Stable Tokens as a Medium of Exchange

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On June 25 Sila co-founder and CTO Alex Lipton spoke on “Stable Tokens and Distributed Financial Market Infrastructureat the 2019 Crypto Valley Conference on Blockchain Technology, in Zug, Switzerland. Later that day he also joined the Economics & Finance Panel to share his thoughts on the state of digital currencies, as well as Facebook’s introduction of Libra as a cryptocurrency.

Lipton, also a Connection Science Fellow at MIT and, until recently, visiting professor of financial engineering at Ecole Polytechnique Fédérale de Lausanne (EPFL), has published eight books and over a hundred scientific papers on such topics as hydrodynamics, magnetohydrodynamics, astrophysics, financial engineering, and the future of money. He speaks regularly at FinTech conferences and forums around the world, and his diverse and impressive background in finance provides him excellent insights to share at such events.

In his talk on “Stable Tokens and Distributed Financial Market InfrastructureLipton defined the functions of money and spoke on how existing banking and payment systems are becoming obsolete and no longer aligned with the ever changing requirements of today’s world.

 

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Economics & Finance Panel, featuring (from l to r): Sila CTO Alex Lipton; UCL Centre for Blockchain Technologies Director Tomaso Aste; State Street Head of Digital Product Development Pinar Emirdag (moderator); London School of Economics Director of the Systemic Risk Centre Jon Danilesson; Quant Network CEO Gilbert Verdian

 

These sentiments are echoed in Lipton’s chapter “Toward a Stable Tokenized Medium of Exchange”, which will soon be published by Oxford University Press in the book “Cryptoassets”, edited by C. Brummer.

In both his writing, and presentation at the conference, Lipton addresses how open access Internet protocols have unleashed a wave of creativity and growth in numerous fields, but that successful open access Transmission Control Protocols/Internet Protocols (TCP/ IP) for money and identity are lacking. He suggests “a regulatory compliant, fiat-backed tokenized medium of exchange” as the answer to this need, and that “the corresponding tokens can be viewed as an electronic analogue of cash, with all its pluses and minuses.”

On the topic of blockchain, Lipton explains why it’s needed — namely in that it facilitates the recording of transactions, and tracking of both tangible and intangible assets in a business network, which can reduce risk and costs for everyone involved.

Bitcoin offers grand promises, he continues, but such problems as low transactions per second (TPS), and high transaction fees, are keeping the population from utilizing it in their everyday life. The promises of Ethereum are even loftier, and share many of the same issues as Bitcoin, Lipton says, but Ethereum is “sufficiently robust, when not deliberately forked”.

At the Crypto Valley Conference Lipton also gave his opinions on the following, and analyzed their pros and cons, concluding that only regulatorily compliant fiat-backed tokens are viable in the long run:

  • General properties of stable coins
  • Fully fiat collateralized coins
  • Partially fiat collateralized coins
  • Crypto over-collateralized coins
  • Dynamically stabilized coins
  • Asset-backed coins including Digital Trade Coin (DTC)
  • DTC
  • Central Bank Issued Digital Cash (CBDC)
  • Utility Settlement Coin

 

Lipton summarized the rest of his discussion by offering, “The idea of distributed ledgers is not new” and that “distributed ledgers potentially have numerous applications in finance”.

He also stated that digital cash is a very promising avenue, and “if physical cash disappears, it is possible to imagine a future where everyone has direct access to central bank cash, albeit indirectly.

Of all the fascinating points of topic at this year’s Crypto Valley Conference, however, Lipton relayed that Facebook’s Libra became one of the most talked about:

“Of course, a lot was said about Libra, the proverbial “elephant in china shop”. Most participants were underwhelmed by Libra and concluded that it is not a cryptocurrency, but rather a company scrip.”

 

Lipton continued with his own thoughts on Libra: “As Samuel Johnson famously put it: ‘Your manuscript is both good and original; but the part that is good is not original, and the part that is original is not good.’”

All told, Lipton says the experience at this year’s conference was very positive, and he’s pleased with the way such events can help find solutions for the future of banking.

“Crypto Valley was very exciting and educational. It was a pleasure to compare and contrast Sila’s approach to payments, on and off blockchain, with several competing approaches, and explain why Sila is so promising.”

 

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