User-Friendly Fixed Income Products for DeFi
Although DeFi has captured the imagination in recent times, it can’t be denied that its…
Although DeFi has captured the imagination in recent times, it can’t be denied that its user experience has a lot of room for improvement if broader adoption by a less tech-savvy audience is to be achieved. Nevertheless, in a macro environment where yield is ever more difficult to find. DeFi protocols and Proof of Stake networks are offering enticing returns for those that know how to take advantage of them. BlockSwap Network aims to marry the yield generating opportunities of Proof of Stake with a far more streamlined narrative and user experience for the average user to bring DeFi to the masses.
On this week’s episode of Meet the Founders, host Oscar Hammond interviews Scott Trowbridge, Co-Founder of BlockSwap about this project.
About the Founder
Scott’s journey before crypto has been a diverse experience in helping build companies and early-stage startups. He started as the Director of Marketing for a mobile virtual network operator based in Spain. He then returned to London to help build the city’s startup ecosystem in a period where there was an attempt to replicate the success of silicon valley to major cities across the world.
He built a consumer engagement startup that utilized the ibeacon technology to provide some form of social interaction with merchants. Leveraging on his experience, he spun out a digital consultancy firm called Digital London that helped startups and emerging products on conceptualization and value propositions, fundraising support, as well as product-market fit. Notable amongst the clients of the consultancy was Google Glass and Radbound university in the Netherlands, in addition to some early-stage startups.
Journey Into Crypto.
In 2014, Scott started learning about blockchains and cryptocurrencies from his mentor (now Sheriff of London) who knew about distributed ledger technology even before bitcoin. That was how he started to learn about Ethereum and Vitalik.
His first full-time role within the crypto ecosystem was as director of global business development for a protocol based in Beijing called Wang Chain where he headed the company’s team in London. Team members from his time at Wang Chain have also gone on to start their projects in Chainlink, Polkadots, Acala, amongst others.
After Wang Chain, Scott led the Fintech and blockchain labs at WeWork, an incubator for early-stage startups in the space of fintech and blockchain with companies like Swissborg.
At WeWork Labs, Scott saw both side of traditional fintech companies and native crypto projects and how the former had made strides in open banking by allowing smaller companies and startups to gain access to customer banking data, leading to challenger banks like Revolut and Monzo. That jump that traditional fintech is making to step into open finance to try and integrate these other financial primitives and offerings like mortgages and insurance sparked an interest.
“I started looking into staking and proof of stake architecture and how different consensus models within previous state chains and became pretty fascinated with what’s happening there. The growth of these different previous state chains like what Ethereum is trying to do now is to scale over to prove a stake and that made me think of everything in DeFi and how it’s trying to simulate a lot of the traditional financial layers.”
Scott believes that the offerings of DeFi like loans and mortgages are over-collateralized. In Maker, for example, to get an underlining 100 loans back, you need to have collateral of 150, he said.
Staking and prove-of-stake, Scott said, can verifiably prove that a user has assets locked on a chain. The value therein lies in the ability for a user to be anonymous and yet have an understanding of their transactional history, that for example, they do have assets that are locked in a contract at a given time and it is backed up by a secure previous state chain that has a lot of liquidity behind it.
Scott met his cofounder at a WeWork meetup event discussing their issues and they came together to build BlockSwap to solve them.
BlockSwap has a small team of five engineers and is in the process of hiring a few technical positions at the moment. Scott’s co-founder comes with his experience as a proof of stake architect and head of a multi-chain asset tracking network called D-scan in San Francisco and had been in DeFi at its very genesis. The four other developers are scattered over the globe.
Ethereum, the primary blockchain that the DeFi movement has evolved around, has about USD 300 billion worth of assets and is soon transitioning over to proof of stake in the next 48 months. There are also
USD 12 billion worth of assets locked in ETH2 staking contracts and 60x of growth in DeFi only in the past four months. The growth shows that space has no shortage of liquidity and yet even with a lot of projects with high rates of return, almost none are not offering a fixed rate, long-term and sustainable savings product.
This is the premise of BlockSwap, to utilize proof of stake as an underlying mechanism to “trustlessly” redistribute wealth.
The Product in Detail.
BlockSwap is an immutable, decentralized, non-custodial protocol that’s bringing fixed income products to previous state chains. BlockSwap has two main components in its network; a stakehouse and an open saver. The stakehouse is an automated asset market maker which is a shared registry that allows an ETH 2.0 node operator to register their
node and associated validators on-chain to permit liquidity abstraction.
(14:14) “The details of how a user would interact with this is that for stakers, we simplify the staking process for Ethereum and isolate the slashing risk where we enable stakers to bring 32ETH like they natively would in Ethereum ETH2.0 to become a validator to join a specific on-chain staking node called a stakehouse. In return for that 32ETH, a user receives 24dETH token (dETH is 100 non-slashable, one-for-one representation of their underlining state ETH). The other token they receive is an ETH slot token acting as a perpetual bond and this represents the equity of that stakehouse.”
All of this is through an immutable, permissionless, non-custodial protocol that allows a user to hold their assets and interact just with the smart contract. This coordination layer allows large amounts of liquidity
to be seamlessly and securely coordinated through a value network that is backed by the security of the Ethereum proof of stake chain.
The second component, OpenSaver, is the first product that is built on the BlockSwap network. OpenSaver is a new type of architecture that is providing a sustainable savings market to mainstream users.
Every asset in OpenSaver has a fixed rate of yield. For example, you have a “Save a Dollar” which is giving a 7% interest rate which is backed by a bonded proof of state asset as its collateral
“Every time a saver is purchased, a saver bond is minted and the collateral of that saver bond is keeping a 100% state asset collateral as its result. For example, if the price of the base asset decreases, it creates
an arbitrage opportunity to go long on the proof of the state asset and the market can buy up these saver bonds. Buying out these saver bonds gives the “manage” right to that saver bond and they can flip that in the market. Open saver smart contract then will make sure that the asset will maintain 150 collateralized debt ratio, ” Scott explained.
(18:25) “…basically what you have is a system that enables an end customer to have a universal basic savings account. They simply bring their native currency, they buy up to save a dollar and this save a dollar is giving them a 7% interest and that’s all they need to understand. They don’t need to understand the technicalities of staking or consensus. All they need to know is this application is giving me 7%. I put in a hundred dollars at the end of the year, I get 107 dollars. The DeFi type of user would be focused on getting an additional yield on their previous state asset,” Scott explained.
There are two types of users that BlockSwap would be focusing on serving for the products it is releasing. One is a user who wants to
stake their base native token and earn like a higher inflation reward (the more advanced DeFi user) and then the other user who wants to just bring their native fiat and earn a sustainable annual percentage yield (APY) savings without having to touch proof of stake themselves (the regular user, who perhaps isn’t too deep into crypto)
(22:36) “I think in the cross of it, we’re trying to provide like a non-speculative savings market which is based on proven stakes native yield source um at the same time focusing on providing the user onboarding in a very efficient a manner,” Scott added.
Being a Second Layer on Top of a POS Chain
(24:12) To run efficiently, BlockSwap’s OpenSaver products need a lot of liquidity, so considering the size of a proof of stake system that provides such liquidity, Ethereum, was a no brainer, Scott said.
(24:46) Then are other proof of stake assets that it supports as collateral sources
within the OpenSaver protocol like Algorand (for which the company went through the Algorand EU Accelerator and would be launching an AlgoSaver as a result).
(25:09) “The next change we would be focused on and the underlying assets that we’ll be bringing into OpenSaver are Cardano Ada, and Polkadot Dot. our structure in all cases is to work directly with the foundations of these previous state chains,” Scott added.
Although the underlying technology of BlockSwap does have an interoperability standard, they are stable fixed-rate savings accounts, so there are separate standards for each collateral source it implements.
(27:00) “Our North star is we want to bring one million accounts into the BlovckSwap network. We want a million users to have access to this sustainable savings account and build more fixed-rate products utilizing proof of stake as a mechanism,” Scott said concerning the company’s plans.
(27:32) BlockSwap has taken an approach where it is rolling out its beta products through a protocol-market fit exercise called the stake house game.
(27:44) “…essentially we are simulating the ETH2 coordination layer
that I mentioned before but in a safe and unstimulated environment. We have an approach where we’re distributing a large number of incentive rewards for users to participate in this beta product over the next coming months and they can essentially interact with that Stakehouse,” Scott explained.
(28:41) In the Stake house, there is a leaderboard that starts with a maximum of 10 stake houses as you mentioned a couple of those like polygon and a few others. What happens is these stake houses are competing for the
for the year rewards so if you’re the top stakehouse, you’re essentially getting the majority of the staking rewards and the users get the highest amount of staking rewards for being in that specific stakekhouse,” Scott further explained.
There are three stakeholders is a stakehouse. First is the node operator (something like Polygon). The second is a user that’s holding the token that has been issued for the game called CBSN which stands for community net blockswap network. All the tokens that are earned
through the stakehouse game are redeemable one for one with the main net token when the product goes live. The third user is a type of user is
called a batch minter. They have two types of rewards; one is staking so they stake a minimum amount of CBSN and get a fixed rate, and the second is a game reward.
For the game reward, they receive a reward based on the number of users that they invite.
(32:07) “… we’ve taken the approach of interacting with established and respectable external communities like polygon like Republic, Stake Node etc and that’s led us to grow our ecosystem and community very fast,” Scott said.
Already, BlockSwap over 30,00 people on its telegram and 50,000 followers on Twitter. They also have over 30, 000 users registered to join the stakehouse game and now over several thousand SHB that’s been minted.
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