The Next 100M Users of Crypto
An Interview with Dan Schatt from Cred
We recently interviewed one of the founders of Universal Protocol Platform, Dan Schatt from Cred. He is the President of Cred, a former GM of Mobile and Financial Innovations with Paypal, and believes that the Universal Protocol is how we will get to a larger, more connected blockchain.
Dan has worked for years in fintech, in countries that span the globe. From Australia, to Mexico, to Senegal and Singapore, and now back to California, Dan has been on a decades-long journey in search of expanding tech to new users across the globe. As we discussed a wide range of issues together, it really became evident that Dan Schatt is not someone just blowing in the trade winds to make a quick buck on some crypto. Dan is truly a visionary who sees what a global, decentralized financial network could accomplish for the people of the world, and what we need to do to get there
Could you tell us a bit about yourself Dan, and how you got started with Cred? Take me back to the beginning.
Dan: I got interested in the blockchain and crypto space back in 2012, back when I was working at PayPal. I later published a book in 2014 called Virtual Banking, with a chapter on Bitcoin and crypto. My big realization at that point was that while PayPal made the process of moving money simple, all of the information revolved around a centralized database structure that it had amassed — something that would never allow it to become the “internet of money”, which is what is possible with a decentralized ledger structure.
I had the “Aha” moment that if this moved to decentralized ledgers, not only would this be potentially a lot more secure, but you could significantly scale up the ability to move not just money around the world, but value as well.
Just before founding Cred, I spent a few years building a fractional share brokerage, where you could buy a gift card that was good for stock — think $25 of Tesla or Apple stock you could buy just like an Amazon gift card. In a sense, this was the first “tokenized” product for public stock. We got the requisite regulatory approvals and took it to market. But it occurred to me that crypto would allow all assets to become tokenized. It wasn’t just [US] Dollars that were becoming tokenized and made easily accessible through stablecoins, but it was the ability to take artwork or real estate — really any asset class — and tokenize it. It won’t be too long before you can buy a fractional share of stock in the form of an Ethereum token.
When I came to this realization that all asset classes would eventually become tokenized, I thought “what are the biggest things that need to happen infrastructure-wise to make this a happen on a massive scale. It occurred to me that you need liquidity more than anything to make a new tokenized ecosystem. You need a form of decentralized banking to occur — global matching of those who hold crypto deposits wish to earn a return, and those who are looking for more funds need the ability to borrow against this new asset class. Reputation and credit ratings just don’t carry over from one place to the next when they sit in one database. That is why we created Cred.
A Bitcoin is a Bitcoin anywhere you go around the world, you should be able to value it the same as any common digital asset around the world, and borrow or lend against it. You no longer have this situation where because you are in a specific country with a specific set of credit infrastructure where you might not be able to get a loan for under 30%. Now you can get single digit interest rates around the world.
When I was traveling from country to country earlier in my career, every time I would open a new bank account and apply to get credit, each bank would start me off with a $500 credit line. I would say “I worked my way up in the U.S. or other countries” and they would say “well you’re in a different country now and you’re with a new bank now” and I would have to start from scratch each time. This idea that my reputation — the sum total of all the responsible things I have done in my life — could have been recorded immutably on a blockchain, my reputation or “cred” could be more equitably acknowledged and I could get more economic value for what I had done. My reputation should be able to follow me no matter where I go in the world.
If you had to quickly sum up what Cred is and what you’re trying to accomplish to a non-traditional blockchain user, how would you describe it?
Dan: Cred uses [blockchain] technology to allow anyone who has access to the internet to access low cost credit and high yield returns, regardless of where you live, who you bank with, how much money you make, and whether you have a credit rating or not.
Would you say that an indirect effect of Cred is that you will be able to “democratize credit” globally, so to speak?
Dan: I think there is a lot to that statement — that crypto can “democratize” credit and financial services overall. This is because it no longer means looking directly at your credit history in a siloed database in a specific country. If you can provide us with your digital assets, and we know that you’re not a terrorist — from our KYC process — you can be given a loan. I think people and companies that benefit the most from this are those that may not have access to the best credit right now, like people in high inflation countries where credit infrastructure is not strong. Globally there are ~2.5 billion people with bank accounts, who can now benefit from the same rates and same opportunities as the rest of the world.
Imagine that you live in Argentina and you want to invest in the US Dollar. You would have to open a US bank account which may prove impossible. Now, you can buy into the Universal Dollar that is Ethereum-based. It is completely transparent and pegged 1–1 to the U.S. Dollar, which is just as effective. The technology itself becomes the form factor for existing familiar assets that everyone knows and understands today. What it effectively does is allow us to give significant returns to those that opt in. Then we can take the money from deposits that might be coming from Argentina or Venezuela, and then lend out to other parts of the world where there might be more demand for borrowing like parts of Africa or Asia. This makes banking much more efficient, because liquidity is now matched. Banks take in a certain amount of deposits and they have to do a certain amount of lending. But now if you can take deposits from all over the world, and you can lend all over the world, cross-border, with a more efficient technology, you can drive better returns for people and lower cost of loans.
Tell us about your first customer transactions with Cred? Where did you see interest from once Cred came online?
Dan: The first surprise for us at Cred was that the people that our supporters are scattered across 40+ countries; we didn’t see growth coming from just one, or two, or even five countries. The sign-ups were all over the place. That was surprising because that means there was a global demand from the start for something like this. The inquiries we got were from people from all over the world that were saying “I can get a single digit interest rate and the money can be wired into my bank account? Tell me more!”
One trend coming from the U.S. right now that we are seeing is interest from college graduates. We know challenges exist because student loans are such a big problem in this country. The debt load is so significant that it’s hard to imagine taking out more loans. At the same time, across most of the world there is a significant interest in saving long term in an asset class that does not have inflationary effects, and borrow low cost to consolidate high interest debt. We also see many companies that have taken in crypto on their balance sheets interested in hedging their positions and taking loans in USD. I think that we have been amazed by the number of use cases that we have seen with people using this for all sorts of things from adults to young people, to various nationalities, that are trying to save in a new asset class and get better financial services, period.
What do you see as the purpose of the Universal Protocol Alliance? What are you trying to accomplish with this?
Dan: The purpose is to make it easy for the next 100 million users who currently do not use crypto. Today there are a lot of comparisons to the early days of the internet. You had competing protocols across communities — from Compuserv to AOL — and they didn’t talk to each other. It was hard to build upon the internet when you’ve got all of these competing standards. The intent here is to unify under one common framework, a protocol which can always be changed to something else when it needs to.
Right now we believe that Ethereum’s smart contract infrastructure is furthest along. Basically, with the alliance we can take any digital asset and create an Ethereum-based token which is pegged 1–1, pegged to that digital currency, and custody it professionally. Then we allow exchanges and everyone in the ecosystem — from users to, traders, to investors — to utilize these tokens in a way that makes it much more mainstream. Our approach doesn’t just solve for token interoperability, it also addresses things like token recoverability and inheritability. If someone passes away and they didn’t give the beneficiary any information about their private key, can it be recovered? These are the sorts of things you need to solve for if you want to get to the next 100 million users of crypto.
Can you tell us how you got Cred involved in the Universal Protocol Alliance? Did you have an “Aha!” moment one day?
Dan: Yeah it was sort of an “Aha!” moment of stumbling upon a few different technologies and talking with a few smart people in the industry. One was stumbling upon Uphold’s fantastic technology, which is essentially a transparent banking technology — an oxymoron of sorts. Chances are wherever you bank today, you are not able to zoom in and see all of the deposits of that bank. You can’t see all of the obligations, all of the transactions, and what they have on deposit at this moment. If everyone wanted to withdraw their money at any given time, they would encounter serious obstacles, because banks work on a system of fractional reserves. You need bank supervisors, inspectors, auditors, to come in and help the public understand if the bank is solvent or not.
But what if all of this underlying information could be exposed in real time to everyone? You wouldn’t need all of these bank supervisors because everyone would be able to see how solvent the bank is at any given time. Uphold basically created an extremely transparent, sophisticated 1–1 reserve structure, where your assets are always backed in a reserve that anyone can see at any given time. Some of the stablecoins minted today are not so transparent in their reserve structure — it’s hard to truly know if they are pegged 1–1 with their underlying asset. I realized the industry is suffering from lack of confidence. Uphold I think was ahead of its time, and if this technology can be married with the ability to mint an on-chain and off-chain digital representation of the underlying asset, that can drive confidence for the entire crypto community.
Some of the really smart people I connected with early on were JP Thieriot at Uphold, and Howard Wu at Blockchain at Berkeley. We realized we had the right resources, and that we could come together to create an Alliance that would be dedicated to bringing important pieces of infrastructure to the crypto community and act as a bridge for the next 100 million users of crypto. From there, JP, Howard and I got together to bring this technology to market.
How is the UPUSD going to be different from other stablecoins? What is the biggest differentiating factor you see between the Universal Dollar and other stablecoins?
Dan: One of the first big things is that if you hold your money today in crypto, chances are you are not earning a return on that crypto. Now you can earn a very good return on your stable coin digital assets, something which has not been possible until now. Number two is that Cred is the first lending company in the crypto space to create a joint business relationship and collaboration with PwC, to help define the standards necessary to really support the next hundred million people that are getting involved in this space. We are thinking through security, risk management, rating systems, and everything that is really required to create the ecosystem. Our goal is to build confidence in it, to support all the new users that are going to come in. The types of collaboration that we have in this space are important in how we are making this available. By staking utility tokens, you can actually increase your returns, which has never really been possible before. There are really interesting safeguards for investors that don’t exist today that allow you to recover your private key through professional custodians, should anything happen to you or it. If you want to get to the next hundred million people that lose their online banking password every week, and are scared to death of doing the same thing with their private key — you need this sort of thing.
What also makes this different is the type of members that we have. We have FBG Capital, the largest crypto trading firm in Asia, which has spawned all sorts of incredible companies that it has invested in. We have Brendon Eich, the founder of Javascript and founder of Brave, who can speak to the technical merits of a decentralized reserve approach that the Alliance is taking. We also have Blockchain at Berkeley, which is a group of incredibly smarty technologists that are thought leaders in this space. I think the calibre of the folks that are involved stand out.
I think the biggest differentiator of all is our target audience. You’ve got a lot of a lot of stablecoins that are just focused on the existing 24 million wallets out there that are doing a lot of trading. We are focused on the 2.5 billion bank accounts that are not yet in crypto, and looking to provide something that is powerful and useful for them. The Argentinian who would love to get in to the [US] Dollar today and just can’t today. This is what makes the Universal Dollar so unique.
With this development, and with so much going on in the global economy, where do you think blockchain is going to be in 2020?
Dan: We won’t be at a place by 2020 where the whole world is going to know what ERC-20 is. They are not going to know CASPER. They are not going to know what sharding is. They are not going to know these terms. The internet was very technical when it started. What is going to happen is that it will develop and scale behind the scenes. To the lay person, you will be able to have a dollar at some point and you will not be able to know if it is a fiat dollar, a crypto representation of a fiat dollar, it’s all going to inspire the same level of confidence. We started a few hundred years ago with gold-backed fiat currencies. Why? Because that was needed to increase confidence that it would be worth something.
We are seeing the same thing now in what we are doing with the USD stablecoin produced by the Universal Protocol Alliance. We are backing everything 1–1 in a transparent way with a crypto representation. These crypto representations are just going to take the form of their existing asset classes. It used to be that people owned a bar of gold — now 10x as many people own an ETF of gold. In a few years, you’ll own a token of gold. The same thing is going to happen with a stock share certificate, to digital ownership in an online brokerage, to soon owning a share of stock in the form of an ERC-20 or Ethereum token. You’re just going to still call it “Apple stock” but now you’re going to be able to buy as little as one, one hundred millionth of a share. I think that is what we are going to see.
I never thought we would see the [US] Dollar become tokenized so quickly with such a quick acceptance from the regulatory community. It is fantastic! It makes it easier for everything else to happen, the tokenization of other asset classes. It doesn’t meant that the world moves to Bitcoin as their standard. In the US it actually does a lot to strengthen the US Dollar. People feel like it is more easily accessible now because it is in the form of a crypto asset — fantastic! I think that there will be a revolution in a lot of ways, not the ways people realize though. The revolution on the surface may look a lot like the same asset classes we have today, just a lot more accessible, a lot more efficient, a lot more transparent, and all built underneath and leveraged by this new infrastructure that we are now able to make happen.
