running CosmWasm.
Very exciting. Thank you, Martin, for your time! The Keplr team looks forward to the growth and success of Tgrade. 🔭
Tgrade is solving the basic problem in public chains of pseudo anonymous addresses through Trusted Circles, a self-sovereign governance mechanism to allow you to create your own groups with your own rules.
To learn more, visit: https://medium.com/tgradefinance
Follow Tgrade on Twitter: https://www.twitter.com/tgradefinance
Find Tgrade on Keplr Wallet: https://keplr.app
