“I have seen this movie before,” said the ex-banker with reference to DeFi.
The protocol iterates over the delegated proof-of-stake consensus used by EOS, which employs 21 block producers. Revolution Populi calls its consensus rdPOS, where ‘r’ stands for random. The number of block producers is increased to 63, and 21 nodes are randomly picked as block producers for each round. The team believes that this setup allows for speed while preserving sufficient decentralization.
Rob Rosenthal, the company’s CEO who spent 19 years at Goldman Sachs prior to starting this latest venture. Hebelieves that the DeFi scene is a replay of the 2008 financial crisis:
“I’ve seen this movie before, and I see the DeFi markets in the same way that one what happened to CDS [credit default swaps]. This is going to happen. It took one bad counterparty to take down the entire financial system.”
Rosenthal believes that their solution can save DeFi from “certain oblivion”. He said that the solution has attracted a lot of attention from traditional finance as well as it can streamline record keeping and reduce associated costs. Rosenthal said that his team has designed a “decentralized clearinghouse”, that essentially is a decentralized “database with discrete permissioning”, where “everybody owns and controls their own data”:
“What a clearinghouse is, is two things. One, simple record keeping instrument and two, importantly, a guarantee fund. […] On top of that you can have layer two that can utilize this layer one for atomic record keeping.”
In addition, this guarantee fund would provide “real yield” to liquidity providers that is generated by transaction costs associated with the trade settlements:
“You can make a deposit and earn yield as trades settle, and that’s real yield, by the way. That’s like real yield, meaning you earn yield. Once the trade settles and the settlement of that trade carries with it some small transaction costs and transaction fees, so fees are actually generated. And depositors get a piece of those fees.”
Traditional financial services companies have often eschewed the use of public blockchains; instead focusing their attention on the permissioned options like Hyperledger Fabric, Corda or Quorum — a private fork of Etheruem (ETH). The inherent mistrust of public chains largely stems from two factors, the perceived association with illicit activity and concerns about preserving privacy. However Rosenthal opined that this was part of the problem — you cannot marry the two concepts a decentralized ledger with centralization: “The ‘C’ in CBDC stands for Central, the ‘D’ in DLT stands for distributed or decentralized. You can’t marry those two, at least not internally.”
He said that many bankers with whom he has discussed his approach have been receptive. In his opinion, banks do not have an issue with a decentralized “layer one” per se, but they do have a problem with the “layer one” being owned by the government or by a competitor. Rosenthal said that although their solution is going to be a decentralized public blockchain, some data will need to remain private.