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How Decentralized Finance (DeFi) is Changing the World as We Know It

Today’s interview is with Alex Batlin, the Founder and CEO of a company called Trustology, whose mission is to accelerate the adoption of cryptoassets. The topic of the interview is on decentralized finance and its impact on the world.

Hey, Alex, thank you for joining us today. Could you start by telling us about yourself? I’m mostly interested in your journey from working at UBS to now, representing and accelerating crypto assets.

Sure, I was a founding head of both UBS’ Fin-Tech Innovation Lab based in the UK’s Level 39 accelerator and the bank’s Crypto 2.0 Pathfinder research programme into blockchain technologies. As well as nurturing a number of dynamic fin-techs during my time at UBS, I was heavily involved in the bank’s various crypto-asset projects, most notably the inception of Utility Settlement Coin (now called Finality). Off the back of this work, it became clear to me that as crypto-assets became increasingly ubiquitous, there was a need for an institutional custody solution, which merged cutting edge technology with traditional custody services.

In November of 2017 you founded Trustology, what issues did you see at that time, and what was the solution you wanted to build?

My vision for Trustology was to create the most compelling cryptoassets company of the 21st century by driving the world’s transition to cryptoassets. We believe they present new measures for people to discover new routes to investment value. We are driving this adoption so to speak, through our processes, people and technology.

I believe markets are currently primed to have space for censorship-free, unregulated digital asset classes coexisting happily with more regulated asset classes.

However, security is one of the biggest risks facing the nascent cryptoasset market. Around $1.7 billion worth of cryptoassets were stolen between 2012 and the first half of 2018, according to financial research firm Autonomous NEXT and Crypto Aware. In the first three months of 2019, cryptocurrency thefts reached $1.2 billion according to a recent report by CipherTrace.

In the same way that cryptocurrency is more or less the digital equivalent of cash, a crypto wallet is, in a sense, the digital place in which these assets are stored. But unlike a physical wallet, cryptoassets aren’t stored literally. Instead, what is stored and secured are the private keys linked to those assets as they are needed to transact.

As the cryptocurrency market grows, demand for a mobile, secure payment avenue is growing — and the number of ways you can pay electronically is definitely expanding. Today, there are a plethora of crypto wallet options available to the market, ranging from hardware wallets or cold storage which are typically off-chain physical devices, such as USBs, with private keys encrypted in them, to electronic device driven software wallets and physical paper wallets, which actually exist in this digital world as analog documents with private keys recorded on them. All solutions are aimed at either providing investors with a choice of self-custodying their private keys or leveraging a custodial service to manage and secure the keys for them. The problem, however, is that securing the keys is still very problematic for most, where the experience is not very user-friendly, not easily accessible (eg cold storage) or scalable to meet say business demand and keys tend to get lost.

Enter Trustology. We go about the safeguarding of cryptoassets in a completely different, most effective and unique way to other companies in the niche sector — and should, therefore, be recognised for our achievements. We essentially go beyond ‘cold storage’ at ‘hot wallet’ speed. This is enabled through the company’s TrustVault product, which leverages hardware security modules, secure data centres and multiple levels of encryption to mitigate security risks while enabling users to execute transactions through their mobile device or via API integrations thereby reducing the transactional delays caused by manual processing. Moreover, TrustVault offers its users a segregated account structure with a user key per account, eliminating many of the risks long associated with omnibus account set-ups.

In your opinion, why are cryptoassets important for the world?

We believe that crypto assets are going to provide new wealth creation opportunities for everyone, and we want to help drive the world towards that. Blockchain reduces the cost of trust for financial transactions. And, once you reduce the cost of trust, you increase the velocity of trade and transactions, and you are able to provide support for more niche, underserved use cases, which have previously been considered too expensive to get into. You make it easier for people to participate in the ecosystem and create greater wealth. It’s about creating wealth for everyone, especially those underserved by conventional systems.

Today’s topic is decentralized finance. To those who might not understand the implications, could you compare it with regular finances?

Let’s take payments as a prime example. In the current system of payments we operate under, it is actually quite complex and costly. At the national level, for instance, banks are having to deal with multiple ledgers between one another, a reconciliation process for those ledgers that involves multiple messaging networks (Visa, AMEX and Mastercard) and finally several payment providers to give access to those networks — all to make the payment system work accordingly. That’s a lot of intermediaries involved to make it happen and cost not to mention credit risk as banks only settle cash end-of-day.

Adding to this complexity is the international payments arena which currently has no real-time gross settlement system in play, which means that banks are reliant on messaging networks such as SWIFT for their interbank payments and correspondent banks for settlement. Overall, we’re looking at higher credit risk and transaction costs.

With decentralised finance (better known as DeFi), on the otherhand, we’re creating the foundations and infrastructure to accommodate digital currencies and to create a new world of financial services that can support new innovations in finance — with the same checks and balances as the old world of traditional banking and fiat currencies but without the involvement of intermediaries.

In fact, what we’re seeing is the first wave of service platforms and providers interacting with decentralised currencies like Bitcoin and Ethereum. A whole landscape has developed, with ways to onboard consumers from fiat currencies to crypto, to exchange between cryptocurrencies or create borrowing mechanisms. That’s crucial to extend the advantages of decentralisation and capture the full lifecycle and potential of this asset class — from issuance, through transfer, and then into lending, as well as creating algorithmic stablecoins like MakerDAO.

Decentralised finance (DeFi) is evolving quickly. All because many are starting to recognise the potential role cryptoassets will play in global trade. With the fact that new crypto innovation is stemming from open source software that essentially extends the function of the internet by allowing peer-to-peer value transfer, more and more members of the private sector are catching on especially as it pertains to trading, borrowing and lending.

For instance, many people may know of Ethereum as a cryptocurrency, but in fact, it is a vast, open-source network or blockchain that allows anyone to create applications to enable financial activity to take place without the involvement of centralized institutions.

The motivation behind this is simple: reducing the cost of trust and reaching the estimated 1.7 billion people who currently lack access to financial services, according to CoinTelegraph. As well creating global liquidity pools that operate at internet scale. Although existing infrastructure and services have been instrumental in generating wealth, very little has ended up going to this excluded population.

Can you tell me more about the Trustology solutions on offer today?

Absolutely, we currently provide ‘hot’ custodial wallet solutions that go about the safeguarding of cryptoassets in a completely different, most effective and unique way to other companies in the niche sector. We essentially go beyond ‘cold storage’ at ‘hot wallet’ speed. This is enabled through our TrustVault product, which leverages hardware security modules, secure data centres and multiple levels of encryption to mitigate security risks while enabling users to execute transactions through their mobile device or via API integrations thereby reducing the transactional delays caused by manual processing.

We are perhaps one of the first firms in the world to secure the keys to cryptoassets remotely through our TrustVault platform technology by combining end-to-end hardware security with front-end software flexibility. Users know that if their mobile signing device is lost, their crypto assets are still safe as their assets’ keys are never held on their device.

Prior to developing TrustVault, we researched existing market-leading solutions like hardware wallets and cold storage and determined that there was an unaddressed need for a low-latency, user-friendly, yet highly secure custodial wallet provider. Since its first release in 2018, TrustVault has delivered security of the highest order whilst providing 24/7 access, transaction processing times of 350ms and control of the service via an iPhone.

Who would you say is the ideal client, and what alternatives do they have?

TrustVault is strongest at institutional level but it also scalable enoughfor everyone. Initially, we’ve gone to market with a mobile wallet solution for iPhone — the TrustVault app. API access will be made available to customers soon and they operate at the same level of speed, flexibility and access that clients have come to expect from traditional assets and account services.

TrustVault account for individual investors and high net worth clients currently stands at hundreds of active users today. Building on this success, Trustology has also launched TrustVault for business at SIBOS, the world’s largest financial services conference, in October 2019. The service allows companies of any size to build up their cryptoassets operations at speed and scale while optimising on cost, control and business agility.

Both solutions operate from the convenience of a mobile device or via API integrations with a user-friendly interface and design, 24/7 access and a radically faster way to send, receive and store assets, processing transactions in under one second. Plus, we are one of the first in the crypto space to be insured (via AON) whilst being real-time.

Who in this industry do you think is pioneering innovation in decentralized finances?

MakerDAO is another innovator in this space. Creators of the DAI, a stablecoin whose value is pegged to the US dollar at $1USD by committing ETH as collateral, MakerDAO acts as a decentralised credit platform on Ethereum. Having recently launched its multi-collateral DAI (MCD), the platform now allows users to put up other cryptocurrencies as collateral in their system. Once it approves new collateral types, MCD will also allow users to earn interest on DAI by locking up a DAI Savings Rate (DSR) smart contract on ethereum. This in turn allows users to earn a variable return on their DAI holdings.

To date, the MakerDAO platform is collateralized by 1.5 million ETH, worth roughly $295 million. Launched nearly two years ago, MakerDAO is considered the most popular decentralized financial (DeFi) application on the ethereum blockchain, leading the way in terms of functionality, user experience, commitment to decentralization, and contribution to Ethereum scaling efforts.

Another innovation in this space is creating decentralised financial contracts platforms such as the Universal Market Access (UMA) project, which is striving to enable the use of tokens and derivatives to trade anything. Using concepts borrowed from fiat financial derivatives, UMA defines an open-source protocol that allows any two counterparties to design and create their own financial contracts. Unlike traditional derivatives, UMA contracts are secured with economic incentives alone, making them self-enforcing contract design patterns and universally accessible.

Two other interesting projects to launch on the Ethereum network are Uniswap and Compound Finance. Uniswap is a protocol for the decentralised exchange of tokens but unique to those existing today. It’s essentially a set of smart contracts deployed to the Ethereum network, making the entirety of this process taking place on-chain. On a typical traditional centralised crypto exchange, market makers are familiar with supplying liquidity at various price points. They choose to make markets at various price points they would be happy to transact at. With Uniswap, however, a market maker no longer specifies which prices they are willing to buy or sell ETH at. Instead, Uniswap pools everyone’s liquidity together and makes markets according to a deterministic algorithm.

Compound Finance, on the other hand is an open-source, autonomous protocol designed to support interest and borrowing, for the open financial system.

How do regular people incorporate decentralized finance without going through too much of a hassle?

As DeFi, crypto and blockchain are all still relatively new, we discovered a lot of teething problems around security, interface and interaction. Which is why we prioritised integrating our custodial wallet with MetaMask to allow users to experience a safer and easier way to connect to decentralised finance apps (DApps) without any hassle.

Secondly, for anyone interested in exploring or experimenting with crypto in general, securing and managing one’s assets’ keys is paramount.

Custodial wallets such as our TrustVault product, are being created with the most sophisticated technology and institutional-grade security without compromising on ease of use or flexibility so that people can send, receive and store cryptocurrency with the peace of mind they’ve come to expect with their traditional assets and account services.

Where will Trustology be in 3–5 years?

We think of Trustology being the equivalent of a web browser for the blockchain. It will be the gateway to all things crypto. We for sure have competitors out there at present, but we want to create a lasting solution that removes existing compromises — one that continues to be recognised for being super secure, super easy to use and very fast.

Awesome, and thanks a lot for joining us today, Alex! It was a pleasure!

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