Viewpoint | Rather than technological breakthroughs, asset chaining requires more institutional building

Author: Lightning Huang Shiliang

Original title: "Online Assets Need System Construction, Not Technology Breakthrough"

On-chain assets have many benefits, but compared to off-chain assets, the total amount of on-chain assets is quite small. Off-chain assets can be converted into on-chain assets, which is a win-win for the chain and assets.

What are the benefits of on-chain assets?

Assets on the chain, such as BTC and USDT, are truly privately owned. No intermediary is required to complete the confirmation and transfer.

Assets on the chain are almost impossible to counterfeit. The history of asset transactions can be traced back and cannot be tampered with.

Asset information on the chain is equally transparent to everyone, and there are no strong parties.

Assets on the chain help protect privacy. Assets on the chain do not require an identity card, nor are they specific in kind, nor do they require a certificate.

The assets on the chain have good liquidity, transaction delivery is very convenient, transaction costs are low, and they are borderless.

At present, there are very few assets on the chain, almost only the currency itself, and the total assets of the entire currency circle are less than 200 billion US dollars.

At present, the most successful case of asset on-chain is USDT, which is the real off-chain dollar on-chain.

The adopted scheme is to deposit the US dollar off-chain into a bank and use a 100% reserve system; then issue the USDT on the chain corresponding to 1: 1; the USDT on the chain can redeem the US dollar off-chain 1: 1 and be destroyed at the same time as redemption The corresponding amount of USDT on the chain.

The USDT on-chain and off-chain correspondence processes basically rely on the credit of Tether. The good thing is that Tether has maintained a good credit so far, and the USDT redemption application has been effectively executed. But the downside is that there is no extensive and credible mechanism to guarantee the effective redemption of USDT.

USDT can basically be regarded as an on-chain credit currency issued by Tether.

If there are other companies, such as real estate companies, that can establish credits like Tether, they can also issue houses on the chain. But currently not.

BitShares has proposed a solution for asset chaining . The general rule is to use 3 times BTS as collateral to issue tokens corresponding to assets on the chain. BitShares has a series of smart contracts to ensure that the tokens have sufficient collateral and how to deal with them in the event of price fluctuations. It can ensure that users who hold assets on the chain can redeem BTS of corresponding value to smart contracts in extreme cases.

At present, BitShares has issued on-chain assets anchored by bitcny and RMB, and on-chain assets anchored by bitusd and US dollars.

According to the concept of BitShares 2.0, it is possible to issue assets on the chain such as Bit Gold, Bit Oil, and so on.

However, the actual results of the current operation of BitShares are not ideal. The decoupling between bitcny and RMB is very serious, which is more than 30% lower. Bitusd is also seriously decoupled.

MakerDao and Compound are two smart contracts on Ethereum that use a principle similar to the issue of assets issued by BitShares to produce dollars on the chain. But volatility is also great.

The effective principle of using smart contracts to complete asset on-chain is to use smart contracts to penalize defaults, and the penalized assets are digital currencies used as collateral. However, the reliability of digital currency itself is not as good as off-chain assets at this stage, and it can only be improved by excessive collateral.

The use of asset tokens such as BitShares and MakerDao in the form of on-chain asset issuance and off-chain asset tokens has an essential problem. Mortgage issuance is the use of leverage. There must be systemic risk in the use of leverage. The financial crisis has accumulated on leverage.

Another inherent problem with the use of leverage in digital currencies to complete asset on-chain is that the amount of assets on the chain cannot be greater than the total amount of the digital currency itself used for leverage. Considering that the overall amount of digital currency is very low, less than 200 billion, and those with smart contracts are even lower, less than 30 billion US dollars. The amount of assets that can be chained is too small.

We may need some better asset on-chain solutions.

We can refer to the company system to learn asset on-chain. Limited liability companies can be bought and sold on the capital market. The company itself is a very imaginary thing, an imaginary community, which is much more imaginary than coins. However, the capital market has established a complete set of accounting systems, and after combining with the company, it has completed the imaginary community of the company can flow freely in the market.

The two most important reasons why a company can trade are the accounting system and corporate law. The accounting system ensures that the company's assets and rights are accurately registered, and the company law guarantees that violations of rules will be punished with violence.

For assets that want to be chained, accounting protection and violent sanctions for breach of contract are also required. Assets are chained. What is lacking is similar institutional construction, not technical construction.

We should change our minds and establish an effective, creditable, and powerful accounting system and law enforcement system for the blockchain. The first thing is to establish an accountable digital identity for on-chain verification. Any accounting or accounting firm establishes multiple digital identities on each chain. Accountants should attach digital signatures to their completed bills to claim that they are responsible for the bills. Send a digitally signed bill to the chain, or for security, you can send a hash.

Similarly, assets that need to be chained should also actively seek for law enforcement forces to participate. For example, inviting lawyers and consultants to evaluate the legitimacy of assets, and inviting third-party notaries to evaluate.

Some law enforcement-related forces should also apply for digital identity and attach a digital signature to their work and upload it to the chain to swear their responsibility.

When assets on the chain are needed and accounting and legal related forces are introduced, a potential breach of contract punishment mechanism is in place, and the credibility of the chain is gained.

for example.

There is an underground vault that stores 1 ton of gold and wants to be chained.

First of all, digital standards should be established to ensure the true existence of gold, such as what kind of surveillance cameras are installed in the vault, where, how many, and no perspective; how to establish a weighing system for the vault; the access control system for the vault; . All of these monitoring mechanisms must be networked, or use some kind of sensor to ensure that data is collected every 1 minute and uploaded to a database. And the hash of the data is uploaded to the blockchain every minute.

Secondly, we must introduce third-party supervision such as accounting review agencies, legal related agencies, insurance agencies, and so on. These regulators also need to establish digital identities. A digital signature must be attached to the results of their respective work. And the result is chained, or the result hash is chained.

What needs to be ensured is that all the producers of these data should be independent third parties, and they cannot belong to the same group as the gold warehouse. Independent third parties have their own reputation and profitability.

Under the guarantee of these data, after the 1 ton of gold assets are chained, they can have credibility. Any user who gets gold on these chains can refer to these data in the event of a final breach of the contract to get back the real gold through legal means.

The ultimate question is whether the cost of establishing these data for the asset on-chain can be reduced enough to allow third parties to make a profit. If the cost is too high, it won't make sense to gain a credible on-chain asset advantage.

Technology may require the birth of certain geniuses, but institutional construction will naturally evolve. As long as this path is right, there will be a big outbreak of assets on the chain.