In this Twitter space by Shade Protocol, host Dalton, Fisco, and Carter Woetzel, lead researcher & economist from Shade Protocol, speaks with Stefan Rust, a serial blockchain entrepreneur.
Stefan explains about inflation, how he came to build Truflation and Nuon, and many other topics including education and mass media’s support of crypto.
Read our notes below to learn more.
FTX Incident and Exposure
Shade Protocol has no exposure to FTX.
Stefan has no exposure to FTX and Solana.
Carter says if everyone was doing self-custody and interacting with DeFi, none of this would happen.
DeFi has much higher regulatory standards than CeFi.
FTX is regulated and operating within existing regulatory frameworks.
DeFi is at higher operational standards with blockchain, wallet monitoring, and open sourcing.
History of Truflation and Nuon
Previously CEO of bitcoin.com, building p2p payments.
Felt the need to do more when the government started QE and did not believe that there is no inflation and it was going to be transitory.
Started Truflation, that tracks the cost of living accurately.
Truflation now tracks data from over 50 sources and 18 million items daily.
This built the foundation for Nuon, a flatcoin concept of pegging a synthetic asset to cost of living that is calculated by Truflation.
Stefan’s stance on how inflation is currently measured
The Bureau of Labour and Statistics (BLS) calculates inflation based on an old framework defined before the computer and internet age.
Government is calculating it with a very analogue model
Only tracking 60,000 items, and doing panel surveys to a set of households instead of using census base data.
Felt that it is significantly flawed and they could do better as a community to track and monitor inflation.
Truflation tracks inflation daily compared to the government’s monthly reports.
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How does Nuon interface with Truflation?
Truflation acts as a price oracle for Nuon.
As of 1 July 2022, Nuon is pegged to USD 1:1. From there, 1 Nuon = USD +/- Truflation.
In a deflationary environment, Nuon will drop below peg.
In an inflationary environment, Nuon will be above peg.
Nuon is overcollateralized with crypto.
Currently backed by BTC, ETH, and Tether on testnet, and considering adding other tokens such as Chainlink, Avalanche, and Solana as collateral.
Collateral can be used to mint Nuon.
Future for Nuon and Truflation
At the moment, allow people the option to hedge themselves against inflation.
Been in talks with financial institutions, SMEs, and quants.
Truflation will start to track more items such as commodity pricing, precious metals pricing, and weather information.
As more items are added, perpetual ties can be created with it.
Launching personalised inflation calculators to find out and hedge against personal inflation with products created by these quants and industry verticals.
Truflation started off with just tracking and replicating what BLS was doing in a digital form.
Not the best programming language used at the beginning, but code has since been updated.
Uses multiple sources for each item and disclose all price sources.
In the process of decentralising the database, how to pull data in and store it at multiple nodes across a decentralised network.
Trying to build an optimistic rollup where people can dispute and query the uploaded data, and anybody can provide data and have algorithms that verify the data.
Heavily focused on making sure the above mentioned is available over the next 6/12/18 months.
One of the biggest challenge is how to provide liquidity to these products.
Education for users and the team
Stefan tries to simplify their products as much as possible and create videos for education.
Work with crypto influencers to educate their audience on what the industry is working on.
Not only about educating the community but getting them to educate their peers too.
Problem on how to start education in Web3 and how to filter out people according to their interests with personalised education based on their interests.
Determining the role that the industry, professional educators, and influencers each take on.
Why crypto has not fully integrated into our everyday lives.
Stefan blames mass media, regulatory framework, volatility, and trust.
Does not see why merchants would not accept cryptocurrency, given the instant finality instead of having to wait 30 days.
Mass media spreading FUD does not help.
Carter thinks people do not understand the value of the attributes of blockchain (transparency, permissionless, immutability) until they have been violated by the inverse principles, such as the importance of self-custodial.
Use CeFi incidents as examples of violating attributes of blockchain and to educate others to use it appropriately and the attributes will not be violated.
Why does the mass media not support crypto?
Mass media is pro-crypto in a bull market and anti-crypto in a bear market.
Why have they not come around that there is a difference between CeFi and DeFi.
Believes that there has to be someone in mass media who understands the differences between them.
Carter does not blame them because crypto has been a vehicle for speculation instead of using it in our lives.
Q&A
Q: How does Silk (Stablecoin by Shade Protocol) maintain stability?
Silk includes other hard assets such as gold and Bitcoin.
25% of Silk’s peg is tracking a split between gold and Bitcoin with a bias towards gold.
Silk is overcollateralized by a basket of crypto assets, similar to MakerDAO’s system.
Only difference between Silk and MakerDAO is the rate at which things are minted out and burned at in relation to the synthetic peg that is tracking that basket of crypto assets.
Q: One issue of overcollaterization is the ability to scale. How do you work around the issues of scaling?
Aim to eventually have vaults that allow people to deposit currencies to mint Silk and redeem Silk for equal parts from all different vaults.
Have to wait until there are crypto forms of currencies.
Q: Wouldn’t it be better to peg Silk to USD?
What Silk is tracking is volatility and USD has its own version of volatility against other global currencies.
By aiming to have a currency that has minimal volatility, Silk is trying to be an interoperability hub between all their global currencies.
Hence an index with less volatility is the goal.
Q: What is the current hurdle with Nuon?
Overcollaterization.
Need to reward people providing collateral on top of inflation.
Nuon had to pivot significantly after what happened with Terra.
More pressure with regulations after the Terra UST and FTX incident.
Nuon is focusing more on exogenous collateral and using that approach to stay within regulations.