September 22, 2025 • 66 mins
TradFi FX markets are slow, expensive and often lack liquidity for direct swaps between different world currencies, having to route through USD pairs. While crypto could technically solve pairing through AMM pools, those needed to be arbitraged in order to reflect TradFi rates. With 15 fully-backed stablecoins, Mento is building the largest FX infrastructure, bringing world currencies onchain through its robust multi-currency stablecoin platform. In order to provide traders with accurate real-word FX rates, Mento employs FPMM (fixed-price market makers) which gather offchain data from multiple oracles. Instant settlement, cross-border, at a fraction of a cost of conventional remittance providers, while also avoiding traditional banking limitations.
Backed by strong on- & off-ramp integrations, Mento also caters towards day-to-day use cases, empowering locals and businesses to diversify their FX exposure without the hurdles of TradFi. Mento enables smooth cross-currency transactions without traditional banking limitations, unlocking DeFi yield for a wide variety of currencies.
Topics covered in this episode:
- Markus’ background, from TradFi to DeFi
- Unbanking the banked
- Starting a stablecoin protocol on Celo
- The role of stablecoins
- FX markets & Mento’s design
- FPMM vs. AMM
- Mento’s target audience
- Centralised vs. decentralised stablecoins
- Mento governance
- M0’s approach
- Integrating with banking systems
Episode links:
Sponsors:
- Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.io
This episode is hosted by Friederike Ernst.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
So what we've done differently in our markets is actually
Oracle driven markets where we query a range of different
oracles so that we can actually for our markets that instead of
AMM we call FPMM, fixed price market makers.
We can query a wide range of oracles about the FX rate and
(00:21):
then allow users to swap directly at this FX rate.
These fixed price market makers on Mentor is what we in the end
call distribution pools, so you can easily access them.
These 15 currencies, what we also need to supply them.
The stable coins in these FPMMS are what we call expansion
(00:41):
pools, markets where these stable coins are minted into
existence. In today's setup of Mentor, we
have a single reserve over collateralizing all the stable
coins that are outstanding. The reserve is fully Unchained
so that everyone can verify thatthis reserve exists, and against
this reserve you then can mince stable coins into existence.
(01:04):
But in a future version of Mentor Mentor B3, we also offer
CDP's where users then actually can borrow local currency into
existence. Welcome to Epicentre, the show
which talks about the technologies, projects and
people driving decentralisation and the blockchain revolution.
I'm Federica Ants and today I'm speaking with Marcus Franke, who
(01:26):
is the CEO of Mentor Labs, an onchain FX and stables issuance
protocol that started originallyon top of Cello.
Before I talk with Marcus, let me tell you about our sponsors
this week. Hey guys, I want to tell you
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(02:07):
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one block at a time. Marcus, it's a pleasure to have
you on. Felika, thank you so much.
Great. Great to see you.
Thank you for having me. Good.
Marcus, you actually have a pretty eclectic background.
(03:13):
We we often see these founders who kind of start something kind
of like why, why they're still at school or university and then
kind of like, but but you actually, you have had an entire
first life. Tell us about that.
That is true, I'm I'm already a bit older, already have like
first wrinkles around my aesthetics also maybe due to
this industry. So yes, I'm, I'm coming from an
(03:35):
economics background to the PhD in economics, worked in research
for some time as a post doc researcher at the University of
Munich in Hong Kong in in New York and then worked in the
traditional finance industry. Tratfi, as I would say today,
worked for different investment banks, Merrill Lynch and JP
(03:56):
Morgan and then also worked as aportfolio manager for Allianz
Global Investors inside the Allianz Asset Management Group.
And there I worked on managing pension fund portfolios,
different asset classes, everything from currencies to to
equity to bonds. Often worked more on the risk
(04:19):
and research side of things. And then around 8 years ago,
joint Web 3 ecosystem went down the rabbit hole.
Back then I actually was managing a part of a pension
fund from Bank for InternationalSettlements.
They told me, Oh no, you're alsogoing to this industry.
Do not touch these assets. This is evil.
(04:40):
In between back then and now they change their stance a bit
on that three, but they're stillrelatively sceptic on on on what
we're doing. And then actually started in the
cellar ecosystem, was part of the initial team as an economist
always work on stable coins. And then three years ago we spun
(05:01):
out mentor from the core cello or C Labs team as a stand alone
project. There's a lot to unpack here.
Maybe let's go a little bit back.
So you, you said that you kind of joined the Web 3 ecosystem 8
years ago. What was it that drew you in?
(05:23):
Because kind of like you came from a fairly traditional
conservative finance background,right?
And kind of like, I mean, the the gap is still there, but back
then it was immeasurably wider than it is now.
Absolutely. And I think back then the
narrative why I joined that 3 was still, I would say,
(05:44):
relatively new today. Every ecosystem took this
narrative of financial inclusion, giving people access
in countries where they don't have proper access to financial
primitives via web three. These types of narratives in the
past eight years, we have heard them a lot from everyone from
(06:05):
Libra to Cello to like all the ecosystems out there.
But still, I think this is one of the most important things we
we still have to solve. We didn't go to the billions of
people yet that using that use web three everyday.
And therefore back then this waswhat drew me to this industry
(06:28):
that maybe there's a new technology that can allow people
to easier access financial primitives.
Maybe this would solve many different problems in many
different countries where maybe the financial infrastructure is
not as advanced as in in Germany, if you can call that
advanced or in other countries of the world.
(06:49):
And, and maybe this this technology has the promise or
yeah, can, can actually solve many of these problems that are
closely linked to deeper economic problems of different
countries. How people can exchange value,
how can, how people can have ownership over certain assets.
(07:12):
And I think these problems are still there today and therefore
we still have to continue to work on those.
I was recently joking with a friend that initially kind of
our drive was to bank the unbanked, but kind of we ended
up unbanking the banked. How do you how do you think this
(07:32):
happened? Where do you think we went
wrong? This is actually very, very good
way of of phrasing it. I think this is very, very true
and I think it it gets like or becomes even more true when we
now see the new projects that enter the space that build all
their own L1 or L2 and and try to do the same.
(07:54):
In the end, unbanking the bankedor maybe even banking the
banked, but using different typeof technology stack.
I think what went wrong was probably a bit lack of focus of
the industry, what we're trying to solve for as always with new
(08:15):
technologies, speculation, hype markets, yeah, post different
challenges for builders to stay focused on solving these
problems. I think especially the Defy
summers and, and now maybe people already talk or talked
(08:37):
about a stablecoin summer and all of these different things
led to a lot of speculation and the price action in many
different assets in this field made some people poor, some
people rich. But we yeah, didn't, didn't
focus on, on actually solving that problem.
So maybe greed was the problem why we weren't focused.
(09:00):
Yeah, maybe now it's the time that this industry focuses again
on solving the problems that we want to solve in the first
place. Yeah, I, I, I, I couldn't agree
more. So kind of you, you have this
entire background in economics and kind of in, in crypto,
everyone is, is an economics expert, right?
So kind of like how does, how does your experience in academia
(09:23):
and kind of tratify institutionsshape how you think about money
and financial systems and how ishow is that different from how
you see kind of the, the, the ecosystem average kind of thing?
It's a it's a good question. And I think actually coming from
(09:44):
an academic background in the end, I don't know if that helped
in, in, in this, in this industry.
I hope that it helped. I think where sometimes maybe it
didn't help was actually that weapproach many things much more
conservative when you're building, especially in our case
building stablecoin platform, building for on chain FX
(10:07):
solutions, building also with users in mind that are in
countries where their livelihooddepends on this technology to
work. Then you do this in a, in a much
more conservative way. Building these things in a much
more conservative way could alsothen sometimes mean growing
slower than many other projects that shoot up.
(10:32):
I think in in the stablecoin space, everyone knows about the
stablecoins that that didn't build very conservatively and
then then at some point also went under.
But even those who are still around, there's a lot of
questions that economists I think would have question marks
(10:52):
when it comes to counterparty risk, when it comes to efficient
pricing of a stable coin depending on the underlying
collateral. When it comes to, for example,
so-called Fiat backed stable coins that are actually backed
by credit, money in a bank or money in in a securities
(11:12):
account. When it comes to questions
around counterparty risk, when it comes to questions around
what is the true price of that collateral, if there is
counterparty risk, if there is credit risk and so on.
I think all of these questions didn't really matter in the in
the past eight years when also the question of how volatile
(11:37):
currencies actually are didn't matter in the past eight years.
Both of us are spending a lot oftime in, in Europe against the
euro, The dollar this year alonelost 20% in value.
So maybe there is a place for other stable coins than just
(11:59):
dollar based stable coins. But in the past, all of this
just didn't matter in, in, in, in the industry because A, other
crypto assets were much more volatile than currencies and B,
growth was often much more important than things like
counterparty risk or proper collateral and so on.
(12:20):
And I think this is maybe where we had always had a bit of a
different approach. We're still around, which is
good, but that also meant we we grew much slower than many other
projects in the space. You guys spun out from Cello.
So you are one of the founding team of Cello and kind of tell
(12:41):
us about this. I mean we've had cello on
several times both Marek and Rene and kind of I think the
listeners are well aware that it's kind of like it used to be
this mobile first L one that waskind of centred around the
global South and payments and kind of became an L2 was in the
process of becoming an L2. So, so I think kind of this is
(13:05):
but kind of what kind of drove you to kind of start a a new
kind of stables protocol kind ofout of from their background.
Yeah, very, very good question. I think as you mentioned
payments, financial inclusion and with that stablecoins always
(13:28):
have been extremely important for Sello.
Sello as a now L2 is still focused a lot on stablecoin
transactions. There are wallets with Valora
and Mini pay on on Sello Live that since day one actually had
the focus on emerging markets and on on end users, retail
(13:53):
users that want to send easy transactions.
And some of the features that back then were very, very new on
Sello that you will could abstract away all the like
difficulties around gas fees, for example, by paying gas fees
in stable coins where important features for an ecosystem that
(14:14):
was focused on on retail that was focused on stable coins.
I think in general for the L1 and now L2 seller, it is
important to have many differentstable coins, life and not only
mental stable coins, but also the market leaders, Tether
circle, They are both alive on cello.
(14:36):
And I think it's important for the blockchain at the same point
or at the same time, it's important for Mentor to at some
point launch its markets and go live on other ecosystems as
well. So what we're currently really
focused on and where we can maybe also talk a bit more about
later on is that we are now actually rolling out our cross
(14:57):
chain strategy and want to launch Mentor on, on many
different ecosystems out there. So similar to my my belief that
we need to have many stablecoin providers or offers on cello, at
the same time Mentor should alsosit on many different
blockchains and platforms as well.
(15:19):
Maybe before we kind of dive into the architecture of Mentor,
kind of one final question. It could kind of set the stage.
So stablecoins are obviously kind of a representation of
something that kind of like we've had in the off chain word,
not going to say forever, but for a very long time, right?
Do do you see stablecoins more as a bridge to existing
(15:41):
financial systems, or do you seethem more as a foundation of a
new one? It's a good question.
I, I think probably I need to think a bit more about about
that. I think a having the opportunity
to transact in stable value, whatever that means is a
(16:01):
foundation of or a foundation for on chain transactions.
And stable could mean stable to the underlying currency.
Like a stable coin usually works.
If I'm in in Europe, a stable coin should be should represent
(16:22):
the euro and therefore I can do transaction on chain also in
euro when I have to pay for a service that is denominated in
euro, if I have to pay my taxes in euro and so on.
Stable could also mean stable toa basket of goods like all these
like stable coin projects that want to go in that direction,
(16:43):
where stable means stable coin should follow purchasing power
basket of goods in a certain country, which is I think
extremely interesting in countries where there is high
inflation of the national currency.
And I think these assets are extremely important.
(17:04):
And stable could also just mean transacting in an asset that
doesn't have that high inflationand and as as the local
currency. So I think in some way for for
proper transactions, stable coins in some way a foundation
and then we still have to definestable to what.
(17:25):
On the other hand, I think we are also just in the beginning
of basically that, that field where we need to explore more of
what currencies actually can do.I think in the beginning of what
we did here in the in the past eight years basically is
mimicking currencies as they already exist and just bringing
(17:45):
them on chain. And there's already a lot of
value in there. But you could imagine going
forward, there's even more what we can explore, like certain use
case currencies, new currencies for for, yeah, specific type of
use cases for saving, maybe for saving you need a different type
(18:07):
of currency than for transactions in transactions.
Also, back then in the seller ecosystem, we've talked about
demurrage in the past a lot likesetting certain incentives to
people in a currency ecosystem to transact more as, as a means
of monetary policy. So I think on the one hand, yes,
(18:30):
stable coins in some way are a foundation for me for this
technology to work in, in the real world on On the other hand,
I think it's also just a start. And from here we can actually
experiment with currency much more and and can come up with
newer solutions to many problems.
Yeah, super cool. We'll come back to that for
(18:51):
sure. Before we do that, let's dive
into how Mentor works. So if you kind of look at Mentos
design at a high level, can you describe what the main
components are that are that make up the protocol?
Absolutely. So there's two main components
in general, 1 main component arethe stable coins.
(19:13):
And they, many of the stable coins that today are live on
Mentor are actually also Mentos stable coins.
But we also integrate more and more outside stable coins as
well. So for example, USDC and USDT
are also integrated in Mentor inthe second component.
The second component actually onMentor are new types of markets.
(19:37):
And to explain a bit these new types of markets and why we came
up that this, I have to talk just for a moment about FX as a
as a primer and about the FX markets and how they today exist
also on chain. In general, FX markets globally
(19:59):
are huge. The Bank for International
Settlements estimates that the FX market globally is $7.5
trillion in daily volume. In the end, FX markets mean just
the exchange for different currencies, basically one
currency for the other. And then there are many
(20:20):
different specific, more specific types of FX markets.
There are spot market, there areforward markets, there are like
swaps, FX swaps, which is a combination of a spot and a
forward transaction. And the spot market alone is $2
trillion a day in in volume. So in general, we can can say
(20:43):
it's the largest market in the world because every time when
someone either wants to exchangecurrency or wants to do business
cross-border, they might enter this FX market.
And, and tell us how, how this works kind of like in the
traditional world. So kind of like say I'm kind of
I, I, I'm, I'm Deutsche Bank now.
(21:04):
So kind of I, I have probably accounts with various banks
around the world in different currencies.
So kind of like how, how do I goabout kind of settling trades
from one currency to another? So what exactly is it that kind
of sets the rate here? Yeah, absolutely.
And this is already where it becomes in traditional world
(21:26):
really, really complicated. And actually also where the
technology that is used is different between different
countries, between different currency zones, but even like
between different providers thatactually allow you to access the
FX market. Deutsche Bank is a good example
because it's still one of like the top 10 currency traders in
(21:48):
the world. There's JPJP Martin, there's
UBS, there's Citigroup, there's Deutsche Bank, there's HSBC,
there's Goldman Sachs, there's many others.
And they're all in some way as banks engage in the FX market.
However, then there's also many non financial institutions that
also engage in the FX market. There are many like broker
(22:10):
dealers that allow customers to engage in the FX market and in
some way when they engage in theFX market, there's always in
some way some pre trade moment when basically parties that want
to engage in that FX market wantto agree on transaction.
There's then the trade execution, there's the clearing
(22:30):
and there's the settlement and all of this, when these
traditional players basically engage in that FX market
typically takes around 2 days until an FX trade is settled.
It takes even longer when there's a weekend in between.
It doesn't work 24/7. And here we're already basically
now describing many, many problems that actually could be
(22:53):
solved with on chain technology because yeah, this market
doesn't work 24/7. This market doesn't settle
immediately. And because it doesn't settle
immediately, clearing and settlement are all prone to risk
in some way. There's a settlement risk,
there's a counter party risk. There's of course also price
(23:14):
risks that that can be hatched away.
There's a regulatory risk when you basically go between
different countries. So there's it, it, the whole FX
market is extremely complex and it gets even more complex
because it, it works on many different technology stacks
globally. There's large settlement houses
(23:37):
including the exchange in Chicago.
And like many other settlement houses, Urex and others that
that then help with the settlement of an exchange trade.
And, and because it's such a wide range of parties that
engage in the FX market, there'sso many problems.
(23:59):
The dollar is actually still themost traded currency, also in
traditional FXI think it's in around 80 to 85% of all FX
transactions. The dollar is a part of that
transaction. The largest FX market is between
euro and dollar and then there are all these other currencies
(24:22):
like yen, pounds, Australian dollar, Canadian dollar, Swiss
franc, Hong Kong dollar that basically in decreasing
importance are also part of of this FX market.
And actually that high percentage of the dollar in all
FX transaction is another problem.
Actually this is this is the reason or the dollar is in such
(24:46):
a high percentage of international FX transaction
because many markets don't have direct liquid pairs.
So if you have for example in Kenya and you're doing business
with Ghana, there's often not a direct Kenyan shilling to Ghana
and CDFX market that you can access, not only because maybe
(25:06):
you don't have access to a bank,but also because there's just no
liquid inter banking FX market between Kenya and Ghana.
So what you typically have to dois you have to exchange from
Kenyan shilling to U.S. dollar and then from U.S. dollar to
Ghana and CD. And I mentioned before,
typically between pre trade, trade and then execution and
(25:26):
settlement, there's AT plus two days window until a trade
settles. If you then have to go from
Kenyan shilling via the dollar to Ghana and CAD, then it's
already 4 days at least until until your trade settles.
So all of this makes the FX market extremely complex.
(25:49):
And I'm I'm convinced that a part of this market should move
on chain so that globally users can actually access this market
on infrastructure that runs twenty runs 24/7, that settles
almost immediately and where youcan basically use the same
(26:10):
infrastructure no matter betweenwhich countries and currencies
you want to do business and be out with Mentor.
Focusing on this FX market, I mentioned the first building
plot block of Mentor, which is stable coins.
Currently there are 15 differentcurrencies live on Mentor, all
(26:32):
the G7 currencies that I mentioned before, so the dollar,
the euro, the yen, the pound, Swiss franc, Canadian dollar and
so on. But we also have a few more
exotic currencies live also the ones for example that are
mentioned, the Kenyan shilling and the Ghana and CD, yes.
I want to hear kind of like how how these currencies kind of
(26:56):
like set up afresh and kind of and so on.
But before, before we get into that, let's talk about the FX
part first, just because we're in it already, right?
So I see why you see potential for disruption here.
So obviously, kind of like if you had an intent based kind of
settlement layer that was capable of kind of doing ring
(27:21):
trades in in an atomic fashion, obviously that would be vastly
superior to kind of like waitingtwo days for any link of, of
the, any leg of the trade specifically, particularly
because because I'm sure you can't lock in kind of things for
in 2 days from now, right? So kind of like if you go from A
(27:41):
to B via C and you go from A to C first and then kind of like
the C to B leg disappears, kind of like you have to go back, try
a different. That sounds like a nightmare.
So tell us about, tell us about the FX system that that you
you've built. Absolutely.
And actually that we're, so thisis the way how mental markets
(28:02):
worked actually from from day one.
But now in our endeavor to go cross chain and when we talk to
many other foundations outside of the cello ecosystem, we
actually recognize how importantthis is to have these types of
FX markets actually on chain. Because in many ecosystems on
(28:24):
chain, this is potentially also the reason why there's not a
huge adoption so far for non dollar stable coins.
At least one of the reasons. And that reason in the end is
that typically markets on chain are so-called AM miss automated
market makers, where the price finding actually happens on
chain and the price depends on the relationship of two assets
(28:48):
that sit in such an AMM to each other.
So, and this concept can be evenmore generalized.
There can be like more assets combined in in an AMM, but in
general there's two pools of assets and the price depends on
the quantities that sit in thesetwo pools in this AMM.
(29:10):
Now the problem is that the price of euros in dollars is not
determined on chain, at least not now.
I've mentioned that the global market is $7.5 trillion daily.
The euro to dollar market alone is $2 trillion daily.
So the price of euros in dollarsis determined off chain in these
(29:32):
inter banking markets within these institutions or between
these institutions that we that we've mentioned, mentioned and
in general on, on global FX desks.
These AM Ms. are not great in mirroring of chain prices
because someone has to actually enter that AMM and rebalance
(29:53):
these pools so that they actually correctly represent the
current price of euros in, in, in dollars, for example.
So what we've done differently in in our markets is actually
and and this existed also on chain before, but in the past
actually couldn't be, couldn't be built out very efficiently.
(30:13):
It's Oracle driven markets wherewe very a range of different
oracles already today. We we work with chain link a lot
and chain link has has great Oracle infrastructure.
We also work with Redstone, We work with a few others.
We're also now looking into integrating PIRS and other
(30:35):
Oracle providers so that we can actually for our markets that
instead of AMM we call FPMM, fixed price market makers.
We can query a wide range of oracles about the FX rate and
then allow users to swap directly at this FX rate.
(30:55):
These markets, these new type ofmarkets, these FPM Ms., these
fixed price market makers on Mentor is what we in the end
call distribution pools because they are great markets to
basically allow users very efficient access to different
currencies on chain. So you can easily access then
(31:16):
these 15 currencies you can easily access for example, a
euro. What we already see today is
that a lot of actually users, traders come in and basically
use our markets to for example source euro every time.
When on other other type of markets, for example on Umi
swap, the price of the euro is not correct because these pools
(31:39):
are imbalanced at the current effects rates and therefore
arbitragers for example, use these FPMMS already.
What we also need to supply thenthe stable coins in these FPMMS
are in some way then what we call expansion pools, markets
(32:00):
where these stable coins are minted into existence.
In today's setup of Mentor, we have a single reserve.
That single reserve is over collateralizing all the stable
coins that are outstanding. The reserve is fully on chains
so that everyone can verify thatthis reserve exists and against
(32:22):
this reserve you then can mince stable coins into existence.
We always had the idea to basically hold collateral in
many different currencies in this reserve.
However, there is not so much local currency collateral in
existence today already. So there's not a lot of
tokenized Kenyan shilling government bonds and a lot of
(32:44):
Philippine peso government bonds.
Actually Philippine peso there are tokenized government bonds,
but they don't exist for every currency in the world.
Therefore basically this this single reserve has in some way
holds an FX risk because the collateral mostly is actually
(33:05):
dollar collateral, mostly is actually other dollar stable
coins like USTCUSTT die and and and so on.
The reserve is over collateralized because it also
earns yield. All the yield is flowing back to
this reserve. So for example, instead of die,
this reserve holds stake die. I think it's called SUSDE or
(33:29):
something. It's not called stake die
anymore. It it also holds, for example, a
yield bearing euro stable coin and others.
But in a future version of Mentor Mentor V3 that we're now
soon auditing and rolling out still this year.
(33:50):
We also offer CDPS in the end built on liquidity V3 CDPS where
users then actually can borrow local currency into existence by
posting for example, a dollar stable coin into ACDP, into a
smart contract as collateral andtherefore mentor.
(34:16):
In the end, let's say has three components. 1 component is in in
general as a product, the stablecoin.
Then the second component are these CDP type of markets where
users can borrow local currency stable coins into existence.
And then the third element is these FPMMS, these fixed price
market makers that allow users to swap one currency for the
(34:39):
other. There's a lot to unpack here and
I, I, I have, I have many questions.
Maybe I'll start with kind of like explaining kind of how I
understand. So kind of like there's one,
there's one centralized reserve pool and kind of like I can, I
(34:59):
can borrow different assets against it.
So kind of like if I want to go from currency A to currency B,
kind of what I do is kind of like I, I, I clear my debt of
currency A against this reserve pool and then borrow currency B
instead. Is, is that is that the correct
(35:21):
OK, that that's that's clear enough.
Then you you say that kind of you because the main trading
venue and the thing that determines the price isn't
natively on chain, you rely heavily on price oracles, right?
(35:42):
So these are notoriously tricky,right?
So kind of if, if you if you look at price Archers often kind
of like especially kind of, I mean the currency ones off they,
they usually they don't update kind of like during weekends,
(36:04):
for instance, and kind of they don't update often outside of
trading hours. So kind of like it's kind of
it's very much a nine to five sort of feat.
And but obviously kind of like price movements happen outside
of of these trading hours too, right.
So kind of sometimes kind of like you, you don't, you don't
have trading for the weekend. And then kind of like the euro,
(36:26):
yes, all the trade is kind of trade trading is taken up again
and kind of like you have an instant movement of, I don't
know, a percent or something, right.
So how, how do you deal with theimpermanent loss that's kind of
incurred by these, by by these, by these gaps in your price
feed? Very, very good question.
(36:46):
So in the end, these FPM Ms. tryto be more efficient than AM Ms.
by allowing users to exchange atthe exchange rate every time
when there's an exchange rate updates basically every time
when the Oracle delivers a new price, then these basically
markets are set to this price. And in many very liquid
(37:08):
currencies, this can happen every second.
However, in between seconds or as you said, for example,
outside of trading hours on weekends, for example, there is
no price update. And in these times basically
these FPMMS basically fall back to AM miss.
Basically they dense work completely in the same fashion
(37:31):
as as a standard AMM As for example Uniswap works when you
have like 2 pools between a euroand a dollar.
So every time when there is a price update, these offer more
efficient pricing. When there's no price update
from an Oracle then they fall back to the AMM solution and and
(37:52):
therefore basically users cannotexploit the market then on on a
weekend for example. What does this mean in terms of
spread? So kind of like if you, if you
kind of obviously kind of an FPMcan can work much more
efficiently than kind of like a regular AM because kind of like
here you can, you can take advantage of knowledge about
(38:13):
market movements and kind of tryto extract value.
So I mean the way that kind of pools generally defend against
this is by kind of like putting a spread.
So kind of like there's, I don'tknow, 25 basis points spread on
fairly liquid markets on weekends.
So how how do you handle this, particularly for markets that
are prone to larger movements? Yeah, absolutely.
(38:35):
And I think this is the important part that especially
during trading hours when there is Oracle updates, the spread
can be much closer together. Basically, we can offer a more
efficient price. And then the spread also depends
on still a few different things.A, there's a small fee for the
(38:58):
platform. This is in the end next to yield
revenue. How Mentor as a protocol, as a
decentralized protocol is, is basically being financed in some
way. There's a small fee and then
there is an additional spread that depends a bit on A, the
volatility of the currency and then B, on the reliability of
(39:21):
these oracles. So we know that then some
oracles, for example, for Ghana and CD are less reliable, for
example, than oracles for U.S. dollar because there's just less
trading venues. And basically this can be
accounted for in, in, in the spread.
In general, the resulting overall price of than one stable
(39:45):
coin you purchase for another stable coin should be a more
efficient price than in an an AMM.
So this is always basically the,I would say benchmark that's.
A lower floor right? Kind of like.
That's kind of like what you default back to.
Yes, exactly. Yeah.
And and this is then basically because we're coming from a
(40:06):
lower floor, we, we can offer like more efficient pricing than
in these types of markets. Yeah, yeah.
That, that makes sense. One thing I was wondering kind
of like who actually uses these,right?
So kind of like if, if you if you think about it kind of like
it's a pure purely on chain representation of the currency.
(40:28):
So kind of like it, it kind of conveys the risks and the
benefits of the currency, but you can't spend it anywhere,
right? Or you can you can only spend it
on chain. Kind of like with people who
accept you can't go to kind of like the local ALDI in Ghana and
kind of say, I want to, I want to I want to spend this here,
right? So how, how, how do you think
about connecting it to where most of the where most of
(40:54):
finance, finance lives, IE the legacy Ray is in terms of on and
off ramps and kind of integrations with IBAN and Visa
and so on? Yeah, it's a, it's a complex
question. I think there's like many
different elements here is a great question.
I think the first element on whouses it today, currently I would
(41:16):
say in general there are two types of users.
What we see currently on mentor in terms of usage, we currently
this month, last month drive around 100 million in volume a
day. This is approximately basically
the volume that that moves over over mentor per day.
(41:39):
And we have the majority of users is actually retail users.
The majority of volume is actually traders on the retail
user side. These are users that actually in
different markets access Mentor to optimize for example, for off
ramping fees or on ramping fees.So for example, Mentor is
(42:02):
directly integrated in Mini Pay,a wallet by Opera.
In Mini Pay, you can have different pockets in different
currencies. You, for example, have a USDT
pocket and you have a CUSD pocket.
And then if in a certain countryon a certain day, either the off
ramping or on ramping price for Tether, for CUSD or for Circle
(42:23):
for USDC is cheaper. And basically people just swap
into that currency and they access these markets.
These are typically relatively small use amounts that are being
swapped. However, these are a lot of
trades and a lot of users that that we see there that in the
end optimize for for basically the off ramp users could also go
(42:50):
and and use other integrations that are built out locally.
And there's for example, a project in in Africa called
Pretium that for example, in Kenya and then a few other
markets where M Pesa is big, allow you to basically go from a
Kenyan shilling into Kenyan shilling in M pesa.
So users then could use a mentorto swap from dollar stable coin
(43:13):
into a Kenyan shilling stable coin.
And they use pretium to basically go into M Pesa.
And then often they use M Pesa to to pay at a local store.
So here again, you see a lot of users and smaller amounts that
are being swapped. Larger amounts are being traded
by what I would say either bots or or more professional
(43:36):
arbitrage traders that actually then for example, query the
price of dollars, EUR, yen and whatever you have on for
example, uniswap and then basically arbitrage between the
mental markets and the UNI swap markets and and a few other
markets. But these are value extractors,
(43:57):
right? So kind of like, I mean,
obviously they provide a serviceby kind of like updating the
price, but they provide that service at the cost of the
liquidity providers. Yes.
And in the end, basically at thecost of the liquidity providers
in AM Miss, for example, where the euro or the dollar or
whichever currency is just not represented correctly here,
they're basically extracted. So I kind of I'm just kind of
(44:19):
like taking issue with the fact that conveyor I wouldn't I
wouldn't have caught them users in the in in the sense they're
kind of like they're not lookingfor the product itself.
They're kind of in a in a way, they're kind of like abusing the
product. Yeah.
And I mean depends a bit if it'sactually abusing the product or
basically accessing currency at the right price to then maybe
(44:39):
abuse the fact that on AM, Ms. on other marketplaces the price
is actually not represented correctly.
So maybe sounds a bit sounds a bit weird, but actually then
abusing other type of markets that that are that are not
efficient on chain. I think that is for sure a
second second user group. Then we also see more and more
(45:03):
actually speculators that want to speculate or trade on FX
direction basically on on takingdirective bets on, on, on FX
prices. We've seen this less in the past
just because any other crypto asset is more volatile than
currencies. So in in the past years, users
(45:25):
were more excited to, I don't know, leverage up their Bitcoin
exposure by factor 10 and trade on this then on trading on, on
FX. But we're seeing more and more
actually traders that also want to take direct directional bets
on on FX here. We can for example, or why are
we seeing this? Because every time the
(45:46):
volatility of, for example, the dollar spikes up, we also see a
spike in trading volume. One, one interesting incident or
two, maybe RA last November in during the election in US, the
dollar became more volatile. And then it this year during the
(46:09):
so-called Liberation Day where Trump announced tariffs, random
tariffs, not random, I don't know if they're random or not.
Tariffs for, for, for every country in the world.
The dollar became more volatile.This as a neutral statement.
The dollar just became more volatile.
(46:29):
And on these days, for example, we saw more than half a billion
in trading volume just on one day where users actually want
went, for example, from dollar stable coins to euro to Swiss
franc to Japanese yen to pound and so on, where basically users
may be bet on a loss in value ofthe dollar against other
(46:49):
currencies. And they do this, they do this
on chain because the latency is much smaller, right?
Yes. And maybe also because they're
actually on chain traders. And I think this is in some way
also a, a group of users that weneglected a bit in, in the past
(47:10):
by focusing so much on building out like retail product in some
way and also focusing so much onmaybe getting traditional FX
traders on chain. We neglected a bit that we
actually have a lot of traders on chain.
There's a lot of vendors. If there's something going on on
chain, then it's trading. So we actually have, we have
(47:34):
traders already that, that tradeon chain and here we are
offering new types of markets inthe end and and basically new
trading menus. And this is I think still
helping the goal of making for example currencies more
accessible in every country of the world.
It still is helping that small business in Kenya that is doing
(48:00):
business with for example someone else in Ghana because he
now we actually make these localcurrencies more liquid on chain
and then we make the overall platform more accessible and the
overall platform thanks to thesearbitragers, extractors, traders
and so on becomes also more liquid.
(48:21):
Then actually also these these currencies, these local currency
stable coins become more usable.Yeah, yeah.
So I, I, I didn't want to I'd, I, yeah, I'd, I have no issues
with traders in principle. So kind of like, I mean, if, if
you have a hypothesis that the Kenyan shilling is going to go
(48:42):
up against the US dollar, you should be able to kind of trade
on this. I I was just kind of like trying
to make the point that some of some of the order flow,
especially kind of like with these more market neutral
traders kind of is, is toxic andkind of and that's the protocol.
(49:06):
Yeah. No, I, I agree.
And I agree on the, on the otherhand, basically what we're
trying to offer is basically alternative markets.
And with that an alternative to everything that currently exists
on chain because we think FX in general currently on chain
cannot work because the necessary infrastructure and
(49:27):
most importantly for me, the necessary basically market
infrastructure is not existing. So basically we're trying to to
to offer this to users. And maybe one more, one more
item here. So what you actually can do if
you want to express an opinion on a currency that, for example,
the Kenyan shilling is appreciating or depreciating
(49:47):
against the dollar, for example,you can do this actually in two
ways. You can actually directly trade
on Kenyan shilling and dollar stable coins, but you could also
use the CDPS and borrow 1 currency into existence against
the other. And therefore you could then
even if you want to leverage yourself up and, and, and do
whatever you want. I, the, the other thing that I
(50:09):
wanted to add is that in the past, I think having access to
dollars has been described as the main use case of
stablecoins, basically giving people in countries where
there's high inflation access todollar as the, as the huge use
case. And I, I think it's a huge use
case. It's, it's certainly true.
(50:30):
If you're in a country where where the inflation of your
local currency is extremely high, it's great that you can
get access to local currency. However, this only is true when
you want to save and when you want to hold currency.
If you need to borrow, if you need to get a small loan, then
it's actually not true. Then if you're if you need to
get a small loan to build out your business in Kenya, as an
(50:52):
entrepreneur, you actually have the preference for local
currency because your revenue isin local currency.
And I think also there is an additional use case for, for
local currencies lending or credit in general.
That is huge because in many countries of the world, this is
actually another feature with onchain technology that we can
(51:14):
actually help with basically making maybe even credit more
accessible by with this infrastructure.
But then it it needs to be for many users of the world credit
in local currency because revenues are in local currency
and the the one who gets who gets the loan shouldn't be
exposed to effects risk. Absolutely, 100%.
(51:36):
I mean could also go your way. So kind of I, I, I bought a
house and, and finance it with ACDP on chain and kind of
obviously that was priced in U.S. dollars and that's gone
tremendously well for me. But yeah, I think, I mean,
obviously can also go the other way, right?
Congrats, that's good. I mean, it's speculative, but it
(51:58):
worked. Did work.
So maybe let's kind of shift gears a little bit.
I kind of want to talk about kind of like the wider stable
coin landscape. So kind of kind of like for the
longest time, there were two different approaches, Well,
maybe 3 different approaches. 2 used approaches to, to, to
stable. So kind of there were
(52:19):
centralized custodial issuers, so people like SACL and Tedder
and then there was crypto collateralized crypto
collateralized Sabre coins, right?
So like like Dai or SUSD as it'scalled now.
And then kind of there were algorithmic frameworks and kind
of like things like Terra Luna and bases and so on.
(52:41):
Maybe let's not talk about them because kind of like they never,
they never had traction in a sustainable way.
And kind of like the, these two kind of turned out to be the
ones that, that kind of Boo the,the, the brunt of the
sustainable traction. So now with kind of mentor and,
and the, and more recently M0 Labs, kind of we see the rise of
(53:07):
something else entirely, which is kind of like a decentralized
issuance framework rather than kind of having, having kind of
like these centralized in some sense issuers.
How, how, how do you how do you see that?
(53:27):
That's a good question. And in general, AUSDT and USDC
are massive and are continuouslygrowing.
So currently at least it, it looks like that this is a very
successful direction that both of them have taken.
(53:47):
And I think their risk profile also changed over the past eight
years. I think a few years ago there
was, yeah, the risk was just on a different level.
I think with their success and with maybe also being a bit
lucky that basically interest rates went in the direction
(54:09):
where interest rates went to they, they now are like more
sustainably more sustainable in,in their overall set up.
I think that's. Changed over the past years and
they are more sustainable because kind of like they reap
those rewards, kind of like that's their business model,
right? Kind of like they, they hold
trillions of funds, billions of funds in custody and kind of get
(54:31):
3 1/2 percent on, on key bills or whatever.
Kind of like they, they, they kind of turn the money into
right. Exactly, and that mostly works
when interest rates are positive.
That works. Maybe also one of the reasons
why they're less euro stable coins because actually the
interest rates have been negative longer for longer in
Europe compared to yes is could be one of the reasons.
(54:54):
And then actually also sometimesfor example, with USTC, there
was that problem when Silicon Valley Bank went sideways were
not users were not really sure how much of the collateral were
actually was held with Silicon Valley Bank where then actually
that credit risk we talked aboutbefore materialised and and USDC
(55:16):
de pact. And I think there's certainly
use case that for, for the stable coins, they're very
successful. I think there's also not every
part of the tech stack in general has to be fully
decentralized. And USDCUSDT are certainly not
(55:37):
decentralized, but there's a usecase for them.
And therefore basically I think it's it's it's good that they in
general exist with other models.I think what we are now actually
offering is giving users more choice and that users have more
choice can can come from either different users have different
(55:58):
preferences, but it could also mean different users just have
like 1 to do different things. So for example, if you want to
get a loan in Kenyan shilling orif you want to exchange from
Kenyan shilling to Ghana and CD,you cannot use a USDT.
And therefore it's good that these new types of stable coins
also in local currencies exist like a Kenyan shilling stable
(56:20):
coin or a Ganan CD stable coin. In general, in the longer run,
we don't want to differentiate too much because we think and
and here we've seen a lot of research actually in the past
that these new types of stable coins could be in some way
raised to the bottom that like to grow actually market share.
(56:44):
A stable coin issuer now has to forward either all of the yields
that they earn on collateral or even more than they earn on
collateral to actually gain market share.
And then you've many of these stable coins increased in
circulation while there were a lot of incentives and then they
decreased again when there when the incentives were running out.
(57:08):
I think in general for Mental, the larger business model is
actually in offering proper swaps and proper FX
infrastructure between these different stable coins.
And therefore we are also integrating other stable coins
as well. I've mentioned that we already
in mentor markets have integrated USDC and USDT and in
(57:30):
future, we'll also integrate other stable coins.
I think there's also regulatory element to it.
There will be different regulation in probably most of
the regions of the world. There is now mica in place in in
there's this genius act in US, There's some regulation also in
(57:50):
Singapore and, and I think in Hong Kong, something is coming
up. There's regulation also in the
Philippines, but there's also noregulation in many other places
of the world. So I think also from a
regulatory perspective, we'll see different offerings.
Maybe there are countries where actually a stable coin looks
more like a CBDC and there are countries like the US or also
(58:11):
areas like Europe where stable coins can actually also be
issued by other by other issuers.
And then depending on the use case, users probably also have
different preferences for different stable coins.
So in general, what I want to say a bit complicated is there,
there will always be many different stable coins.
(58:34):
I think what we want to do is wewant to offer proper
infrastructure for these stable coins and we want to make sure
that there is a stable coin for every country in the world, that
users can actually access local currency.
But I think it also makes sense to have regulation like for
example, Mika, where if you are a fully centralized issuer, if
(58:59):
this really looks like a bank, your business, then maybe it
should also be regulated like a bank.
Or if it looks like an ETF, maybe it should be regulated
similar to an ETF. If it's fully decentralized,
then you should also make sure that actually the information,
the data, the collateral and so on are all very accessible and
(59:21):
transparent. And I think that that makes
sense. And therefore it's maybe good
that there's so much competitionbetween different stable coin
issues. How do you handle the governance
in Mentos? Say, for instance, I want to, I
want to induce you to kind of list a new currency you don't
have, so say the Namibian dollar.
(59:43):
How how would I go about this? Kind of like whom do I need to
convince and what are what are the measures I kind of like need
in place for this to happen? Yes.
And in the end, this of course, on the one hand is is nice
because everyone can participatein a protocol like that, but on
the other hand, also makes it really, really complicated.
So with mentor governance is on chain, there's a governance
(01:00:06):
token, the mentor token. And with this, users can decide,
for example, which new currencies to launch.
Users can also decide which new ecosystems to launch on.
And users can also decide, for example, about fees, not only
what we do with the fees that come into the platform, but also
how high the fees should be for different pairs.
(01:00:27):
I think this is on the one hand nice because it actually makes
it decentralized and gives basically control to users.
On the other hand, it comes withall of the problems that also
have been discussed in in this podcast and others before that
that come with decentralized governance.
Because in the end, it's always hard to find educated governance
participants that are willing tospend some time to read into
(01:00:50):
proposals. So we try to put out from mental
labs a lot of like research and try to put out a lot of
information on how in general mental works make this all very
transparent. But I think in general, this is
something that can only be improved where basically we be
(01:01:11):
can educate users even more of basically what are the
implications of adding more currencies, what are the
implications of certain fees andso on.
I think sometimes here governance gets it right and
sometimes it doesn't. And in general, it's it's, yeah,
all of it is on chain governance, but it doesn't
(01:01:32):
really make our life easier. Yeah, I, I see that.
I have one more thing I'd reallylike to talk about and that's
kind of Metamask recently came out kind of with its
announcement that they will launch their own Sable coin
build on M0 infrastructure. Can can you walk us through how
(01:01:52):
M0's approach differs from from Mentos?
So in general, basically M0 has a focus on dollars.
So I think the very short answers we have a focus on on
the FX part and local currencies.
I think what M0 is doing is basically giving a standardized
basically platform to launch different dollar based stable
(01:02:12):
coin is is certainly valuable. I think it's really, really
important because with that we, we again standardize a part of
the technology stack. And I think for the dollar it
also makes sense because most ofthe stable coins out there are
actually dollar based stable coin.
In terms of mentor, we focus a bit more on the local currency.
So we focus on basically actually having the different
(01:02:35):
oracles to exotic and less exotic currencies.
We focus on basically having these markets where also M0
stable coins can be integrated and and can can allow users then
to swap at the FX, right. So I think here this is the the
the FX part is the key difference are.
(01:02:56):
You looking to kind of integratemore directly with banking and
payment systems, so kind of offering for instance your
Ghanaian users kind of the use of mentor stable coins natively
from from their banking application.
Yeah, I think in general we wantto integrate mentor where users
(01:03:18):
swap between different currencies.
So for example, if you today arealready use Squid Router to to
swap from one currency to another, then Squid router calls
the mentor functions to swap between different currencies.
And if you actually want to swapinto a currency where currently
no, there's no supply, then Squid router actually also calls
(01:03:42):
that minting function of mentor where basically local currencies
are minted into existence. So we want to integrate in in
routers, we want to integrate inwallets.
We want to integrate in like everywhere where users basically
want to swap from one currency to the other.
I mentioned this pockets featureof mini pay by Opera before.
(01:04:04):
I think this is also interestingbecause he users want to swap to
to basically get the cheapest off ramp and want to use mental.
So in the end, everywhere where users want to swap between
different currencies. And I think first what we are
now actually focusing on is bringing mental cross chain onto
(01:04:26):
other ecosystems. So that basically this then also
becomes accessible on on more chains than just cello.
And then second, we want to also, yeah, roll this out in, in
different venues in the end. Super cool.
Where do we send listeners who want to get involved?
So kind of contributing to Mento, whether as developers,
(01:04:49):
community members, users. So I think 1 landing pages.
Of course the web page mentor.org and and users can
basically there. Find also the the GitHub, the
blog, the docs page, docs.mentor.org, the white paper
and so on. And then there's of course also
(01:05:10):
X or Twitter, the Mentor Labs account, where we basically want
to keep everyone informed on everything that is new around
Mentor. And in general also, I think the
team is is always happy to talk to users, to talk to builders.
We're large part of the team is actually based in Berlin.
(01:05:31):
So we're always happy for users that want to want to build on
top. I think especially when it comes
to building for FX, there's a lot that is completely untapped
in web three. I mean, we now actually offering
swaps basically where you can gofrom one currency to the other.
There is also futures, there's hedging platforms, there's so
(01:05:53):
much more, there's options, things you can actually build on
top. So we really want to excite more
builders also to, to, to use basically that, that mental
functionality. Super cool.
Thank you so much for coming on,Marquis.
Absolutely. Thank you so much for for having
me. And yeah, I really enjoyed the
conversation. Thank you.
So what we've done differently in our markets is actually
Oracle driven markets where we query a range of different
oracles so that we can actually for our markets that instead of
AMM we call FPMM, fixed price market makers.
We can query a wide range of oracles about the FX rate and
(00:21):
then allow users to swap directly at this FX rate.
These fixed price market makers on Mentor is what we in the end
call distribution pools, so you can easily access them.
These 15 currencies, what we also need to supply them.
The stable coins in these FPMMS are what we call expansion
(00:41):
pools, markets where these stable coins are minted into
existence. In today's setup of Mentor, we
have a single reserve over collateralizing all the stable
coins that are outstanding. The reserve is fully Unchained
so that everyone can verify thatthis reserve exists, and against
this reserve you then can mince stable coins into existence.
(01:04):
But in a future version of Mentor Mentor B3, we also offer
CDP's where users then actually can borrow local currency into
existence. Welcome to Epicentre, the show
which talks about the technologies, projects and
people driving decentralisation and the blockchain revolution.
I'm Federica Ants and today I'm speaking with Marcus Franke, who
(01:26):
is the CEO of Mentor Labs, an onchain FX and stables issuance
protocol that started originallyon top of Cello.
Before I talk with Marcus, let me tell you about our sponsors
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(02:30):
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(02:51):
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one block at a time. Marcus, it's a pleasure to have
you on. Felika, thank you so much.
Great. Great to see you.
Thank you for having me. Good.
Marcus, you actually have a pretty eclectic background.
(03:13):
We we often see these founders who kind of start something kind
of like why, why they're still at school or university and then
kind of like, but but you actually, you have had an entire
first life. Tell us about that.
That is true, I'm I'm already a bit older, already have like
first wrinkles around my aesthetics also maybe due to
this industry. So yes, I'm, I'm coming from an
(03:35):
economics background to the PhD in economics, worked in research
for some time as a post doc researcher at the University of
Munich in Hong Kong in in New York and then worked in the
traditional finance industry. Tratfi, as I would say today,
worked for different investment banks, Merrill Lynch and JP
(03:56):
Morgan and then also worked as aportfolio manager for Allianz
Global Investors inside the Allianz Asset Management Group.
And there I worked on managing pension fund portfolios,
different asset classes, everything from currencies to to
equity to bonds. Often worked more on the risk
(04:19):
and research side of things. And then around 8 years ago,
joint Web 3 ecosystem went down the rabbit hole.
Back then I actually was managing a part of a pension
fund from Bank for InternationalSettlements.
They told me, Oh no, you're alsogoing to this industry.
Do not touch these assets. This is evil.
(04:40):
In between back then and now they change their stance a bit
on that three, but they're stillrelatively sceptic on on on what
we're doing. And then actually started in the
cellar ecosystem, was part of the initial team as an economist
always work on stable coins. And then three years ago we spun
(05:01):
out mentor from the core cello or C Labs team as a stand alone
project. There's a lot to unpack here.
Maybe let's go a little bit back.
So you, you said that you kind of joined the Web 3 ecosystem 8
years ago. What was it that drew you in?
(05:23):
Because kind of like you came from a fairly traditional
conservative finance background,right?
And kind of like, I mean, the the gap is still there, but back
then it was immeasurably wider than it is now.
Absolutely. And I think back then the
narrative why I joined that 3 was still, I would say,
(05:44):
relatively new today. Every ecosystem took this
narrative of financial inclusion, giving people access
in countries where they don't have proper access to financial
primitives via web three. These types of narratives in the
past eight years, we have heard them a lot from everyone from
(06:05):
Libra to Cello to like all the ecosystems out there.
But still, I think this is one of the most important things we
we still have to solve. We didn't go to the billions of
people yet that using that use web three everyday.
And therefore back then this waswhat drew me to this industry
(06:28):
that maybe there's a new technology that can allow people
to easier access financial primitives.
Maybe this would solve many different problems in many
different countries where maybe the financial infrastructure is
not as advanced as in in Germany, if you can call that
advanced or in other countries of the world.
(06:49):
And, and maybe this this technology has the promise or
yeah, can, can actually solve many of these problems that are
closely linked to deeper economic problems of different
countries. How people can exchange value,
how can, how people can have ownership over certain assets.
(07:12):
And I think these problems are still there today and therefore
we still have to continue to work on those.
I was recently joking with a friend that initially kind of
our drive was to bank the unbanked, but kind of we ended
up unbanking the banked. How do you how do you think this
(07:32):
happened? Where do you think we went
wrong? This is actually very, very good
way of of phrasing it. I think this is very, very true
and I think it it gets like or becomes even more true when we
now see the new projects that enter the space that build all
their own L1 or L2 and and try to do the same.
(07:54):
In the end, unbanking the bankedor maybe even banking the
banked, but using different typeof technology stack.
I think what went wrong was probably a bit lack of focus of
the industry, what we're trying to solve for as always with new
(08:15):
technologies, speculation, hype markets, yeah, post different
challenges for builders to stay focused on solving these
problems. I think especially the Defy
summers and, and now maybe people already talk or talked
(08:37):
about a stablecoin summer and all of these different things
led to a lot of speculation and the price action in many
different assets in this field made some people poor, some
people rich. But we yeah, didn't, didn't
focus on, on actually solving that problem.
So maybe greed was the problem why we weren't focused.
(09:00):
Yeah, maybe now it's the time that this industry focuses again
on solving the problems that we want to solve in the first
place. Yeah, I, I, I, I couldn't agree
more. So kind of you, you have this
entire background in economics and kind of in, in crypto,
everyone is, is an economics expert, right?
So kind of like how does, how does your experience in academia
(09:23):
and kind of tratify institutionsshape how you think about money
and financial systems and how ishow is that different from how
you see kind of the, the, the ecosystem average kind of thing?
It's a it's a good question. And I think actually coming from
(09:44):
an academic background in the end, I don't know if that helped
in, in, in this, in this industry.
I hope that it helped. I think where sometimes maybe it
didn't help was actually that weapproach many things much more
conservative when you're building, especially in our case
building stablecoin platform, building for on chain FX
(10:07):
solutions, building also with users in mind that are in
countries where their livelihooddepends on this technology to
work. Then you do this in a, in a much
more conservative way. Building these things in a much
more conservative way could alsothen sometimes mean growing
slower than many other projects that shoot up.
(10:32):
I think in in the stablecoin space, everyone knows about the
stablecoins that that didn't build very conservatively and
then then at some point also went under.
But even those who are still around, there's a lot of
questions that economists I think would have question marks
(10:52):
when it comes to counterparty risk, when it comes to efficient
pricing of a stable coin depending on the underlying
collateral. When it comes to, for example,
so-called Fiat backed stable coins that are actually backed
by credit, money in a bank or money in in a securities
(11:12):
account. When it comes to questions
around counterparty risk, when it comes to questions around
what is the true price of that collateral, if there is
counterparty risk, if there is credit risk and so on.
I think all of these questions didn't really matter in the in
the past eight years when also the question of how volatile
(11:37):
currencies actually are didn't matter in the past eight years.
Both of us are spending a lot oftime in, in Europe against the
euro, The dollar this year alonelost 20% in value.
So maybe there is a place for other stable coins than just
(11:59):
dollar based stable coins. But in the past, all of this
just didn't matter in, in, in, in the industry because A, other
crypto assets were much more volatile than currencies and B,
growth was often much more important than things like
counterparty risk or proper collateral and so on.
(12:20):
And I think this is maybe where we had always had a bit of a
different approach. We're still around, which is
good, but that also meant we we grew much slower than many other
projects in the space. You guys spun out from Cello.
So you are one of the founding team of Cello and kind of tell
(12:41):
us about this. I mean we've had cello on
several times both Marek and Rene and kind of I think the
listeners are well aware that it's kind of like it used to be
this mobile first L one that waskind of centred around the
global South and payments and kind of became an L2 was in the
process of becoming an L2. So, so I think kind of this is
(13:05):
but kind of what kind of drove you to kind of start a a new
kind of stables protocol kind ofout of from their background.
Yeah, very, very good question. I think as you mentioned
payments, financial inclusion and with that stablecoins always
(13:28):
have been extremely important for Sello.
Sello as a now L2 is still focused a lot on stablecoin
transactions. There are wallets with Valora
and Mini pay on on Sello Live that since day one actually had
the focus on emerging markets and on on end users, retail
(13:53):
users that want to send easy transactions.
And some of the features that back then were very, very new on
Sello that you will could abstract away all the like
difficulties around gas fees, for example, by paying gas fees
in stable coins where important features for an ecosystem that
(14:14):
was focused on on retail that was focused on stable coins.
I think in general for the L1 and now L2 seller, it is
important to have many differentstable coins, life and not only
mental stable coins, but also the market leaders, Tether
circle, They are both alive on cello.
(14:36):
And I think it's important for the blockchain at the same point
or at the same time, it's important for Mentor to at some
point launch its markets and go live on other ecosystems as
well. So what we're currently really
focused on and where we can maybe also talk a bit more about
later on is that we are now actually rolling out our cross
(14:57):
chain strategy and want to launch Mentor on, on many
different ecosystems out there. So similar to my my belief that
we need to have many stablecoin providers or offers on cello, at
the same time Mentor should alsosit on many different
blockchains and platforms as well.
(15:19):
Maybe before we kind of dive into the architecture of Mentor,
kind of one final question. It could kind of set the stage.
So stablecoins are obviously kind of a representation of
something that kind of like we've had in the off chain word,
not going to say forever, but for a very long time, right?
Do do you see stablecoins more as a bridge to existing
(15:41):
financial systems, or do you seethem more as a foundation of a
new one? It's a good question.
I, I think probably I need to think a bit more about about
that. I think a having the opportunity
to transact in stable value, whatever that means is a
(16:01):
foundation of or a foundation for on chain transactions.
And stable could mean stable to the underlying currency.
Like a stable coin usually works.
If I'm in in Europe, a stable coin should be should represent
(16:22):
the euro and therefore I can do transaction on chain also in
euro when I have to pay for a service that is denominated in
euro, if I have to pay my taxes in euro and so on.
Stable could also mean stable toa basket of goods like all these
like stable coin projects that want to go in that direction,
(16:43):
where stable means stable coin should follow purchasing power
basket of goods in a certain country, which is I think
extremely interesting in countries where there is high
inflation of the national currency.
And I think these assets are extremely important.
(17:04):
And stable could also just mean transacting in an asset that
doesn't have that high inflationand and as as the local
currency. So I think in some way for for
proper transactions, stable coins in some way a foundation
and then we still have to definestable to what.
(17:25):
On the other hand, I think we are also just in the beginning
of basically that, that field where we need to explore more of
what currencies actually can do.I think in the beginning of what
we did here in the in the past eight years basically is
mimicking currencies as they already exist and just bringing
(17:45):
them on chain. And there's already a lot of
value in there. But you could imagine going
forward, there's even more what we can explore, like certain use
case currencies, new currencies for for, yeah, specific type of
use cases for saving, maybe for saving you need a different type
(18:07):
of currency than for transactions in transactions.
Also, back then in the seller ecosystem, we've talked about
demurrage in the past a lot likesetting certain incentives to
people in a currency ecosystem to transact more as, as a means
of monetary policy. So I think on the one hand, yes,
(18:30):
stable coins in some way are a foundation for me for this
technology to work in, in the real world on On the other hand,
I think it's also just a start. And from here we can actually
experiment with currency much more and and can come up with
newer solutions to many problems.
Yeah, super cool. We'll come back to that for
(18:51):
sure. Before we do that, let's dive
into how Mentor works. So if you kind of look at Mentos
design at a high level, can you describe what the main
components are that are that make up the protocol?
Absolutely. So there's two main components
in general, 1 main component arethe stable coins.
(19:13):
And they, many of the stable coins that today are live on
Mentor are actually also Mentos stable coins.
But we also integrate more and more outside stable coins as
well. So for example, USDC and USDT
are also integrated in Mentor inthe second component.
The second component actually onMentor are new types of markets.
(19:37):
And to explain a bit these new types of markets and why we came
up that this, I have to talk just for a moment about FX as a
as a primer and about the FX markets and how they today exist
also on chain. In general, FX markets globally
(19:59):
are huge. The Bank for International
Settlements estimates that the FX market globally is $7.5
trillion in daily volume. In the end, FX markets mean just
the exchange for different currencies, basically one
currency for the other. And then there are many
(20:20):
different specific, more specific types of FX markets.
There are spot market, there areforward markets, there are like
swaps, FX swaps, which is a combination of a spot and a
forward transaction. And the spot market alone is $2
trillion a day in in volume. So in general, we can can say
(20:43):
it's the largest market in the world because every time when
someone either wants to exchangecurrency or wants to do business
cross-border, they might enter this FX market.
And, and tell us how, how this works kind of like in the
traditional world. So kind of like say I'm kind of
I, I, I'm, I'm Deutsche Bank now.
(21:04):
So kind of I, I have probably accounts with various banks
around the world in different currencies.
So kind of like how, how do I goabout kind of settling trades
from one currency to another? So what exactly is it that kind
of sets the rate here? Yeah, absolutely.
And this is already where it becomes in traditional world
(21:26):
really, really complicated. And actually also where the
technology that is used is different between different
countries, between different currency zones, but even like
between different providers thatactually allow you to access the
FX market. Deutsche Bank is a good example
because it's still one of like the top 10 currency traders in
(21:48):
the world. There's JPJP Martin, there's
UBS, there's Citigroup, there's Deutsche Bank, there's HSBC,
there's Goldman Sachs, there's many others.
And they're all in some way as banks engage in the FX market.
However, then there's also many non financial institutions that
also engage in the FX market. There are many like broker
(22:10):
dealers that allow customers to engage in the FX market and in
some way when they engage in theFX market, there's always in
some way some pre trade moment when basically parties that want
to engage in that FX market wantto agree on transaction.
There's then the trade execution, there's the clearing
(22:30):
and there's the settlement and all of this, when these
traditional players basically engage in that FX market
typically takes around 2 days until an FX trade is settled.
It takes even longer when there's a weekend in between.
It doesn't work 24/7. And here we're already basically
now describing many, many problems that actually could be
(22:53):
solved with on chain technology because yeah, this market
doesn't work 24/7. This market doesn't settle
immediately. And because it doesn't settle
immediately, clearing and settlement are all prone to risk
in some way. There's a settlement risk,
there's a counter party risk. There's of course also price
(23:14):
risks that that can be hatched away.
There's a regulatory risk when you basically go between
different countries. So there's it, it, the whole FX
market is extremely complex and it gets even more complex
because it, it works on many different technology stacks
globally. There's large settlement houses
(23:37):
including the exchange in Chicago.
And like many other settlement houses, Urex and others that
that then help with the settlement of an exchange trade.
And, and because it's such a wide range of parties that
engage in the FX market, there'sso many problems.
(23:59):
The dollar is actually still themost traded currency, also in
traditional FXI think it's in around 80 to 85% of all FX
transactions. The dollar is a part of that
transaction. The largest FX market is between
euro and dollar and then there are all these other currencies
(24:22):
like yen, pounds, Australian dollar, Canadian dollar, Swiss
franc, Hong Kong dollar that basically in decreasing
importance are also part of of this FX market.
And actually that high percentage of the dollar in all
FX transaction is another problem.
Actually this is this is the reason or the dollar is in such
(24:46):
a high percentage of international FX transaction
because many markets don't have direct liquid pairs.
So if you have for example in Kenya and you're doing business
with Ghana, there's often not a direct Kenyan shilling to Ghana
and CDFX market that you can access, not only because maybe
(25:06):
you don't have access to a bank,but also because there's just no
liquid inter banking FX market between Kenya and Ghana.
So what you typically have to dois you have to exchange from
Kenyan shilling to U.S. dollar and then from U.S. dollar to
Ghana and CD. And I mentioned before,
typically between pre trade, trade and then execution and
(25:26):
settlement, there's AT plus two days window until a trade
settles. If you then have to go from
Kenyan shilling via the dollar to Ghana and CAD, then it's
already 4 days at least until until your trade settles.
So all of this makes the FX market extremely complex.
(25:49):
And I'm I'm convinced that a part of this market should move
on chain so that globally users can actually access this market
on infrastructure that runs twenty runs 24/7, that settles
almost immediately and where youcan basically use the same
(26:10):
infrastructure no matter betweenwhich countries and currencies
you want to do business and be out with Mentor.
Focusing on this FX market, I mentioned the first building
plot block of Mentor, which is stable coins.
Currently there are 15 differentcurrencies live on Mentor, all
(26:32):
the G7 currencies that I mentioned before, so the dollar,
the euro, the yen, the pound, Swiss franc, Canadian dollar and
so on. But we also have a few more
exotic currencies live also the ones for example that are
mentioned, the Kenyan shilling and the Ghana and CD, yes.
I want to hear kind of like how how these currencies kind of
(26:56):
like set up afresh and kind of and so on.
But before, before we get into that, let's talk about the FX
part first, just because we're in it already, right?
So I see why you see potential for disruption here.
So obviously, kind of like if you had an intent based kind of
settlement layer that was capable of kind of doing ring
(27:21):
trades in in an atomic fashion, obviously that would be vastly
superior to kind of like waitingtwo days for any link of, of
the, any leg of the trade specifically, particularly
because because I'm sure you can't lock in kind of things for
in 2 days from now, right? So kind of like if you go from A
(27:41):
to B via C and you go from A to C first and then kind of like
the C to B leg disappears, kind of like you have to go back, try
a different. That sounds like a nightmare.
So tell us about, tell us about the FX system that that you
you've built. Absolutely.
And actually that we're, so thisis the way how mental markets
(28:02):
worked actually from from day one.
But now in our endeavor to go cross chain and when we talk to
many other foundations outside of the cello ecosystem, we
actually recognize how importantthis is to have these types of
FX markets actually on chain. Because in many ecosystems on
(28:24):
chain, this is potentially also the reason why there's not a
huge adoption so far for non dollar stable coins.
At least one of the reasons. And that reason in the end is
that typically markets on chain are so-called AM miss automated
market makers, where the price finding actually happens on
chain and the price depends on the relationship of two assets
(28:48):
that sit in such an AMM to each other.
So, and this concept can be evenmore generalized.
There can be like more assets combined in in an AMM, but in
general there's two pools of assets and the price depends on
the quantities that sit in thesetwo pools in this AMM.
(29:10):
Now the problem is that the price of euros in dollars is not
determined on chain, at least not now.
I've mentioned that the global market is $7.5 trillion daily.
The euro to dollar market alone is $2 trillion daily.
So the price of euros in dollarsis determined off chain in these
(29:32):
inter banking markets within these institutions or between
these institutions that we that we've mentioned, mentioned and
in general on, on global FX desks.
These AM Ms. are not great in mirroring of chain prices
because someone has to actually enter that AMM and rebalance
(29:53):
these pools so that they actually correctly represent the
current price of euros in, in, in dollars, for example.
So what we've done differently in in our markets is actually
and and this existed also on chain before, but in the past
actually couldn't be, couldn't be built out very efficiently.
(30:13):
It's Oracle driven markets wherewe very a range of different
oracles already today. We we work with chain link a lot
and chain link has has great Oracle infrastructure.
We also work with Redstone, We work with a few others.
We're also now looking into integrating PIRS and other
(30:35):
Oracle providers so that we can actually for our markets that
instead of AMM we call FPMM, fixed price market makers.
We can query a wide range of oracles about the FX rate and
then allow users to swap directly at this FX rate.
(30:55):
These markets, these new type ofmarkets, these FPM Ms., these
fixed price market makers on Mentor is what we in the end
call distribution pools because they are great markets to
basically allow users very efficient access to different
currencies on chain. So you can easily access then
(31:16):
these 15 currencies you can easily access for example, a
euro. What we already see today is
that a lot of actually users, traders come in and basically
use our markets to for example source euro every time.
When on other other type of markets, for example on Umi
swap, the price of the euro is not correct because these pools
(31:39):
are imbalanced at the current effects rates and therefore
arbitragers for example, use these FPMMS already.
What we also need to supply thenthe stable coins in these FPMMS
are in some way then what we call expansion pools, markets
(32:00):
where these stable coins are minted into existence.
In today's setup of Mentor, we have a single reserve.
That single reserve is over collateralizing all the stable
coins that are outstanding. The reserve is fully on chains
so that everyone can verify thatthis reserve exists and against
(32:22):
this reserve you then can mince stable coins into existence.
We always had the idea to basically hold collateral in
many different currencies in this reserve.
However, there is not so much local currency collateral in
existence today already. So there's not a lot of
tokenized Kenyan shilling government bonds and a lot of
(32:44):
Philippine peso government bonds.
Actually Philippine peso there are tokenized government bonds,
but they don't exist for every currency in the world.
Therefore basically this this single reserve has in some way
holds an FX risk because the collateral mostly is actually
(33:05):
dollar collateral, mostly is actually other dollar stable
coins like USTCUSTT die and and and so on.
The reserve is over collateralized because it also
earns yield. All the yield is flowing back to
this reserve. So for example, instead of die,
this reserve holds stake die. I think it's called SUSDE or
(33:29):
something. It's not called stake die
anymore. It it also holds, for example, a
yield bearing euro stable coin and others.
But in a future version of Mentor Mentor V3 that we're now
soon auditing and rolling out still this year.
(33:50):
We also offer CDPS in the end built on liquidity V3 CDPS where
users then actually can borrow local currency into existence by
posting for example, a dollar stable coin into ACDP, into a
smart contract as collateral andtherefore mentor.
(34:16):
In the end, let's say has three components. 1 component is in in
general as a product, the stablecoin.
Then the second component are these CDP type of markets where
users can borrow local currency stable coins into existence.
And then the third element is these FPMMS, these fixed price
market makers that allow users to swap one currency for the
(34:39):
other. There's a lot to unpack here and
I, I, I have, I have many questions.
Maybe I'll start with kind of like explaining kind of how I
understand. So kind of like there's one,
there's one centralized reserve pool and kind of like I can, I
(34:59):
can borrow different assets against it.
So kind of like if I want to go from currency A to currency B,
kind of what I do is kind of like I, I, I clear my debt of
currency A against this reserve pool and then borrow currency B
instead. Is, is that is that the correct
(35:21):
OK, that that's that's clear enough.
Then you you say that kind of you because the main trading
venue and the thing that determines the price isn't
natively on chain, you rely heavily on price oracles, right?
(35:42):
So these are notoriously tricky,right?
So kind of if, if you if you look at price Archers often kind
of like especially kind of, I mean the currency ones off they,
they usually they don't update kind of like during weekends,
(36:04):
for instance, and kind of they don't update often outside of
trading hours. So kind of like it's kind of
it's very much a nine to five sort of feat.
And but obviously kind of like price movements happen outside
of of these trading hours too, right.
So kind of sometimes kind of like you, you don't, you don't
have trading for the weekend. And then kind of like the euro,
(36:26):
yes, all the trade is kind of trade trading is taken up again
and kind of like you have an instant movement of, I don't
know, a percent or something, right.
So how, how do you deal with theimpermanent loss that's kind of
incurred by these, by by these, by these gaps in your price
feed? Very, very good question.
(36:46):
So in the end, these FPM Ms. tryto be more efficient than AM Ms.
by allowing users to exchange atthe exchange rate every time
when there's an exchange rate updates basically every time
when the Oracle delivers a new price, then these basically
markets are set to this price. And in many very liquid
(37:08):
currencies, this can happen every second.
However, in between seconds or as you said, for example,
outside of trading hours on weekends, for example, there is
no price update. And in these times basically
these FPMMS basically fall back to AM miss.
Basically they dense work completely in the same fashion
(37:31):
as as a standard AMM As for example Uniswap works when you
have like 2 pools between a euroand a dollar.
So every time when there is a price update, these offer more
efficient pricing. When there's no price update
from an Oracle then they fall back to the AMM solution and and
(37:52):
therefore basically users cannotexploit the market then on on a
weekend for example. What does this mean in terms of
spread? So kind of like if you, if you
kind of obviously kind of an FPMcan can work much more
efficiently than kind of like a regular AM because kind of like
here you can, you can take advantage of knowledge about
(38:13):
market movements and kind of tryto extract value.
So I mean the way that kind of pools generally defend against
this is by kind of like putting a spread.
So kind of like there's, I don'tknow, 25 basis points spread on
fairly liquid markets on weekends.
So how how do you handle this, particularly for markets that
are prone to larger movements? Yeah, absolutely.
(38:35):
And I think this is the important part that especially
during trading hours when there is Oracle updates, the spread
can be much closer together. Basically, we can offer a more
efficient price. And then the spread also depends
on still a few different things.A, there's a small fee for the
(38:58):
platform. This is in the end next to yield
revenue. How Mentor as a protocol, as a
decentralized protocol is, is basically being financed in some
way. There's a small fee and then
there is an additional spread that depends a bit on A, the
volatility of the currency and then B, on the reliability of
(39:21):
these oracles. So we know that then some
oracles, for example, for Ghana and CD are less reliable, for
example, than oracles for U.S. dollar because there's just less
trading venues. And basically this can be
accounted for in, in, in the spread.
In general, the resulting overall price of than one stable
(39:45):
coin you purchase for another stable coin should be a more
efficient price than in an an AMM.
So this is always basically the,I would say benchmark that's.
A lower floor right? Kind of like.
That's kind of like what you default back to.
Yes, exactly. Yeah.
And and this is then basically because we're coming from a
(40:06):
lower floor, we, we can offer like more efficient pricing than
in these types of markets. Yeah, yeah.
That, that makes sense. One thing I was wondering kind
of like who actually uses these,right?
So kind of like if, if you if you think about it kind of like
it's a pure purely on chain representation of the currency.
(40:28):
So kind of like it, it kind of conveys the risks and the
benefits of the currency, but you can't spend it anywhere,
right? Or you can you can only spend it
on chain. Kind of like with people who
accept you can't go to kind of like the local ALDI in Ghana and
kind of say, I want to, I want to I want to spend this here,
right? So how, how, how do you think
about connecting it to where most of the where most of
(40:54):
finance, finance lives, IE the legacy Ray is in terms of on and
off ramps and kind of integrations with IBAN and Visa
and so on? Yeah, it's a, it's a complex
question. I think there's like many
different elements here is a great question.
I think the first element on whouses it today, currently I would
(41:16):
say in general there are two types of users.
What we see currently on mentor in terms of usage, we currently
this month, last month drive around 100 million in volume a
day. This is approximately basically
the volume that that moves over over mentor per day.
(41:39):
And we have the majority of users is actually retail users.
The majority of volume is actually traders on the retail
user side. These are users that actually in
different markets access Mentor to optimize for example, for off
ramping fees or on ramping fees.So for example, Mentor is
(42:02):
directly integrated in Mini Pay,a wallet by Opera.
In Mini Pay, you can have different pockets in different
currencies. You, for example, have a USDT
pocket and you have a CUSD pocket.
And then if in a certain countryon a certain day, either the off
ramping or on ramping price for Tether, for CUSD or for Circle
(42:23):
for USDC is cheaper. And basically people just swap
into that currency and they access these markets.
These are typically relatively small use amounts that are being
swapped. However, these are a lot of
trades and a lot of users that that we see there that in the
end optimize for for basically the off ramp users could also go
(42:50):
and and use other integrations that are built out locally.
And there's for example, a project in in Africa called
Pretium that for example, in Kenya and then a few other
markets where M Pesa is big, allow you to basically go from a
Kenyan shilling into Kenyan shilling in M pesa.
So users then could use a mentorto swap from dollar stable coin
(43:13):
into a Kenyan shilling stable coin.
And they use pretium to basically go into M Pesa.
And then often they use M Pesa to to pay at a local store.
So here again, you see a lot of users and smaller amounts that
are being swapped. Larger amounts are being traded
by what I would say either bots or or more professional
(43:36):
arbitrage traders that actually then for example, query the
price of dollars, EUR, yen and whatever you have on for
example, uniswap and then basically arbitrage between the
mental markets and the UNI swap markets and and a few other
markets. But these are value extractors,
(43:57):
right? So kind of like, I mean,
obviously they provide a serviceby kind of like updating the
price, but they provide that service at the cost of the
liquidity providers. Yes.
And in the end, basically at thecost of the liquidity providers
in AM Miss, for example, where the euro or the dollar or
whichever currency is just not represented correctly here,
they're basically extracted. So I kind of I'm just kind of
(44:19):
like taking issue with the fact that conveyor I wouldn't I
wouldn't have caught them users in the in in the sense they're
kind of like they're not lookingfor the product itself.
They're kind of in a in a way, they're kind of like abusing the
product. Yeah.
And I mean depends a bit if it'sactually abusing the product or
basically accessing currency at the right price to then maybe
(44:39):
abuse the fact that on AM, Ms. on other marketplaces the price
is actually not represented correctly.
So maybe sounds a bit sounds a bit weird, but actually then
abusing other type of markets that that are that are not
efficient on chain. I think that is for sure a
second second user group. Then we also see more and more
(45:03):
actually speculators that want to speculate or trade on FX
direction basically on on takingdirective bets on, on, on FX
prices. We've seen this less in the past
just because any other crypto asset is more volatile than
currencies. So in in the past years, users
(45:25):
were more excited to, I don't know, leverage up their Bitcoin
exposure by factor 10 and trade on this then on trading on, on
FX. But we're seeing more and more
actually traders that also want to take direct directional bets
on on FX here. We can for example, or why are
we seeing this? Because every time the
(45:46):
volatility of, for example, the dollar spikes up, we also see a
spike in trading volume. One, one interesting incident or
two, maybe RA last November in during the election in US, the
dollar became more volatile. And then it this year during the
(46:09):
so-called Liberation Day where Trump announced tariffs, random
tariffs, not random, I don't know if they're random or not.
Tariffs for, for, for every country in the world.
The dollar became more volatile.This as a neutral statement.
The dollar just became more volatile.
(46:29):
And on these days, for example, we saw more than half a billion
in trading volume just on one day where users actually want
went, for example, from dollar stable coins to euro to Swiss
franc to Japanese yen to pound and so on, where basically users
may be bet on a loss in value ofthe dollar against other
(46:49):
currencies. And they do this, they do this
on chain because the latency is much smaller, right?
Yes. And maybe also because they're
actually on chain traders. And I think this is in some way
also a, a group of users that weneglected a bit in, in the past
(47:10):
by focusing so much on building out like retail product in some
way and also focusing so much onmaybe getting traditional FX
traders on chain. We neglected a bit that we
actually have a lot of traders on chain.
There's a lot of vendors. If there's something going on on
chain, then it's trading. So we actually have, we have
(47:34):
traders already that, that tradeon chain and here we are
offering new types of markets inthe end and and basically new
trading menus. And this is I think still
helping the goal of making for example currencies more
accessible in every country of the world.
It still is helping that small business in Kenya that is doing
(48:00):
business with for example someone else in Ghana because he
now we actually make these localcurrencies more liquid on chain
and then we make the overall platform more accessible and the
overall platform thanks to thesearbitragers, extractors, traders
and so on becomes also more liquid.
(48:21):
Then actually also these these currencies, these local currency
stable coins become more usable.Yeah, yeah.
So I, I, I didn't want to I'd, I, yeah, I'd, I have no issues
with traders in principle. So kind of like, I mean, if, if
you have a hypothesis that the Kenyan shilling is going to go
(48:42):
up against the US dollar, you should be able to kind of trade
on this. I I was just kind of like trying
to make the point that some of some of the order flow,
especially kind of like with these more market neutral
traders kind of is, is toxic andkind of and that's the protocol.
(49:06):
Yeah. No, I, I agree.
And I agree on the, on the otherhand, basically what we're
trying to offer is basically alternative markets.
And with that an alternative to everything that currently exists
on chain because we think FX in general currently on chain
cannot work because the necessary infrastructure and
(49:27):
most importantly for me, the necessary basically market
infrastructure is not existing. So basically we're trying to to
to offer this to users. And maybe one more, one more
item here. So what you actually can do if
you want to express an opinion on a currency that, for example,
the Kenyan shilling is appreciating or depreciating
(49:47):
against the dollar, for example,you can do this actually in two
ways. You can actually directly trade
on Kenyan shilling and dollar stable coins, but you could also
use the CDPS and borrow 1 currency into existence against
the other. And therefore you could then
even if you want to leverage yourself up and, and, and do
whatever you want. I, the, the other thing that I
(50:09):
wanted to add is that in the past, I think having access to
dollars has been described as the main use case of
stablecoins, basically giving people in countries where
there's high inflation access todollar as the, as the huge use
case. And I, I think it's a huge use
case. It's, it's certainly true.
(50:30):
If you're in a country where where the inflation of your
local currency is extremely high, it's great that you can
get access to local currency. However, this only is true when
you want to save and when you want to hold currency.
If you need to borrow, if you need to get a small loan, then
it's actually not true. Then if you're if you need to
get a small loan to build out your business in Kenya, as an
(50:52):
entrepreneur, you actually have the preference for local
currency because your revenue isin local currency.
And I think also there is an additional use case for, for
local currencies lending or credit in general.
That is huge because in many countries of the world, this is
actually another feature with onchain technology that we can
(51:14):
actually help with basically making maybe even credit more
accessible by with this infrastructure.
But then it it needs to be for many users of the world credit
in local currency because revenues are in local currency
and the the one who gets who gets the loan shouldn't be
exposed to effects risk. Absolutely, 100%.
(51:36):
I mean could also go your way. So kind of I, I, I bought a
house and, and finance it with ACDP on chain and kind of
obviously that was priced in U.S. dollars and that's gone
tremendously well for me. But yeah, I think, I mean,
obviously can also go the other way, right?
Congrats, that's good. I mean, it's speculative, but it
(51:58):
worked. Did work.
So maybe let's kind of shift gears a little bit.
I kind of want to talk about kind of like the wider stable
coin landscape. So kind of kind of like for the
longest time, there were two different approaches, Well,
maybe 3 different approaches. 2 used approaches to, to, to
stable. So kind of there were
(52:19):
centralized custodial issuers, so people like SACL and Tedder
and then there was crypto collateralized crypto
collateralized Sabre coins, right?
So like like Dai or SUSD as it'scalled now.
And then kind of there were algorithmic frameworks and kind
of like things like Terra Luna and bases and so on.
(52:41):
Maybe let's not talk about them because kind of like they never,
they never had traction in a sustainable way.
And kind of like the, these two kind of turned out to be the
ones that, that kind of Boo the,the, the brunt of the
sustainable traction. So now with kind of mentor and,
and the, and more recently M0 Labs, kind of we see the rise of
(53:07):
something else entirely, which is kind of like a decentralized
issuance framework rather than kind of having, having kind of
like these centralized in some sense issuers.
How, how, how do you how do you see that?
(53:27):
That's a good question. And in general, AUSDT and USDC
are massive and are continuouslygrowing.
So currently at least it, it looks like that this is a very
successful direction that both of them have taken.
(53:47):
And I think their risk profile also changed over the past eight
years. I think a few years ago there
was, yeah, the risk was just on a different level.
I think with their success and with maybe also being a bit
lucky that basically interest rates went in the direction
(54:09):
where interest rates went to they, they now are like more
sustainably more sustainable in,in their overall set up.
I think that's. Changed over the past years and
they are more sustainable because kind of like they reap
those rewards, kind of like that's their business model,
right? Kind of like they, they hold
trillions of funds, billions of funds in custody and kind of get
(54:31):
3 1/2 percent on, on key bills or whatever.
Kind of like they, they, they kind of turn the money into
right. Exactly, and that mostly works
when interest rates are positive.
That works. Maybe also one of the reasons
why they're less euro stable coins because actually the
interest rates have been negative longer for longer in
Europe compared to yes is could be one of the reasons.
(54:54):
And then actually also sometimesfor example, with USTC, there
was that problem when Silicon Valley Bank went sideways were
not users were not really sure how much of the collateral were
actually was held with Silicon Valley Bank where then actually
that credit risk we talked aboutbefore materialised and and USDC
(55:16):
de pact. And I think there's certainly
use case that for, for the stable coins, they're very
successful. I think there's also not every
part of the tech stack in general has to be fully
decentralized. And USDCUSDT are certainly not
(55:37):
decentralized, but there's a usecase for them.
And therefore basically I think it's it's it's good that they in
general exist with other models.I think what we are now actually
offering is giving users more choice and that users have more
choice can can come from either different users have different
(55:58):
preferences, but it could also mean different users just have
like 1 to do different things. So for example, if you want to
get a loan in Kenyan shilling orif you want to exchange from
Kenyan shilling to Ghana and CD,you cannot use a USDT.
And therefore it's good that these new types of stable coins
also in local currencies exist like a Kenyan shilling stable
(56:20):
coin or a Ganan CD stable coin. In general, in the longer run,
we don't want to differentiate too much because we think and
and here we've seen a lot of research actually in the past
that these new types of stable coins could be in some way
raised to the bottom that like to grow actually market share.
(56:44):
A stable coin issuer now has to forward either all of the yields
that they earn on collateral or even more than they earn on
collateral to actually gain market share.
And then you've many of these stable coins increased in
circulation while there were a lot of incentives and then they
decreased again when there when the incentives were running out.
(57:08):
I think in general for Mental, the larger business model is
actually in offering proper swaps and proper FX
infrastructure between these different stable coins.
And therefore we are also integrating other stable coins
as well. I've mentioned that we already
in mentor markets have integrated USDC and USDT and in
(57:30):
future, we'll also integrate other stable coins.
I think there's also regulatory element to it.
There will be different regulation in probably most of
the regions of the world. There is now mica in place in in
there's this genius act in US, There's some regulation also in
(57:50):
Singapore and, and I think in Hong Kong, something is coming
up. There's regulation also in the
Philippines, but there's also noregulation in many other places
of the world. So I think also from a
regulatory perspective, we'll see different offerings.
Maybe there are countries where actually a stable coin looks
more like a CBDC and there are countries like the US or also
(58:11):
areas like Europe where stable coins can actually also be
issued by other by other issuers.
And then depending on the use case, users probably also have
different preferences for different stable coins.
So in general, what I want to say a bit complicated is there,
there will always be many different stable coins.
(58:34):
I think what we want to do is wewant to offer proper
infrastructure for these stable coins and we want to make sure
that there is a stable coin for every country in the world, that
users can actually access local currency.
But I think it also makes sense to have regulation like for
example, Mika, where if you are a fully centralized issuer, if
(58:59):
this really looks like a bank, your business, then maybe it
should also be regulated like a bank.
Or if it looks like an ETF, maybe it should be regulated
similar to an ETF. If it's fully decentralized,
then you should also make sure that actually the information,
the data, the collateral and so on are all very accessible and
(59:21):
transparent. And I think that that makes
sense. And therefore it's maybe good
that there's so much competitionbetween different stable coin
issues. How do you handle the governance
in Mentos? Say, for instance, I want to, I
want to induce you to kind of list a new currency you don't
have, so say the Namibian dollar.
(59:43):
How how would I go about this? Kind of like whom do I need to
convince and what are what are the measures I kind of like need
in place for this to happen? Yes.
And in the end, this of course, on the one hand is is nice
because everyone can participatein a protocol like that, but on
the other hand, also makes it really, really complicated.
So with mentor governance is on chain, there's a governance
(01:00:06):
token, the mentor token. And with this, users can decide,
for example, which new currencies to launch.
Users can also decide which new ecosystems to launch on.
And users can also decide, for example, about fees, not only
what we do with the fees that come into the platform, but also
how high the fees should be for different pairs.
(01:00:27):
I think this is on the one hand nice because it actually makes
it decentralized and gives basically control to users.
On the other hand, it comes withall of the problems that also
have been discussed in in this podcast and others before that
that come with decentralized governance.
Because in the end, it's always hard to find educated governance
participants that are willing tospend some time to read into
(01:00:50):
proposals. So we try to put out from mental
labs a lot of like research and try to put out a lot of
information on how in general mental works make this all very
transparent. But I think in general, this is
something that can only be improved where basically we be
(01:01:11):
can educate users even more of basically what are the
implications of adding more currencies, what are the
implications of certain fees andso on.
I think sometimes here governance gets it right and
sometimes it doesn't. And in general, it's it's, yeah,
all of it is on chain governance, but it doesn't
(01:01:32):
really make our life easier. Yeah, I, I see that.
I have one more thing I'd reallylike to talk about and that's
kind of Metamask recently came out kind of with its
announcement that they will launch their own Sable coin
build on M0 infrastructure. Can can you walk us through how
(01:01:52):
M0's approach differs from from Mentos?
So in general, basically M0 has a focus on dollars.
So I think the very short answers we have a focus on on
the FX part and local currencies.
I think what M0 is doing is basically giving a standardized
basically platform to launch different dollar based stable
(01:02:12):
coin is is certainly valuable. I think it's really, really
important because with that we, we again standardize a part of
the technology stack. And I think for the dollar it
also makes sense because most ofthe stable coins out there are
actually dollar based stable coin.
In terms of mentor, we focus a bit more on the local currency.
So we focus on basically actually having the different
(01:02:35):
oracles to exotic and less exotic currencies.
We focus on basically having these markets where also M0
stable coins can be integrated and and can can allow users then
to swap at the FX, right. So I think here this is the the
the FX part is the key difference are.
(01:02:56):
You looking to kind of integratemore directly with banking and
payment systems, so kind of offering for instance your
Ghanaian users kind of the use of mentor stable coins natively
from from their banking application.
Yeah, I think in general we wantto integrate mentor where users
(01:03:18):
swap between different currencies.
So for example, if you today arealready use Squid Router to to
swap from one currency to another, then Squid router calls
the mentor functions to swap between different currencies.
And if you actually want to swapinto a currency where currently
no, there's no supply, then Squid router actually also calls
(01:03:42):
that minting function of mentor where basically local currencies
are minted into existence. So we want to integrate in in
routers, we want to integrate inwallets.
We want to integrate in like everywhere where users basically
want to swap from one currency to the other.
I mentioned this pockets featureof mini pay by Opera before.
(01:04:04):
I think this is also interestingbecause he users want to swap to
to basically get the cheapest off ramp and want to use mental.
So in the end, everywhere where users want to swap between
different currencies. And I think first what we are
now actually focusing on is bringing mental cross chain onto
(01:04:26):
other ecosystems. So that basically this then also
becomes accessible on on more chains than just cello.
And then second, we want to also, yeah, roll this out in, in
different venues in the end. Super cool.
Where do we send listeners who want to get involved?
So kind of contributing to Mento, whether as developers,
(01:04:49):
community members, users. So I think 1 landing pages.
Of course the web page mentor.org and and users can
basically there. Find also the the GitHub, the
blog, the docs page, docs.mentor.org, the white paper
and so on. And then there's of course also
(01:05:10):
X or Twitter, the Mentor Labs account, where we basically want
to keep everyone informed on everything that is new around
Mentor. And in general also, I think the
team is is always happy to talk to users, to talk to builders.
We're large part of the team is actually based in Berlin.
(01:05:31):
So we're always happy for users that want to want to build on
top. I think especially when it comes
to building for FX, there's a lot that is completely untapped
in web three. I mean, we now actually offering
swaps basically where you can gofrom one currency to the other.
There is also futures, there's hedging platforms, there's so
(01:05:53):
much more, there's options, things you can actually build on
top. So we really want to excite more
builders also to, to, to use basically that, that mental
functionality. Super cool.
Thank you so much for coming on,Marquis.
Absolutely. Thank you so much for for having
me. And yeah, I really enjoyed the
conversation. Thank you.
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