Interplanetary Banking System

Hello everyone, I hope you're having a good day. This presentation is called IPBS, Interplanetary Banking System. But before I start, I would like to ask this question. Because I know how easy it is to get lost and get... Wait a sec, sorry.

Lose the sight of the big picture. So I think I speak for everyone when I say that we are here because we all believe that every person should have the right to transact. That it's not right for a group of politicians to have control over money, to use them as a weapon weapon and print them at will. And just by being here on this hackathon, on this conference, I think all of us decided that we want to do something about it. We were probably not going to invent Bitcoin, nor we are going to reinvent Ethereum.

But what we decided to do is to build alternative financial system. Financial system in which right to transact is embedded and enforced by code and not by laws. This presentation is about lending and how lending can look in not so distant future. future. I would make a case, I would show you the design of interplanetary banking system by making a case for mortgage on Mars.

And then I'll try to abstract to what I think the interplanetary banking system is. But first, let me start with this quote. With every communication revolution, the distance between a bank and a business increased. So let me start this small historical class just for sake of knowing where we are coming from and where we are heading. So in the pre-19th century, the bank and the borrower were in close proximity.

In the 19th century, the bank and the borrower were in close proximity. You as a borrower would have to physically go to a bank to ask for a loan. All communication was handled face-to-face or through hand-delivered letters. In the mid-19th century, the telegraph allowed for quick communication over longer distances, reducing the need for physical travels. Now you would send a telegraph asking for a loan.

The bank would reply with loan terms. You will fill all the necessary paperwork and send them by mail. all the necessary paperwork and send them by mail. In the late 19th century, the telephone decreased the need for physical travels even more. The loan application, which was previously handled by face-to-face meeting, are now handled via phone call.

The bank then sends all the necessary paperwork via mail and the decision is then communicated through a follow-up phone call. In the late 20th century the fax machine and email extended the reach of banks even further. Now you would send all the necessary paperwork through fax, the bank will process the loan and communicate the approval via email. At this point the banks heavily rely on digital communication. At the beginning of 21st century, the internet made communication truly global and instant, but the lending process is still constrained by physical borders.

So even though you can apply for a loan to some international fintech company, despite the speed and convenience of the internet, fintech company, despite the speed and convenience of the internet, the fintech company still needs to abide the laws of their home country and your country, which basically implies operational distance between a lender and the borrower. And now, finally, the last communication revolution, blockchain. Blockchain fundamentally changed the game by creating a financial layer above And now, finally, the last communication revolution, blockchain. Blockchain fundamentally changed the game by creating a financial layer above borders. It enables a new paradigm where financial transactions are enforced by code rather than paper contracts.

Now you can go to a DeFi protocol, get a loan, and it doesn't matter who you are, where you are, or who the lender is. The transaction is secure, transparent, and instant. So great, we see that we are on the right path. We have the necessary technology. Now we need the right protocols.

So let me start with the mortgage on Mars. Let me paint the picture. Elon starts sending people to Mars a few years ago. There is already some infrastructure. You are scheduled in a five-batch next year, and you decided to buy some property there.

You found it you the property is tokenized on chain so there is no problem in using it using it on oh yeah there is no problem in using it on chain it's probably some kind of stateful nft where the state contains the location, the size, number of rooms, reconstruction records, maybe even the version of a housekeeping AI, whatever. You find a lender which is offering you 90% of the value of the real estate in Mars coins. So that would leave you with 10% down payment. The interest is 4% stable during the whole mortgage duration, which is set for 20 years. And you can default if you don't repay more than two installments per year.

In case you default, the lender will send the NFT to a liquidation company called Real Mars Estate, and they will sell it on the market. This will take a few days, but it's okay. Not everything in this process needs to be instant. The lending model is peer-to-peer, so your loan is isolated. That means that if you, for some reason, default on your other DGN leverage loans, you will not lose your house and the terms are specific to you so because you are a good borrower you are you are getting a better better terms if you would be a worse borrower you would get worse terms if we if we put it into a diagram it will look something like this on top of, because we are in over collateralized loan, the lender, it doesn't really matter who he is.

So it can be one person. It can be a DAO. It can be a pool with shared liquidity. It doesn't really matter. Well, this looks kind of OK, I guess.

I bet a lot of you can imagine much better mortgage protocol than this is. So this is a good starting point. But let's start abstracting the pieces and trying to find the real interplanetary banking system. So let's start with interest function. What we have right now is the stable 4% APR.

So how many of you are listening to this presentation right now? Can you raise hand? Cool. Cool, cool, cool, cool. Okay.

I'll ask you to think about a better interest function than a stable APR, stable accruing of interest. apr stable accruing of interest yeah so it doesn't matter it can be a real mortgage on mars or or anything else and now please think about it everybody just won and i want you to we are not going to shout okay but you will think about it really hard and on count on three send it to the presentation we'll do a little little fun here all right so three two one go so these are your examples all right so let's read them so uh first one stable plus two percent during sandstorms yeah sure why not whenever there is a stand a sandstorm in the area of the property, you would increase the APR by 2%. Cool, you can do that. Mirroring central bank interest. What?

A little bit boring, but you can do that too. Pool-like supply and demand. Yeah, sure. So I don't think it's really fair that because the lender doesn't have enough liquidity, your interest is going to spike, basically. But yeah, that's what any other pool-based lending does right now.

Aave Compound, more for this kind of project. So yeah, why not? Delayed for first three months. I don't think it's an interest function, more like a property, but it could make sense. Maybe the lender is hard-minded and be like, yeah, settle down.

And after three months, we will start accruing interest. And then a borrower said, yeah, that's something what Liquiety is doing. And yeah, we can play with a mechanism where the borrower will be actually setting the interest function or the amount of interest he's paying, of course, it has other implication than just lower interest. Fine, but we have some kind of alternatives to the interest function. So let's update the diagram and move forward.

We can do the same thing with the default condition. So right now we have duration which was 20 years and installments which were missed to per year. So another example is collateral value to debt. Again that's what pool-based lending is doing. So if your collateral is dropping below some value the loan is basically open to anybody to repay the debt and claim the collateral.

The usual typical process is that the liquidator will then sell it. Another example, interest to principal. Okay, so you can have a setup where you are accruing interest, and whenever the amount of interest is more than 5% of the principal, you will default. Yeah, why not? Good example for assets which doesn't have price on chain, and you still want to have like a perpetual loan.

Decreasing function of a max total debt. Okay, this means that you have some decreasing function. You can imagine linear or whatever. And whenever the accrued debt is bigger than uh than the limiting function you will default and it doesn't matter if you repay every week every day every second with some kind of money stream or once a year a lender triggered yeah that's something what uh blend is doing so basically the lender will say hey i'm uh I want you to find a different lender in 24 hours and if you don't the the loan defaults I don't think it's very useful for mortgages but it's another example and cross default clauses this basically means that my loan will default if somebody else's loan will default. Nothing else.

Some financial broad term. Okay, so we are updating the diagram. Let's move forward. Liquidation process. A lot of you might think that liquidation and default is actually the same thing.

I would argue that it's not. Default is basically saying, hey, the loan ended. I'm claiming the collateral. And now the liquidation is basically how I'm going to get some value back from the collateral. In the pool-based lending, that's the same thing because it's opening the loan to repay to anybody.

And the liquidator is then basically paying the the debt uh claiming the collateral with some with some discount basically uh so yeah okay so the most basic uh liquidation process would be claimed by lender maybe the lender want to want to um want to keep the collateral it may be some like even in real estate estate case maybe he wants to live in that place himself or he want to rent it or whatever maybe he doesn't want to liquidate it at all open to anyone to repay the debt yeah that's the pool-based lending approach or auction so again it's it's useful for for assets which doesn't have price on chain. So basically, the collateral would go into some kind of auction, and it doesn't really matter if it's a Dutch auction or a normal auction. And yeah, you can get more money out of that or less. That's the risk the lender is taking if it doesn't default by the value of the collateral. Okay, let's move on.

Liquidation process. So now we have the middle of the diagram. I will add two more things, which are hooks. Hooks are basically pieces of code which are going to be triggered for a borrower or for lender. And yeah, we can call them source of collateral and source of funds.

So for the borrower, it would basically be a code that is taking the landed money, doing something with them. At the end of this transaction, it needs to have the collateral. So what you can do with that is, for example, buying the real estate with the landed money, which would otherwise be a problem to do in one transaction. Or loan migration. Maybe the collateral is locked in a different lending protocol, and you need to repay the original debt before you can move it to your lending protocol.

Loan migration, refinancing, that's basically the same thing, but in the realm of the same lending protocol. And for the lender, all the withdraw, borrow, unwrap, unstake, we can use this umbrella term on demand liquidity. So the borrower, instead of committing the funds upfront, he would be creating proposals where he would stating the terms. And if the borrower accepts them, only at that point, the funds would be, for example, withdrawn from another financial tool where they provide him with some yield. Okay, so now it looks better, but I promised you that we will be talking about interplanetary banking system and not just mortgage protocol.

So let's not stop there and let's abstract even further. And let's start with the collateral. Now we have a real estate, as I said, some kind of NFT with a state, but we can do much more. We can do Bitcoin ETH, liquid staking token, liquid restaking token. These all are fungible super liquid assets with price on chain.

Very convenient to use in pool-based lending. But yeah, why not? You should be able to use them even in this protocol. why not? You should be able to use them even in this protocol.

Then real world asset, stocks, carbon credits, whiskey, you name it. It doesn't matter. Whatever you can tokenize, you should be able to use as a collateral. DeFi, GameFi, ENS, Poop. I don't know who would use Poops, but that would be a very nice case, very nice loan.

ENS, that's almost like a reputation. I can imagine some OGs using their ENS as a collateral could be interesting for lenders. DAO tokens, for sure. DAO needs some liquidity, but they don't want to sell their tokens because for whatever reason. So they will take a loan backed by the DAO tokens.

The DAO tokens will probably not have that big liquidity to be conveniently used in pools. So this peer-to-peer approach might be a better choice for them. Yield-bearing token. For this asset, you can even start repaying the loan with the yield-bearing asset or with the yield from the collateral. Something like Alchemy is doing for many, many years.

Asset with tokenized transfer rights. That's something very interesting because even for a real estate, you probably want to keep the ownership of the real estate for the whole duration of the loan. But you need to somehow convince the lender that in case of default, he will be able to claim it. And you can do it by tokenizing transfer rights. So what this means is that you will create some kind of exclusive approval where not even the owner is able to transfer the asset.

But you will then be able to somehow modify the real estate token so you can build another floor or reconstruct it or whatever. You are the owner. And bundle of all above. Yeah, like if you can use NFTs, then you probably can use bundles, and bundles can contain whatever you want. So long story short, you should be able to use any token, existing or not.

All right, let's move on updated diagram let's go with the credit so uh the lender in our case is offering you mars coins but you might want something else so bitcoin eth stables meme coins dow tokens you name it for meme cons and dow tokens you would probably take it as a loan if you would like to short them. But it's up to you. If there will be a new stable coin right out of the oven, why not allow to use it on the lending protocol right away? So, yeah, what does it mean? It means that any fungible token, again, existing or not, should be allowed to be used as a credit asset.

Cool. So we have much more flexible lending protocol at this point. We have a bunch of lending, a bunch of interest function, a bunch of default condition, a bunch of liquidation processes from which the lender and borrower can choose and which will ideally fulfill all the needs of your users. But let's look at this quote. It's not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.

I think we should stop trying to guess what the future will bring and what our users will want in one year, what will be the best interest function and so on. I think we should... We will never be able to actually guess that. So I think we should just embrace the unknown and design protocols which are flexible. So with that in mind, we should all these moving parts which we defined previously abstract into modules.

Modules are permissionless pieces of code that define and implement one loan function. So in our case, it's interest accruing, default, or liquidation. Anybody should be able to build and deploy and use these modules in their lending setup. And by implementing just a few lines of code and building a new model, you can build a new, completely new lending mechanism. So right now, what the IPBS is trying to be is not one lending mechanism or one lending protocol, but some kind of meta protocol on top of which you can build unlimited number of landing mechanism.

Yeah. Trust. I would like to quickly talk about trust here. We as a space are trying to make everything trustless, ideally not trust anyone or anything. It's great, but it can only take us so far uh if usual if users already have trust in someone or something why not to allow them to use it especially in the module setup where the module is used only in in one loan or not in one loan, but the loan is specific only to lender and borrower.

By doing that, you can leverage much less decentralized oracles like weather oracles or other non-financial oracles. You can imagine a case where a bank would start to do Ce CFI in a sense that they would like to go into peer-to-peer lending and offering their users or their customers loans, but they want to have control over interest. So I as a borrower, if I'm taking the loan from them, I can be fine with trusting them with the interest. Like on the other hand, right now, if I'm taking a loan from the bank, I need to trust the bank in any aspect of the loan. So why not just the interest and have all the benefits of the blockchain which it brings me.

Or you can imagine even case with no collateralized loan. So not just borrower trusting lender, but lender actually trusting borrower. You can imagine some kind of KYC just to know that the borrower is in the same jurisdiction, but executing everything on-chain. So to wrap this up, interplanetary banking system is a collection of lending protocols built on top of adaptable, permissionless, and trustless metaprotocol with variable trust-level modules. built on top of adaptable permissionless and trustless meta protocol with variable trust level modules the modular design makes it future proof and extremely flexible allowing cases that are impossible with the current defy space to summarize that I would like you to whoever was listening I would like you to take three things out of this presentation.

That the operational distance between lender and borrower is decreasing and with blockchain, we actually eliminated that and we can have truly global lending. The future is unpredictable and we should embrace that. We should not try to guess what the future will bring, but design protocols that are flexible to change. And that trust can be a feature, not a bug, especially if the trust needs to be only with two participants of the loan and not forcing on everybody else who is using the protocol. Thank you very much.

My name is Naim Ashap. I'm a co-founder and lead smart contract dev at PawnDAO. You can find me everywhere as Ashanay. And if you want to learn more about Pawn, yeah, this is a QR code for our tree link, link tree, link tree, sorry. And you can find it on X as PawnDAO or go to our website, pawn.

xyz. And yeah, that would be all. Thank you very much.