Stablecoins face censorship risks due to issuer control, which can undermine decentralized infrastructure. Moving financial services on-chain requires solving privacy issues and careful problem identification. A conservative approach to blockchain development, involving extensive testing, is cruc…
Key takeaways Stablecoins face censorship risks due to issuer control, which can undermine decentralized infrastructure. Moving financial services on-chain requires solving privacy issues and careful problem identification. A conservative approach to blockchain development, involving extensive testing, is crucial before launching networks. Ethereum prioritizes freedom and censorship resistance over speed, setting it apart from traditional finance. The crypto industry should focus on transparency about the problems technology aims to solve. Real world assets on decentralized infrastructure are still vulnerable to censorship. Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets. Privacy and anonymity are distinct concepts, with privacy involving selective information sharing. Governance is critical for blockchain networks, especially those supporting significant infrastructure investments. Blockchains are not inherently immutable; immutability is a social construct. The integration of traditional finance architecture into crypto creates friction with the community’s cypherpunk values. The crypto industry has created excessive noise without delivering substantial products. Long-term sustainability in blockchain requires real utility and cash flow businesses. The market cap of a network should reflect its utility, or it risks going to zero. Guest intro Yuval Rooz is the Co-Founder and CEO of Digital Asset, the company behind the Canton Network, a privacy-focused federated blockchain platform for capital markets. He co-founded Digital Asset in 2014 to apply blockchain beyond crypto to financial services efficiency. Previously, he managed an algorithmic trading desk at DRW and worked as a trader at Citadel.
The risks of stablecoin censorship Stablecoins can be subject to censorship by their issuers, undermining decentralized infrastructure. “The issuers of those stablecoins pretty confident having the smart contract a feature that allows them either to freeze your stablecoins or to in some cases even burn them out of your wallet” – Yuval Rooz This vulnerability is critical for evaluating the reliability of decentralized finance. Real world assets on decentralized infrastructure still face censorship risks. “The second you have the world’s real world unfortunately you open yourself to censorship resistance by the issuer doesn’t matter that you put it on a decentralized infrastructure” – Yuval Rooz Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets. “As long as we are in agreement that the second you have an issuer you are exposing yourself to restrictions beyond the permissionless world” – Yuval Rooz Stablecoins can be controlled by their issuers, which undermines the benefits of decentralized infrastructure. Privacy and anonymity in blockchain Moving financial services on-chain requires solving for privacy. “In order to move everything on chain you need to solve for privacy” – Yuval Rooz Privacy is about sharing information on a need-to-know basis, while anonymity means no one can see the information. “To me privacy is the ability to share information on a need to know basis” – Yuval Rooz Privacy is a significant differentiator for Canton compared to public permissionless blockchains like Ethereum. “Privacy is probably the easy one” – Yuval Rooz Privacy in transactions can be compromised even with strong encryption due to potential future decryption capabilities. “If I took your personal information I encrypted it with the best encryption in the world and I send it to Ryan I have invalidated your privacy” – Yuval Rooz The importance of governance in blockchain Governance is critical for the success of blockchain networks. “One of the things that we looked at throughout the years is governance of these networks” – Yuval Rooz Governance is crucial for networks that support significant infrastructure investments. “For us governance and the ability for people that are putting significant bets on the network” – Yuval Rooz The distinction between governance and code in blockchain networks is crucial for their future development. “The decision to formalize it and put it as code formal code in the system” – Yuval Rooz Canton’s governance model aims to reward those who contribute effort to the network rather than just financial investment. “We want that the super validators are going to be those that are aligned with the network” – Yuval Rooz The role of super validators Super validators have specific roles that differentiate them from regular validators in a blockchain network. “The super validators in the case of canton do two operations” – Yuval Rooz Super validators in the Canton network provide a guarantee that all counterparties to a transaction receive the transaction information. “The super validators are those that run kind of the glue as we talked before” – Yuval Rooz Becoming a validator should be accessible and not require significant financial staking. “Our view is that becoming a validator is a commoditized product” – Yuval Rooz The concerns around super validators may not be as significant as perceived, especially in the context of the Canton network. “I’m not even sure that I share the concern that David has around super validators” – Yuval Rooz The evolution of financial services on blockchain The next generation of ETFs and financial products will be natively on-chain. “I think you’re gonna see the next generation of etfs and other products that are natively on chain” – Yuval Rooz The DTCC is a central hub for capital markets, representing a massive concentration of assets. “If you try to bring capital markets like I said you go to where the balance sheet is” – Yuval Rooz Canton Network is one of the first pilots for tokenizing securities with the DTCC. “The announcement that canton network is one of the dtcc’s first pilots to tokenize securities” – Yuval Rooz There will likely be additional blockchain networks involved in tokenizing assets based on customer demand. “I expect that based on you know customer demand and opportunities there will be others” – Yuval Rooz The impact of traditional finance on crypto The integration of traditional finance architecture into the crypto space creates friction with the cypherpunk values of the community. “You have the old style architecture but you are marketing it to our industry” – Yuval Rooz Canton’s approach to blockchain is seen as an upgrade to old systems rather than a revolutionary change. “I see that’s what canton is trying to do… it’s doing it inside of the confines of the old rules” – Yuval Rooz Canton’s architecture is perceived as relying on established companies rather than empowering individual validators. “When they look at the architecture of canton and they see the words super validators” – Yuval Rooz The technology in crypto is creating new intermediaries rather than removing them. “A lot of the intermediaries that have been created in crypto are even more centralized” – Yuval Rooz The future of blockchain networks Blockchain networks must evolve to remain relevant, and Bitcoin’s inability to upgrade poses a significant limitation. “These networks have to evolve… the only blockchain that I as I know it that can’t upgrade” – Yuval Rooz By 2030, Canton could facilitate trillions of dollars in daily settlements. “I think that canton will be driving you know not 300 billions but potentially a few trillion of dollars” – Yuval Rooz The market cap of a network should reflect its utility, or it risks going to zero. “If we don’t bring utility to this network we think that the market cap of this network should go to zero” – Yuval Rooz Long-term sustainability in blockchain requires real utility and cash flow businesses. “For the most part I would say that there haven’t been really long sustainable business models” – Yuval Rooz The impact of regulation on blockchain US laws restrict equities from being permissionless or bearer instruments. “There’s a law in the us that says that equities in the us cannot be permissionless” – Yuval Rooz Regulated institutions currently cannot rely on blockchain social contracts to convince regulators. “I don’t think in today’s world a regulated institution would be able to convince a regulator” – Yuval Rooz The DTCC is a market-neutral financial market infrastructure, which means they do not favor any specific blockchain. “The dtcc is a market neutral financial market infrastructure” – Yuval Rooz Real world assets on Canton are being maximized through partnerships with regulated institutions. “We are trying to maximize real world assets on campton with regulated institutions” – Yuval Rooz
