Vinay Gupta at EthCC 2021: How to Use Ethereum to Save the Planet
At the latest Ethereum Community Conference, Mattereum CEO Vinay Gupta gave a presentation on how Mattereum is building the path for Ethereum, and crypto at large, to truly establish itself in the world of global trade.
The following is an edited transcript of Vinay’s talk at the 2021 Ethereum Community Conference, where he presents Mattereum as a legal-technical infrastructure provider for bridging Ethereum with the physical economy, thus securing blockchain’s role in global trade. Topics discussed include the legal-technical structure of physical asset NFTs, Trust Communities, examples of live physical NFTs, as well as the role of decentralized insurance protocols in the Mattereum project.
Physical NFTs and Asset Passports mentioned in presentation:
Gold Bars
Marketplace:
Asset Passport: https://passport.mattereum.com/lohko.1oz.gold.pamp.74707/
William Shatner Memorabilia with Third Millenia
Marketplace:
Asset Passport: https://passport.mattereum.com/jtkdress.5000247880.62880.2408/10k/
Mattereum Art & Antiquities Collection
Marketplace:
Asset Passport: https://passport.mattereum.com/mtrm.tvg.handaxe.ach.berg.220/
*Note: the transcript does not include the Q&A from the talk since the livestream only featured Vinay’s audio.
Introduction
What I’m going to be talking about today is managing physical assets using NFTs. So the idea here is that when you buy the NFT, you get an enforceable, practical, legal right that will allow you to take physical possession of the object.
And that is a problem that has both legal layer where we have to be able to say that you actually own the thing. It has technical layers in that we have to make sure we don’t wind up, for example, double spending physical objects. So you have two claims on a single, for example, gold bar. And the third thing that we ought to be dealing with is physical custody to make sure that the physical offsites that we’re dealing with are where we think they are when we go and try and collect them.
So the objective is to kind of build a whole system here where the legals, the technicals and the physical custody all align in a way that allows you to buy an NFT for a physical thing and get the physical thing. So what I’m going to start with is a few slides that just kind of illustrate how we got here and kind of what the idea is and then we can actually take a look at some NFTs for hopefully desirable, physical property that you can buy and sell right now.
So the company is called Mattereum. A little bit about my background: I’m basically a climate guy. I spent basically off and on 20 years figuring out how to relocate tens or hundreds of millions of people as part of climate change. Went into industry in 2014 after a long time in military think tanks. And in the long run, what I’m very interested in is using this kind of blockchain based resource allocation technology for managing very scarce, physical resources and environments like refugee camps, but also potentially space stations, moon base, Mars space.
Because this problem of, you know, who’s got the 10 millimeter wrench and can I borrow it so I can get the satellite dish installed in very austere environments using software to manage scarce physical resources makes a ton of sense to me. And at the kind of 10 year, 15 year horizon, that’s the kind of direction that I’m traveling.
Should also say that I was the release coordinator for the Ethereum chain and my background in crypto goes back into the mid 1990s.
Bringing Ethereum to the Physical World
The bottom line is that we’re trying to get Ethereum into a position where Ethereum can break out of the digital sphere and get right into the physical sphere in the same way that, for example, USDT and USDC gave us access to the dollar economy and allowed us to do price stabilization inside of smart contracts.
What we want to achieve with Mattereum is the same thing, but for houses, cars, gold bars, collectibles, fine art, clothes, whatever it is.
One of our critical sort of conceptual breakthroughs we actually got on Twitter from a fellow by the name of “gmoneyNFT” who basically said NFTs start to make a lot more sense once you realize that everything in the world except money is an NFT. And that was kind of where the lights went on. I’m like, yeah okay, this is exactly what we’re doing. We’re just modeling everything that you can’t get to with the ERC-20s you can get to as an ERC-721. So it’s that same extension kind of like USDT, kind of like USDC, but for everything, represented as NFTs rather than represented as currency instruments. Does that kinda make sense? It’s a big conceptual jump but let’s start there.
The reason for doing this is the world of physical goods is extremely large. I mean the numbers are completely eye watering. And if we can begin to manage this kind of volume using the blockchain at that point, it’s very, very clear what the longterm economic model for something like Ethereum is.
Right now, we have bit of a problem that we have layers of speculation on speculation on speculation on speculation, so when the Ethereum price wobbles, the entire economy wobbles. That is not where we want the world’s global computing infrastructure to be. We want the computing infrastructure to remain rock solid. So if you’ve got some kind of financial speculation over here, the entire edifice doesn’t rock. And we get there by putting say tens of trillions of dollars of physical assets into the Ethereum ecosystem so that 99% of the value in the Ethereum ecosystem is physical goods which have their property rights controlled with Ethereum rather than virtual goods, which are all denominated in value in Ether.
To me, that is the point at which we’ve kind of finally broken through. We’re in the real world. We’re deployed in the real world. And things really begin to change socially, culturally, and in tricky areas with regulation like climate change, this is how we get the leverage on those kind of tricky areas.
So that’s the kind of goal state, right? The goal state is to get out into the physical world, stabilize the economy by using the digital layer of all the smart contracts as a way of controlling value in the physical world rather than having the value only be locked inside of the smart contracts.
Crypto: An Economic Engine for Securing Global Trade
The economic lever for doing this is counterfeiting.
So in areas like wine, for example, roughly 8% of all the wine that was imported to Germany is fake. In high-end wine markets like auction markets, that number can be 20 or 30%. And remember wine is $360 billion annually. So when you start talking about 8% of a $360 billion market, if you can use the NFTs to assert the credible provenance to prove the wine is real, then what that gets you is an economic engine which is preventing the fraud, drives the use case for the blockchain.
And this is a very, very direct powerful economic driver that moves real-world transactions from the kind of website e-commerce paradigm where everything is done with credit cards up into the blockchain space where you do the same transactions for the same wine, but this time you use crypto plus NFTs rather than doing the transactions in the kind of credit card economy.
And you do that specifically because you can eradicate the fraud. That economic engine applies to a gigantic percentage of the world’s trade. I mean, says here at 3.3%, that’s averaged out against all commodities. It’s very spiky. Some things are massively fraud written. Other things were relatively fraud free, but that’s enough of a margin to pay for the transaction cost to moving onto a secure platform.
In this respect what we’re looking at here is a kind of an economic gradient between a low trust economy on credit cards and a high trust economy on crypto and NFTs with a kind of 3.3% of global GDP lever between those two economies. So this is how we kind of get world trade to bump off the credit card system up and onto the Ethereum rails.
I apologize if that’s kind of abstract. We’re very deeply soaked in this stuff. So, you know, it can be a little jargony, I apologize.
Trust Communities: Webs of Trust Around Physical Goods
So the way that we do this jump is we essentially assemble a thing which is kind of like a miniature DAO and we call this Trust Community.
So if I take a physical asset, So here we have the infamous Shatner stuff. Our first customer was William Shatner, the actor from star Trek. Here we have some memorabilia that Shatner signed and the verification of these physical assets is driven by a community of trust around each asset. So what you have is multiple different parties who are each staking value guaranteeing that those assets are real. And that multi-party authentication structure allows also for different kinds of truth.
So for example, if we’re looking at these Shatner toys, maybe one person comes along and says, “I was there when they were signed.” Another person comes along and says, “I’ve got records of when these things were manufactured.” Another person comes along and says, “I’ve done a CO2 calculation for how much energy was consumed in making these toys.” And you’ve got carbon offsets that pay for that, right?
So that as a model: where we’ve got all of these different individuals who are all staking value around a single asset, but each one is picking up a different facet of the truth. This is very much like a DAO and you can also imagine a syndicate where you might get 20, 30, 40, 50 people that were all simultaneously staking behind the opinion of a single expert.
And what this allows us to do is spread the trust and spread the risk associated with physical asset purchases across networks: individuals, staking pools, potentially insurance networks. And we are working very closely with UNN.Finance to actually build staking pools that will allow people to participate in providing the warranty infrastructure around the purchase of physical goods on Ethereum.
So much as I’m historically quite down on DAOs because of issues like joint several liability, if you do it correctly and you’re very careful not to create something which looks like a share, you can still use a lot of the concepts from DAOs but what you’re doing is spreading risk through essentially promissory instruments rather than things which entitle people to share a future profit.
It’s quite delicate, but it’s important to stay out, for example, securities law.
A God’s Eye View of Product Lifecycles
So the final point that I want to make here is that this is not a simple closed system. The gold bars that we sell, for example, have an estimate of the amount of CO2 involved in manufacturing the gold bar and the amount of CO2 that was involved in creating the NFT.
And then we’ve got partner company Nori who has sold us blockchain tokens to cover that gold carbon burden.
What we have here is an integration of the authenticity data about the gold, the legal transfer right instantiated as an NFT and also tokenized carbon to basically take away the environmental load.
What we’re really doing is we’re embedding these physical goods inside of their total context and more and more and more of the total context of the goods becomes visible in the blockchain as we do things like importing data from anti-slavery databases or anti slavery researchers to verify that, for example, gold bars were produced without any slave labor being involved.
And we think that’s fundamentally important because again, you know, if the blockchain really is kind of the world computer, we need to be able to model the externalities of trade in that world computer so that we can accurately price goods. Right? If something comes in contaminated with a whole bunch of, you know, slave centric manufacturing processes, we don’t want to be in a position where that thing is being sold right beside something that was produced artisanally and extremely carefully to make sure no one was exploited. We need to be able to show these distinctions so that we can apply economic or potentially regulatory pressure to get the garbage out the global supply chain.
Examples of Live Physical Asset NFTs
So here we have an OpenSea page for three physical objects: an etching by Salvador Dali, a half-a-million year old stone hand axe made by an unknown hominid, probably a human, but maybe not, and a Tibetan bronze statue of a god called Acalanatha. These are NFTs on OpenSea. You can go find them if you look for Mattereum. This thing currently has a bitterness for just about $6,850 — sorry, $8,650.
So these things are being sold right now. The physical handaxe is stored in a vault in London. And when you buy the NFT, you get the right to take the handaxe out of the vault, or you can leave the handaxe in the vault and just hold the NFT. And every year you pay a storage fee and that covers the storage in the vault for another year.
Now why might you want to do this? Well, maybe you want to own a handaxe. And you don’t want to have it shipped to your house and stick it on a shelf where your kids will decide they’re going to use it for, you know, opening the box of cereal. You want to own the thing because you’re interested in the heritage and the history. You don’t need it physically in your house. More likely. You’re somebody that is interested in doing something like a museum show, and you want to lock in ownership of all of the assets you want to show simultaneously as a batch.
And then once you’ve got the property rights secure for all of these things, then you could prove the logistics into a play to get all the stuff to one place, to have it on display. And then it can go back into vaulting. Um, But I mean, no denying it’s a stop right? It’s a thing which is there just to show how concrete and tangible these things are.
The Value Flows within Trust Communities
Let’s go take a look at a gold bar, which is maybe a little more practical. So here we have one-ounce gold bar currently owned by Singh Capital, sold by a customer of ours, Lohko. So same thing. This bar is in a vault in Singapore. Ownership of the NFT gives you the right to transfer the physical bar.
Let me talk through the legal magic that makes this possible. So when you buy the NFT, OpenSea takes a 2% payment out of the NFT transfer. So I as the buyer have paid 98% of the money to the seller of the NFT. 2% is being collected by OpenSea and that 2% is then relayed to a set of people in this Trust Community who are authenticating the bar.
So that Trust Community is mapped in a structure called the Asset Passport. So all of these people here, right? You can see we’ve got data, terms of service, vault, NFT, and carbon. Each one of those five entities is being paid a percentage of this 2% fee by the buyer immediately on purchase of the NFT. So this creates a legal obligation between say the vault warranty provider and the new owner of the NFT. And those legal obligations are represented entirely on chain.
So, although you can’t directly verify that the bar is physically there on chain. You know, there is the video camera watching the bar where you could go and get feed. And even if there was you couldn’t trust the camera. What we can represent fully on train is a legal liability to say if the bar isn’t where you said it is, then you will pay. And so what we need to do then is assess the liability on each one of those people and their ability to pay. And that serves as a proxy for the physical presence. So on chain, you can make the estimate about whether people actually have the money to pay their debts. And if they do, you can use that by extension to validate the physical goods.
And that is a very solid contractual relationship between the NFT buyer because if you accepted the money from the NFT buyer to say that you were signing up to provide this data and the data is wrong, you have an extremely clear basis for litigation and Mattereum also handles that litigation.
Let’s go take a look at the vault claim. A party, in this case Lohko Wallet, who are our customer and our partner that is producing the gold, they say they will take a quarter of a percent of the NFT sale price of the bar. And in return, they will accept a liability which is the gold value of the bar specified by the spot price from the London bullion market association, plus 5%.
So they are on the hook. As soon as you buy the NFT for the full price of bar, plus 5%. Now notice you’re not buying the NFT from them. You’re buying the NFT from Singh Capital, who are the current owner of the NFT. So you pay the money to Singh Capital. You also pay the money to Lohko. For Singh Capital you purchase the NFT. From Lohko, you purchase a warranty on the NFT, and this is also true for the other people in this warranty provider network.
This is what I mean by Trust Community. The trust structure continues to pay out every time the NFT is transferred and that creates a continuous legal container for the NFT. It’s a very, very durable structure.
Not say that you have to make a claim. You want to say to Lohko, “Hey, you know, I asked for the bar to be physically shipped to me and it wasn’t physically shipped to me. I’m making a claim. There is a contract. And this is a big, old, scary, legal document. Every time a new asset is added, new contracts are generated. The fields in yellow are being basically pulled out of a data structure on IPFS. So all of the underlying documentation is stored in IPFS. We pull that information out of the IPFS and we use it to prepare these documents, which verify the legal obligation. So everything is very, very tight on the backend. All the documents are stored and identified around their hashes. They can’t be modified. They’re uploaded into IPFS at the same time the NFT is created. The NFT links directly to those documents in IPFS.
The whole print system is extremely tight and we’re working on making this stuff easier to understand. It’s a bit tricky to document because there’s so much detail. So at the point where the NFT is transferred, this is the contract which is being executed between the NFT buyer and Lohko. And it’s the network of those executed contracts that provide the proof that the asset is there.
Here’s some Star Trek stuff. These were the first set of NFTs we did. Exactly the same kind of structure. This time for ownership of a collection of Star Trek toys signed by William Shatner. These guys have digital authentication chips on them. We’re still being a little secretive about how that works. There’ll be a big announcement about it probably the next two or three months. But we have the ability to put a key pair in a physical chip directly on the assets in a vault. The whole system is basically as tight as a drum. It’s a very, very clean, clear model.
The Role of Decentralized Insurance Networks in the Mattereum Protocol
There’s a lot of stuff here which is still to do. I mentioned UNN.finance. So some of these warranties could draw not against an individual’s assets, but they could draw against a pool which is manifested as a smart contract. So that in the event that the goods are not as described, you make a claim on the pool and the pool then pays out. And anybody can put their funds into that pool and collect revenue streams by virtue of the fact that their money is at risk covering these physical goods and it’s covering those transactions.
Once the system is set up that’s really when the system goes from being slightly manual and a little bit legal-flavored to being dramatically sort of crypto native and digital. And I would expect that we would have gold with that set up attached to it probably within two months. We’re getting pretty close to. It might even be a little sooner. And once that’s done, what you get as a situation where one or more experts states their opinion about why something has value and maybe put some of their own money on the line kind of like a deductible and an insurance contract. And then behind that, a lot of other people can then pile in behind that expert and put their money into a benefit pool, which will then cover anything that isn’t covered by the expert’s own funds inside of this deductible framework.
So that point, it becomes possible for people who believe these gold bars are genuine to profit from the sale of each bar because they put value at risk backing the fact that this gold is actually there. That structure is basically the lever that we’re going to use to get, you know, enormous volumes of assets into the Mattereum and into the Ethereum world, so that you would finally have things like smart contracts which are doing things like owning gold. Or buying houses. You can imagine something that’s like a property hedge fund where you simply buy NFTs for real estate and the whole thing is secured by a huge pool, which is just taking a percentage of each transaction in return for making sure that if one of the properties is fraudulent, we doubled sold by somebody, that risk isn’t passed onto the hedge fund, but it’s absorbed by the insurance pool.
And as those models really begin to spin out, I think you’re going to see a very dramatic change in people’s understanding of what blockchain is because the fastest and cheapest, easiest way to buy a house will be to buy an NFT of a house and then walk around to the real estate agent, pick up the keys literally two blocks later.
I expect us to do the first real estate using the system in Q3 of this year. It’s probably only going to be a parking space in London, but once the principal is established that you can do real estate, after that the fun really begins. And that’s basically it. I’m not going to delve down into the guts of the environmental work that we’ve been doing. There’s also a whole bunch of stuff here about circular economy and carbon management, but I think it’s a topic for another talk, and I’ll leave it there.
END.
The Mattereum Protocol is a culmination of decades spent thinking on how to manage scarce resources on the planet such that people’s basic necessities of living are secured, even in the worst of situations.
Vinay distilled his insights on the technological and social transformation of material culture in the book, The Future of Stuff, where he explores how things came to be and how we can build a better path forward where humanity can live in equilibrium with the planet.
If long-reads aren’t your preferred media, our podcast extends this discussion to other builders and thinkers who are shaping material culture across a range of industries.
