From Wild West Bankers to Modern Blockchains | Andreas Fletcher | ETHWarsaw [4]

Okay. Hello everyone. Thank you for showing up. My name is Andreas. I'm going to talk about Wildcat banking credit and especially underclaturized credit.

Why it is important and why we should all deal with it. So, okay. So, let's talk about money credit overall. like you could probably talk weeks about the history of money, the history of credit. Uh we're definitely a part of the history of money just by us being part of crypto and and in the crypto space since many many years.

But these are some of the examples and so like we had types of credit back when the Knights Templar were were booming through Europe. Uh we have Tether USDT which is the biggest stable coin in the D5 sector. We have a Bank of Japan doing a lot of you know instruments and and mechanics to try to um strengthen the economy. But the overall insight is that no matter how you shape your money, your credit, it needs to be transparent and flexible. And that is always more and more powerful than making it cheap.

If we talk about wildcat banking, and a lot of people ask me, why are you called wildcat? Like cuz we're not a cat and we're not kind of wild. Um, if you look at the Wild Wild West back in uh the American time when the expansion happened and people were moving out into the west, the term wildcat banks was born and they were called wildcat banks because they were so remote that the only thing that was roaming around were wildcats. That's why the the name wildcat banking. Um during the 1800s um there wasn't really a banking system established in the states.

So what companies did is they created their own banks and said you can deposit we'll give you a deposit receipt and that is much safer than um you wandering around with a lot of gold or um with any other valuables because number one it's it's lighter uh you can you can easily uh transport it, you can easily trade it, you can easily use it in in shops, you don't need to weigh it. Um, the problem that happened was that yes. Oh, yes. Okay, that that makes much more sense. Thank you.

Okay, let's do this again. So, why? No, I'm just kidding. Um, so why did they fail? The the problem was due the fact that they were so remote.

They were very intransparent. People didn't actually know if the bank is still around. They didn't know what the deposits looked like. And because they were so far away, they had to travel multiple days, sometimes even weeks to reach the location only to find that the bank is not there anymore because they went default. Now the idea behind Wildcat banking that companies or individuals take up the ownership of creating money and providing um a depth token to their depositors is a concept that is by definition pretty much what we're seeing in the traditional financial world.

It's banks and we see also in the concept of blockchain with stablecoin issuers. So it's a good concept. The problem was that the transparency was so bad and the the time latency was so bad that they just collapsed up to the point where the uh government in the states basically said we're not allowing this anymore. Money is only going to be able to be issued by a state regulated entity. But with blockchain and cryptocurrencies, we actually have the transparency that we need to enable companies to issue their own debt tokens that then if the company is, you know, creditworthiness and and and safe, these debt tokens actually have a value that can be then used in the circulation if you find people that accepts it.

And then if we talk about credit and just a real quick definition between what is money and what is not money. So in the in the traditional financial world in fiat world we have many types of money. The one that we get in contact on a daily basis is commercial bank money. That is the easiest which is basically not money but it's credit. And then there is real money which is anything that is in the central bank and that is actually money.

Yeah. So even if I have uh you know my $3 $400 in my bank account, it's actually not real money. It is a promise that the bank will pay me out that money uh or that value of money or transfer it to a different bank. So the value is only determined by the creditworthiness of the bank itself or by the state. Luckily in Europe, we do have the the state regulations that basically say your deposits are safe up to €100,000 uh euros.

So if you have more money, lucky you, but also if that bank goes bust, then it could be that you lose anything that you have above 100,000 because there's no regulation for that bank or for the state to basically pay you out what the bank loses above that 100,000. So the credit system that we have nowadays and the fractional reserve system that we have nowadays is basically fueling the overall economy that we live in on a daily basis. And this is important to realize because it has a real impact on crypto and what we're doing in crypto currently. The unsecured credit is basically the the engine that grows everything. And if you read the Bitcoin white paper and you know understand a little bit also about the philosophy behind it, the concept of credit and fractional reserve banking and generating money out of nothing is actually a concept that you know back then nobody really liked.

And you could still argue that within the crypto industry because we don't actually have the concept of making money out of nothing. It is still a concept that people don't necessarily want to have. I'm going to skip this real quick. So, but luckily we have stable coins. So, stable coins are here now to save the day.

Everybody is using stable coins. And stable coins are basically eliminating the problem that we had with paying in Ethereum or paying in Bitcoin. We don't have to have the fear that the price will go up 100x tomorrow and basically me paying today in ETH. uh losing on that 100x, I just transfer it into stable coins and then I have a stable value that I can use to actually pay. It's much less um tax uh on my side because it always represents the actual value of the the currency in the country that I live in.

Um the problem is that stable coins do have their limitations and even though stable coins are helping the cryptocurrency industry currently to grow, it is still not comparable to what we actually have in the real fiat world because stable coins are not uh depositbacked um money but they are actually asset back money. So for every stable coin in like if I have one USDC, the stable coin issuer actually needs to have the value of one US dollar in a highquality asset for example treasury bonds which then also begs the difference compared to what we see with commercial bank money where banks can basically create money out of thin air. Stable coins have a finite amount because you cannot create it based on credit. we have to actually um create it based on the deposit that we have in an asset class that is high quality and that the bank regulators basically accept as a collateral. So it's still 100% collateralized and collateralization is something that per definition is very cash um inefficient because you cannot compare 100% collateralization or overcolateralization concept with a world where you have under collateralization and basically can create infinite amount of money um out of thin air without any collateral.

So even if it is helping us now, it will eventually hit a point where you cannot create more um stable coins or the issuance of the stable coin will be so expensive or not really worth doing it because the more stable coins you're issuing, the higher the demand is for assets that are secure enough to collateralize it. the more demand for the assets that you collateralize, the lower the APR goes of that asset and eventually will hit a point where the stable coin issuers will not find assets where they can actually make money off because they're not generating any APR on it. And then they're going to start issuing fees to the people that want to have the stable coin in their wallet. And then the question is why should we use this if we can have free fiat money into our bank account? And that is basically then maybe the downfall of stable coins by their success.

They basically also jeopardize their existence themselves. the the history of private credit especially in crypto before the whole stable coin topic you know was very very interesting. We had private credit onchain and private credit I definitely mean um um credit that is basically not necessarily backed but by an asset but backed by reputation. And if you remember the the FTX collapse um where uh everything went very very well and people were earning a lot of money up to the point where everything collapsed and nobody actually knew what was going on and how deep the liquidity is in these private credits. the the intransparency that was behind these private credits basically resulted in such a high problematic in assessing what is happening that you could see that the private credit marked onchain and the undercolaterized credit market onchain basically vanished and Wildcat is trying to revive this ecosystem and bring it back in a in a way.

The reason why undercolaterized credit is so important. This basically is the slide that makes it my opinion very visible. We have 4 trillion in market capitalization of crypto. This is everything. This is Bitcoin.

This is Ethereum. This is all stable coins. This is basically everything that we're breathing and and living for currently. if you're in the crypto industry and it is competing with over $300 trillion in private credit in the re in the in the fiat world in the Treadfi world. So, we're always talking about crypto being a valid alternative or uh being a competition to the traditional financial world.

But the numbers speak more than the word. We're not we're very small. And even though the concepts that we do are very interesting, if we stay on the track of having overcolateralization or 100% collateralization models, we will never able to be scaling because even if we would say okay, we can stay we can still stay um scale the the stable coins. What would basically just happen is if the left size go up, the right side will go up the the same amount because you're just generating more money in the traditional world by deposit by collateralizing that and bringing it into the cryptocurrency world. So if we want to actually be a valid alternative for users, we need to look into what the toolbox of the traditional financial world is and that is fractional reserve banking and undercolateralization.

So right now we're kind of like stuck in a sort of dilemma where we're saying crypto is nice and crypto is fun but eventually the the the tools that we have will bring us to a limit where we cannot scale anymore and then the question is are we just like a fun niche product that people do because they have a political belief that crypto is better than the traditional financial model and world or are we actually going to build something that is going to compete with the traditional financial world and be a valid alternative. And this is why we basically built Wildcat because Wildcat focuses on undercolateralization. So we want to disrupt the traditional financial world, but we are shy away and shying away from using their toolbox. We're saying we're going to use their toolbox and bring underolateralized lending to DeFi through Wildcat. We allow for borrowers, which are basically the people that are looking for capital demand to broadcast their capital demand to the market and to potential lenders.

And if I say borrowers, it's typically anybody who needs a large amount of money. Um, we're not talking about retail, we're talking about businesses, mostly market makers or companies that are building up new infrastructure. They always have a high capital demand and the only way on how they can currently feasible cover that capital demand is either go to a bank uh do an IPO, issue bonds or get a get a credit from private people or from um from banks or they can use Wildcat where they basically broadcast to the potential scope of the lenders in the ecosystem that they're looking for 20 million in TVL. They're going to provide 11% in APR. They're going to provide withdrawal cycles of 24 hours or they're going to create a fixed term market where you basically can pull out the money after six months again.

And if that is interesting enough for the lender side, then those borrowers and the lenders basically meet on our platform and are able to match and facilitate the transfer in credit in an undercolateralized way. So it is similar to uh other D5 protocols that you see for example AVA or Morpho or Oiler where you have a huge amount of TVL in those protocols. But if you look at the actual numbers you can see that for example Morpho has I think $9 trillion in TVL but the actual borrow sum is only three bill 3 trillion. So they have 6 trillion in wasted capital lying around there that is not being used because it's just sitting there to guarantee the security and it's a fair concept if you actually don't know who your counterpart is because you will never know if this person is a refrigerator or if it's a dog or if it's actually a trustworthy person. That's why we have the concept of overcolateralization.

But if you can eliminate the risk of not knowing who your counterpart is by also using stuff like KYB, then you can basically introduce the undercolateralization concept back onchain and allow for lenders to decide themselves in what companies they would like to provide private credit um so that they can have a higher APR but also are not afraid that they will lose everything because it is unsecured credit. We have been live since February 2025. We have uh more than 11 active borrowers. Our TVL is about 140 to 170 depending on on uh day and week. Um and the the overall goal for us is to have the borrowers in the position that they can define what they're actually needing.

And it also gives a new opportunity for retail and any other customers to actually approach companies that they don't have access towards on a normal basis to then provide capital to these m uh to these um borrowers and generate more APR that they would have in other um asset classes. The fun part starts once a lender actually deposits money into a wildcat market because the lender will receive a depth token and the stepped token is basically an IOU towards the borrower that can then be redeemed back to the borrower and uh to get the money back. But if you can use that debt token then also in other DeFi protocols as additional collateral or maybe even as payment that's when you then see like the multiplication effect that under collateralized credit can have on the overall ecosystem because you have a money multiplier that is not backed by collateral but actually only backed by the default risk of the borrower of the issuer of the depth token and of the uh composibility of the token. itself within the defi sector. So, Wildcat is going to be definitely um an onchain credit network that we're building.

Uh we still have a lot of challenges. We have the challenge of bringing transparency to the lender that they actually understand the risk of the undercolaterized credit because it is a completely new concept for the DeFi world that has been living in an overcolateralization area. Um, and that is something that we're always interested in talking to with partners. We're also currently hiring uh new developers and business development people. So if you know of anybody or if you are interested please do contact me and now I have time for some questions or any feedback or telling me that this concept will not work or it will work.

Thank you.

Do we have any questions?

Question. How do you minimize the risk when you're lending out money? Are you

big baseball bands?

No.

Seriously? Yeah. So, so we um onboard the borrowers and we do a KYB with the borrowers. So, if we for example put um vintute on our platform and um say this is wintermute and you can now deposit into vintute, you don't have to worry about that this is actually vint. So then that resolves the risk for some people but not for all.

Um we're working on concepts beyond that. So currently you could describe it as a vibe lending. Yeah. So like do you have a positive vibe towards that borrower and are sure that that person will not you know default. You could argue that if you know the biggest or one of the biggest market maker in the crypto industry defaults then it'll have other effects on whatever deposits or assets I hold.

Um but we also have borrowers that nobody knows and they they they have a good business model. Um so the question is how do we bring transparency towards the lenders to make sure that number one they understand what the borrower is actually doing because that is interesting for the lender and number two what actually happens if that person goes default. The the logical answer is you would do what you would do in the normal world. you would find a lawyer and then sue them and then try to get their money back and you can do that since there is KYB data there that you can use or um and we do have defaults you know on a daily basis not in Wildcat but in the real world and the economy is still thriving right so like the world can deal with defaults we just need to find ways to bring that onto wildcat and onchain but also provide more alternatives to avoid defaults. Now what Wildcat provides in addition is a transparency in the repayment history of the individual borrowers.

So if you would repay money um in you know the traditional world you would never know if the person is currently um having problems by repaying other debts or is having problems um filling any withdrawal requests that lenders have in a timely matter. We do have this in Wildcat and that is kind of like a risk assessment that people can use. they can look into the market and they can see did this borrower serve all of the past credit and was able to live up to what he's been paying. That does give like a better indication if that was always positive. If the borrower has had problems in the past and currently has problems, you would probably not deposit more money into that market because you know that he's not able to serve what is currently being able uh needs to be served.

Can you hear me? Yeah. Nice. Have you found at least one credit agency that has insured your portfolio of borrowers?

Um, insured? No, we like if you have one, we can we can talk. That would be awesome.

Yeah, that would be awesome because in the the real world, all my portfolio was insured. Okay.

That's why Yeah. It eliminates basically the risk if the real world insurers don't want to ensure the portfolio provided that you have all your clients KYB.

Yeah. Yeah. Yeah.

This is a big question. Yeah. Right. So those are stuff that we're that we're planning that we're talking about. Uh we cannot do this as a platform operator because we want to keep the neutrality.

So we are dependent also with like other service providers and other partners. The big challenge is because number one, the whole private credit market was basically wiped out overnight through the whole FTX collapse etc. People didn't build infrastructure for these kinds of stuff. They focused it on overcolateralization. Yeah.

And you can see the the absurd um money being spent in this overcolateralization risk assessment by just looking into having credit ratings issued on overcolateralized borrowers and lenders which by definition doesn't make sense because there is no default risk because it's overcolateralized. So why would I need a credit scoring on those participants? So there are companies that are doing credit scorings and that are doing insurance but they're currently focusing on the overcolateralization space. We are trying to get them back into the undercolateralization space or get uh insurance company that is in the you know traditional world to look at uh undercolateralization on uh crypto and then provide services there. So you're you're that yes.

Exactly. Yes. Yes. Um um they are not able to or they will be able to.

Okay.

Okay. I I I have not talked to an insurance company so far that says I will not insure this. So I cannot second your your claim, but I I don't want to challenge it. Yeah. So I I'll just go out and talk to people and then hopefully not get the same answer that you gave me or that you have and then we can try to get this still sorted in a way that there are institutes there that want to uh secure and ensure underolaterized credit.

Yes. Yes.

Yes. Thank you. One more question. Let's use the the microphone for the video.

Um, so this is pretty much a kind of a bonds on chain, right? Corporate bonds on chain.

I don't want to say yes because then I'm admitting that we're doing bonds, which I'm never going to do. We're doing private credit or we're allowing people to do private credit. But we do have borrowers that basically said I was thinking about issuing a bond. Maybe I don't have to do that. I'll just use Wildcat.

I'm just wondering because we said that the all relies on the trustworthiness of the borrower.

Yes.

And um about the the I don't know maybe the business model, the assets they do have. So that's how we can get the money back in case of a default. But then in case of a default we have a local regulations and there is a liquidation process where uh bond holders will be first paid out later the the stakeholders and and so on and so on right so if the legislations will not recognize your bond token then even with the default everything will go following the um currently established default process. Yes, definitely. And that that's why we cannot create one solution that fits all because we are onboarding companies that sit in different regulatory regions because we we do consider as like a D5 protocol that people can onboard to and the the the gatekeeping is only on the collecting the data on the borrower so that if there is something that needs to have a legal dispute, we do have the data and we can check that data.

And then the lenders they need to evaluate before they deposit money into those markets. Is this a borrower that I can also you know contact and maybe even in worst case scenario sue in my region or is it a you know is it an entity that is sitting on the other side of the world where where if I deposit a,000 or 2,000 USDC it'll cost me 20,000 just to to get in contact with him through my lawyer. But we do provide all of that data and then the the lenders can make that risk assessment on themselves or they just wait until we provide more data and find more ways to provide more risk assessment. Microphone

as a as a legally binding uh debt uh obligation. Oh, I I don't think that there is any regulation that would not see this as credit because we very clearly state and the lenders and the borrowers need to sign uh terms of usages that this is credit and this is not just fake banana tokens onchain or something like that. But both parties recognize that this is credit and therefore why would a regulator say this is not credit? Yeah, I mean it would be fun to see a regulator say this is not credit and then I would ask him well what is it then and then if it's banana tokens or anything else then there's no regulation applying to it and then we could have even more fun with what we could build there. Yeah, but uh regulators are not doing this.

Typically if a regulator sees something in crypto they put it in some category that is already exists and that category would be credit. So I don't think that there is one regulator out there that would not recognize this as credit. Amazing. Thank you very much. I know that you have to run, so I'm going to let you off the stage.

Thank you so much.