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Fill the Gaps: Decentralizing Real-World Financial Markets — #OKExDeFi Roundtable
At OKEx, we are constantly looking to the future — and we believe that means DeFi.
To spread the message, our CEO, Jay Hao, is holding a new virtual #OKExDeFi roundtable talk series with leaders from various industries to discuss their progress, insights and future plans in DeFi.
In this roundtable, Jay interviews Corey Caplan, the chief technology officer of DeFi Money Market. Corey's passion for the DeFi space extends far beyond DMM, having also co-founded and built the decentralized exchange Dolomite back in early 2018. When he's not working on DMM, he's often studying the latest DeFi trends, building smart contracts and playing with DApps.
Here are the key highlights from the roundtable.
We decided to list DMM: Governance (DMG) on OKEx last week! Besides the listing, what do you expect centralized players in the crypto space like us to do to facilitate the DeFi space?
This is a great question. The reason we decided to work with OKEx in the first place is because we thought that the collaboration can go very far — beyond just listing DMG. So, we see participants like yourselves being stakeholders in DMG and actually participating in the voting, because we see you as a very strong onboarder for participants in the ecosystem.
We also think that there’s potential for individuals to hold their DMG on OKEx and still be able to vote on different proposals that are occurring as well. So, we think there’s a lot of potential for collaboration.
And the third thing — which is a bit more advanced and which we think will come further down the road — is that we have this concept of a debt ceiling in our ecosystem, because whenever we offer interest, it needs to be backed by real-world assets. Our smart contract ecosystem, which is what DMG governs, necessitates that we keep our ecosystem over-collateralized. With that, we have a debt ceiling in place, which ensures that we never actually lend out more assets than we actually have backing the ecosystem.
So, if there was, for example, $100 million worth of demand for our mTokens, but our debt ceiling is only at $10 million, it would mean that there’s a $90 million surplus or excess of demand — and that pours over into the secondary market trading for mToken. We think this is a very important thing, because our smart contracts are more of a primary market — but going to professional venues, like OKEx, would be a secondary market venue to trade mTokens with a premium when we have a liquidity crunch for them.
What role does Chainlink’s decentralized oracle framework play in helping DMM maintain a fully collateralized, transparent and trust-minimized money market?
With Chainlink, there are four key areas of participation from them. I'll start with the simple ones and start to dive into them a bit more.
So, the first is that, when measuring collateralization, we need a common means of calculation for it. For us, we use the U.S. dollar for this — but in other countries, we could have used another one, such as the Chinese yuan. Right now, with the cryptocurrency that we're holding on hand, we use their price feeds on-chain in order to calculate how much the crypto was actually worth. We can measure what we have in deposits.
Going one layer deeper, regarding all the collateral that we have right now, we're actually sourcing data from the black book. Chainlink is working with us to actually bring that data on-chain. Essentially, what they're doing is taking the data from the black book and sanitizing it with each of the 912 or so vehicles that we have sitting in the pool, and they're attributing a value to them so that we can actually measure how much we actually have in real-world assets that are helping back the ecosystem. So, that's another big one right there.
At the end of the day, we have a protocol that exists on-chain. We really see ourselves as a core protocol that is trying to bridge real-world assets into a blockchain environment — which is potentially very messy and difficult thing to do, especially for those that are more technically minded and understand the oracle problems that can come from that. For us, Chainlink is the best solution out there.
The other things that we're working with them on are twofold. The first is the money that flows into the DMM ecosystem. It first comes in as crypto, of course, and we're always going to be keeping a good amount of crypto on hand. Our smart contracts actually dictate how much we need to keep in there — so we can't cheat the system — and there's always going to be a portion that flows into real-world assets. There might be a couple-day period where money is in transit from crypto to those assets and, during that period, it could be in crypto or could be in fiat. Chainlink can help us in actually tracking that money so that the ecosystem participants can always be comfortable seeing where the money is actually flowing to when it's not allocated or it's not sitting in the DMM smart contracts directly — which is quite important. That's the third thing.
The fourth thing — which is, in my opinion, the coolest, and this is where we're doing a lot of the research and development with them — is the actual DAO, or where DMG comes into play. If you imagine an ecosystem where all the DMG holders are coming together to vote on something... let's say, they're going to vote for onboarding a new asset, which, in this case, is the PC-12 aircraft. So, our article about that doesn't actually bring the aircraft in. We're just doing what we think is our core responsibility right now, which is presenting a new deal flow to the DAO as one of the things that can help it for the time being. At the end of the day, it's up to the DAO or the DMG holders to vote it into existence.
So, when the DMG holders vote it into existence and they want to bring it on, there will be some smart contracts and some technical things that need to happen. Beyond that, we think that the Chainlink oracles can actually read the outcome of a vote on-chain and actually propagate that to do real-world actions. In the simplest of terms, it could be something like, based upon the voting outcome, sending an API call to our bank account that can move funds from one day to another in order to pay a loan service in order to kick off the process of actually bringing on the PC-12 aircraft. It could be very comprehensive things like that.
However, without a strong, independent oracle solution like Chainlink doing the independent action as I just described, it is inherently not trustless anymore, and it actually circumvents the entire purpose of us running this as a DAO by essentially moving a lot of that real-world action then to Chainlink — or actually further decentralizing the process and moving it to an independent party that actually moves us to being hands-off.
In the traditional world, what this would look like, then, is: If we didn't have something like Chainlink, it would be the DMG holders voting on something and then the DMM foundation doing the action based upon whatever the vote was — but there's no one actually forcing us to take that action. If the proposal got voted into existence and the result said not to onboard the PC-12 aircraft, but if we were responsible for doing that at the DMM Foundation, we could just say we don't agree with the vote. We don't like what they voted on. And we could just go ahead and do it anyway. But that's not what the DAO actually voted on, which is obviously what reflects what the voting and participation leans toward.
So, by using Chainlink for this, instead of another party to manually do it, it could be the independent party that does that. The DMM Foundation would not be able to circumvent that in any way. It would just be that what they do reflects the actions of the proposal and the voting of the DAO. There wouldn't be any way for us to cheat the system or go around it. It is what it is. And we have to deal with the outcome of the vote — and that's what is most fair.
So, we think that this is really going to bring on a new age of DAOs. We think that we can help exemplify this new technology.
Can you suggest one word to describe the future of DeFi and why?
I think that word would be "accelerating.” I think for a lot of individuals that originally got into this ecosystem, we came in because we heard this story about how this technology can displace banks — so we could offer financial resources to those who didn't have it before or offer better financial resources to those that didn't previously have access to it. Or, they liked the idea of being able to track where money is at all times.
The reason why I say “accelerating” is because I think that we're going to see a lot of growth for the overall industry. I think that DeFi is going to be one of the biggest catalysts for the industry because it's a very, very strong use case for it.
I think that games being built up on top of the blockchain and other things of that nature are very important — and I think they are very cool. But at the end of the day, I think that the movement of finance here is the biggest play for the time being. It is one of the most important things — because the monetary system, as we've seen, has become very, very complicated. In some cases, it is very corrupt. In some cases, only certain people can get access to things. DeFi has been this tremendous equalizer so far, in that it has allowed anyone to get involved, to see what's going on and to be able to get access to things that they didn't have access to previously.
I think that for those who have been the industry for a long time, it's going to be the movement to newer, previously unseen highs that we're all excited for. For those individuals who are looking for better financial freedom and are having difficulty finding it, I think that they'll have a lot of homages and move into the DeFi space. For those people — such as Jay and I, who are helping build protocols right now that are starting to achieve a lot of adoption — I think it's going to be a lot of fun for us to be able to help onboard the next wave of participants into the ecosystem.
Editor’s note: This text has been slightly condensed and edited for clarity.
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