John Eagleton, CEO of Intellabridge, discusses with David Lin, anchor for Kitco News, the next protocol to gain critical mass adoption.
The blockchain space is evolving very, very quickly. So it's important to keep tabs on the latest developments in defy. And that's exactly what we'll be talking about right now with John Eagleton. He is a CEO of in tele bridge, and he'll be talking about the cash ecosystem. Welcome to the show. Thanks for having me, John, let's talk about cash first and foremost.
Uh, we're talking about offline, the utility of defined, how that's evolving every day. Uh, very quickly tell us about the latest developments in the device space that are impacting the everyday consumer and retail. Well, um, define is actually a very complex space. Um, you know, it's built on blockchain. If you want to actually get into defy, um, you know, you have to install a Chrome browser like Metta mask.
You have to be able to store your seat phrases, your phrases, being able to move in and out of different defined money markets. So it cash. What we do is we, we abstract those complex complexities, um, offering customers, basically a banking experience, but better than a bank, because you're able to access these high.
Okay. Can you expand on that? Um, how exactly can you access these. So just to, just for clarity. So, so defy is, is basically new money markets on the blockchain. These are borrowers and lenders, um, on the blockchain who are borrowing and lending us dollar stable coins. So these can be U S dollar stable coins on Ethereum or other blockchains, Tara.
Um, and. You know, putting, uh, borrowers and lenders together in smart contracts on the blockchain, don't have a situation like traditional banks, where in traditional banking, you're borrowing your money at less than 1% and then lending it out for credit cards, mortgages, and other loans at much higher interest rates.
So the banks make a, a decent spread between the borrower and lender with defined money markets, um, individual individuals able to borrow and. Um, directly peer to peer and have the benefit of, of interacting directly on these higher, higher rates. So what, what cash does is it really makes it simple to access this money markets.
It's basically like a traditional bank account where you log in and you set up your account. Um, you have a checking account, you have a savings accounts, the checking accounts, just like additional checking account, but you know, you've got dollars in there and you have dollar stable coins and you can move those funds into a savings account where you can earn up to 20%.
I want to come back to that 20%, uh, APY. That's a very high number, even for the device space, but John, let's talk about your analogy, the checking account and savings account. So per this example, what's in this checking account. Exactly. So you've got Fiat dollars and what else?
Um, the advantage of, of stable coin rollers is multiple. Um, one, if you want to send money for permits purposes, it's much cheaper than spending by a Western union. For example, that cost, you know, five or 6 cents, as opposed to, you know, five, 10% interest rates transfer rates, and you can transfer those stable coins into a savings account where you're able to access these defined money markets.
And is there a transaction fee? Uh, the transaction fee is, is like 25 basis points. Um, so those are the network fees on the blockchain. We actually don't charge any fees for that. Um, so that's, you know, 25 cents to deposit, you know, a hundred or a thousand dollars. Okay. Well, can I deposit any coin that I have in my wallet or does it have to be a native token to your eco.
Um, it's actually not our we're built on multiple, uh, ecosystems that were built up with the theory and terrible octane. So it can be a theory of stable coins like USBC or, or it can be the Kara tariff, stable coin, like UST. Okay. Thanks for clarifying. Um, I can't put big one in there. Um, no, we currently don't support Bitcoin.
It's it's designed for stable coins. Okay. Now let's just talk about that. I stay stable coins on Bitcoin. Is that under development by either yourself or anybody else? Right. Yeah, there are people working on that. Um, but that's not something that we're currently involved in. What we're, you know, if, if a protocol, a Bitcoin protocol or there's a Bitcoin money market, you know, or any other blockchain Solana, um, or any of the others, we evaluate all those different blockchains, um, to determine, you know, what we think would be best for our customers.
I'm going to come back to the 20% APY. How exactly is that generated on your plus? So we're, we're built on the Terrell blockchain and Tara has a protocol called the anchor protocol. Um, Tara actually had the advantage of, of building their blockchain after Bitcoin, after Ethereum and looked at, um, uh, basically building a better blockchain, a better solution.
Um, and what they did is they decided to, um, anchor an interest. Um, around 20%, um, rate, fixed rate to provide investors with fixed rate. A lot of the money markets have very volatile. Rachael have very high interest rates in the beginning. Those will taper off to much lower rates and they wanted to create a fixed rate platform.
Um, the way they do that is that they allow borrowers, uh, to deposit either terror, um, tokens or Ethereum tokens, um, into, as, as collateral for those loans and borrowers have to put up at least 200%. Those and often they're putting more like 300%. So those loans are, are over collateralized. And the underlying collateral is earning on average around 10%.
So if you, if you put in 200, you know, if you put in 200% of that, you're actually getting double the interest rate. So you're getting about 20. Do you see a scenario in which, uh, interest rates in the defy space go down in the future as I guess more entrance come in and there's more competitors for low.
Yeah, rates will definitely come down. Um, you know, these are, these are almost like teaser rates, um, and some protocols, you know, their teaser rates are extremely high. You know, you can get, you know, 50, a hundred percent yields, but those only lasts for a few months. They're trying to attract, um, liquidity into their protocols and they do that for a very short period of time.
Um, The, the protocol we're built on has a much longer term vision of, of, of maintaining high high rates. But those, yeah, those rates will come down as, as, as, um, you know, more demand, uh, for, for lending and borrowing. Okay. So John, the 20% APY is that, is that locked into, is a fixed rate for, uh, for a fixed amount.
It's actually a variable rate. So it's, it's, it's been like right now, it's at 19.4, 5%. It's been over 20%. Um, and, and it's been below that rate. So it's all the file. The U S federal reserve is, uh, has already hugged rates for the first time. Since 2018 people are projecting that the HighQ more. Down the line this year, perhaps into next year as well.
Do you think that's going to have any impact on the defined market in terms of how, uh, we're, where rates are headed in the defy market as well? I don't think so. I mean, from a macro perspective, probably maybe guest, um, it's it's the defined markets is more about, uh, You know, in, in, in inflation rates over 7% right now, um, the average American household is saving less than 5% of their disposable income in savings accounts.
And that's because interest rates are less than 1%. Um, defy offers much more attractive yields, uh, for, for people who want to save and is helping to, to encourage a better. Well, presumably when interest rates are as low as they are in the United States and where inflation is very high, uh, you know, close to double, they're just not quite, but, you know, 7.9% was the latest reading.
You would think that people would want to move into a higher yield environment and defy offers that kind of space, right? You wouldn't, you see more capital flows in a higher inflation, low risk. Yeah, absolutely. So, so take anchor protocols and example, um, a year ago, you know, there were just a few hundred million dollars in the protocol.
Now you have over $15 billion in the protocol. Um, so yeah, a lot of money is moving into, into protocols like anchor. Is that mostly to institutional money where retail money? Um, it's, it's a mix of both. Um, I don't know what the exact breakout is, uh, because it's, it's decentralized. So those numbers are not readily available.
Okay. Well, the, uh, going back to the interest rates, 20% APY sounds very attractive, but it doesn't come without risk. Every protocol has risks. So somebody who is, uh, maybe attracted to that yield might be wondering, well, John, what's the downside risks. Yeah, so yeah, definitely risks. And that's one of the, um, I think continued barriers to entry in the defy space is, you know, complicated user experience.
You know, how do I get in, you know, what are the risks and so on? So that's something that the, the, the con you know, the ecosystem and companies like ours are, are working to solve for. There are insurance, um, protocols that are coming to market. So. Offering insurance on anchor protocol that protects against technical and, and security risks.
And then there's risks of, of deep pegging from the U S dollar. So right now, you know, one us dollar equals one us dollar stable coin. Um, so we can provide customers with insurance to protect against those risks. Well, John, how significant are counterparty risks? Should we be concerned that maybe there's could be a default on any of your counterparties, such that your loan obligations can't be a.
Yeah. So that's the difference between what we're building and maybe some of our competitors for like block five Celsius and so on. Those are, um, they are offering centralized, um, lending solutions. So someone puts in, you know, lends the money. There's a bar on the other side, they're taking on counterparty risk.
Um, So with algorithmic stable coins and smart contract based protocols, um, there is no counterparty risk because there's enough collateral, 200, 300% of collateral that will automatically get liquidated if the value of that collateral goes down. So that's the, that's the great thing about, uh, Uh, you know, algorithmic stable coins and, and, uh, the smart contract protocols.
So you've obviously worked with a lot of different protocols in your opinion, uh, which new projects or maybe existing projects do you think have the most potential to gain critical adoption mass right now by critical? I mean, something that could potentially compete with Bitcoin in terms of trading volume down the.
Well, I believe that terror, terrible octane can do that. And that's why it's gone from last year was ranked to, you know, probably around 100 now as the top five blockchains. And it's actually the biggest in terms of, of defy, um, assets, um, that are held, held in the protocol. Um, and that continues to gain traction because of the way, um, it's it's been built, uh, very low cost.
Six seconds to settle a transaction. You know, you can't go to a coffee shop and pay for a coffee with your Bitcoin directly off of blockchain. Um, because it takes, you know, 10, 15 seconds to settle with the terrible chain. It takes six seconds and cost just a few cents. So it's, it's much more, um, compatible for, especially for emerging markets, um, emerging market countries and for payments.
When John, when I go to the coffee shop and I take my phone and I use my Samsung pay app and I scan the, uh, uh, NFC a device, it doesn't cost me anything to transfer Fiat dollars to the coffee shop. It's still costing me a few senses low, but that's still a cost. When are we going to see a total elimination of transfer costs when it comes to pay?
Well, yeah, for, from, from the user perspective, it doesn't seem like there's costs associated with a payment at a coffee shop. Um, but there are infrastructure costs that are built, you know, you're paying through, through other, you know, other, other, uh, business models. Um, so with, with, um, you know, with staple points, these protocols, you know, you're able to help hold your money.
I yield interests account 10, 15, 20% earn yield on that when you're not spending it for your coffee, you're not paying for, for items. So that's the, I think the real benefit of being able to use, um, these, uh, these high yield protocols. Well, just going back to the cost question, what developments are being made right now, uh, to reduce costs overall, not just in your platform, but over on the defy space.
When it comes to using cryptos as a form of payment, what developments are being made right now to reduce the cost of transactions? Well, you know, that was, you know, with you, with you. If you look at the evolution, the history of, of the space, um, you just have new blockchains that looked at. Um, the previous blockchain said, okay, how do we improve?
How do we improve costs? And so on. So on the Ethereum blockchain, you know, they realize cost was, was a problem with all the NFT transactions, gas prices went up, transactions. These went up, um, so they built layer two. So layer one is the actual blockchain layer. Two is like another settlement layer that is sort of like a side chain that makes things go faster and then reduces costs.
Um, so there are different, different either you build a new blockchain, um, or you build a layer two to. In your opinion, what is the more optimal solution here? Building a layer one that has a optimized that is optimized for transactions? Uh, basically, uh, basically a coin that is purposely built for payments, or we build a layer two on top of the existing blockchains, like lightning network, for example.
Yeah. So I think you're gonna see, you're gonna see multiple blockchains. You're gonna see a lot of hybrid models. Um, there's, you know, there's, I think it's going to take, uh, you know, over the course of the next five, 10 years, you're going to see new blockchains coming to market. So it's still a very much an evolving space.
And, um, and, and there's, you know, it's, it's new, new blockchains and new layer twos that will we'll be improving the, um, the transaction costs and new protocols that will be providing better services, uh, for. I'm just curious to see, um, or understand your professional background. You previously worked at the U S state department, and now you're in the blockchain space.
How did that career transition take? Yeah. So yeah, I was working at the us state department, um, and I was recruited by BNP Paribas as emerging markets, trading desk to trade, fixed income bonds for emerging market countries, Latin America, um, Eastern Europe and so on. Um, and it was actually in, in the.com days.
Uh, we, um, a friend of mine and I, we decided to, we were looking at wall street analyst recommendations. And so the, no one was actually tracking the performance of wall street research. We built a platform to do that, to provide it to. Um, you know, firms like JP Morgan sell side firms, uh, retail investors.
And so on in 2016, um, we were building a P2P lending platform and looking at how we could optimize payments, how could we reduce transaction costs? And that's when I actually read tap Scott's book a blockchain revolution and realized the power that the blockchain had to transform, um, you know, financial markets and so on.
Um, so sort of, um, Evolved from there to, to the, where we are today. Um, you've worked for both, I guess, the public sector and the private sector. Are you surprised that the latest developments in defy came from the private sector first, you would think that governments would take the initiative to, I guess, um, provide better forms of transactions for Fiat currencies.
Aren't they incentivized to keep the dollar competitive when it comes to international trade or domestic? Yeah, with the tribe, private sector is very innovative. Um, they moved very fast. Um, come up, come up with a lot of, uh, new solutions. I mean, you just look at stable coins, you know, centralized, stable coins, algorithmic, stable coins, hybrid, stable coins.
Um, even the regulators are, are, are challenged and, and keeping up with the, the, the fast moving space. Um, you know, governments obviously see the benefits of blockchain. You know, a lot of governments are looking at CBCs. Those are central bank, digital currencies, um, to optimize, you know, To create a payment rails that, you know, built in the 1970s.
So, so yeah, I think a lot of this technology innovation, um, you know, has to come from the private sector, sorry. CBDC is you think are meant to improve on existing payment rails or completely replaced them? Um, well they essentially they'll, uh, you know, your. You know, you're, it's going to improve, you know, the replacing, but at the same time, you know, I think the two will be, um, you know, the, the, the CFI and the defy we'll, we'll we'll need to work, um, in a, in sort of a hybrid model for the next five, 10 years.
Um, simply because, you know, everyone works on, on traditional payment rails. How much of a threat is CBDC. To the default ecosystem right now, in the sense that if let's say there's a government mandate to convert X amount of your FIA dollars to CBDC where maybe my, my, my salary will down the line be paid with CBD CS.
Is there a need for Ethereum or Salada or Tara? Yeah. So CBDC is basically, um, Digitizing the, the dollar or the Euro, whatever currency it is, the government's not building, you know, money market protocols where people can earn interest. Um, they're not, you know, coming up with, you know, remittance solutions or, or payment solutions.
So I think, you know, I think these, the CVCs and the, you know, two stable coins and other cryptocurrencies will be working, uh, you know, we're working together from, from a user perspective. So people will have CDCs and stable clients in there. Okay. So in theory, then if I had CBD CS in my wallet, could I come to you and tell a bridge and you know, your cash defy system and say, Hey, look, I want to put my stable coins.
I'm sorry, my CBC. I want to put my CB DCS into your system and earn a 20% APY. Is that possible? You would, um, we would provide the mechanism for you to exchange your CBDC into, um, the stable coin that's compatible with that protocol. So if it's an Ethereum protocol, you would have to convert it to an Ethereum stable coin, like USBC or a tether to put into the protocol.
If it's Tara, you know, you can exchange to, to a tethered stable. Th th there's probably an exchange fee involved that I want to just directly earn yield to my CBD. Is, is that, is that a protocol that you could possibly work on in this. Um, our, you know, we, we, we, we could, um, w our, our, um, our strategy is actually to build on top of existing infrastructure.
So we're focused on the consumer facing application. And if other companies or teams build that infrastructure, we can. Okay. Um, finally, let's talk about security and then we'll wrap it up there. So people might be concerned about, uh, um, hacking and, um, and stolen or lost. Uh, we've talked about counterparty with, let's talk about the cybersecurity aspect of stable coins.
Is that something that, uh, is probably concerning for some of your. Yeah, I think that's concerning for a lot of people, you know, they, they read about what happens in the market with hacks and so on. Um, what we, we we've actually really put a lot of effort and focus onto the security aspect. Um, we work with tourist labs, which has built a very.
Elegant and secure solution for, for customers. Um, not to have to manage private keys. So in the space, as I said earlier, um, if you want to go into the space, it's actually very complicated. If you lose your private keys, you lose your money. Um, so we've solved that with, uh, with tourist labs, from, from a private key sort of security perspective, um, there are other layers of security that we built into our product and continue to build, um, into our product with hardware.
Security is full of softwares. Okay. And, uh, you have employees in Ukraine. This is a situation that affects everybody. So for tech company like yourself, um, how does that affect your operations, the war in Ukraine and your employees who are facing. Yeah. So, um, I'm actually based in Europe right now. Um, I'm actually a Ukrainian resident, myself.
I'm a us citizen. So I've been going in and out of Ukraine since 2016. Um, we, we have about 40 people in the company right now and about 15 of them are Ukrainian. Some of them did get out, uh, prior to, to the events. Um, you know, and we're doing our best. Uh, to help those who need assistance, uh, providing them, um, with, uh, with relocation solutions and so on.
Um, and in fact, there is a big problem right now with, um, with Ukrainian refugees because, uh, they don't have access to the banking system in Europe. Um, their concerns about the banking system, um, in Ukraine getting access to funds, there's limits and so on. So we're actually bringing to market a solution, uh, for, uh, for the Ukrainian.
Well, that's an excellent point and a great initiative. So what is that solution? So let's say I'm a refugee from it doesn't matter. I mean, Ukraine is one example that's currently happening, but the same could be applied to presumably any refugee from any corner of the world. If you're traveling from one place to another, you don't have access to a traditional bank account.
What, what can you do? How can you access capital? What's the next step in this evolution that can provide refugees with access to. Yeah. So do you find that solve a lot of those problems? You know, there's, there's, you know, 1.7 billion people globally that are underbanked or unbanked don't have access to traditional financial services, um, you know, blockchain and defy solves that in the case of Ukrainian refugees specifically, um, the, the problem is, you know, not being able to have just traditional bank accounts and because we built a hybrid model combining both banking and traditional banking, we're able to offer those refugees, that solution.
Uh, we're working very close with, um, with our banking partners in the United States, um, to, to, to basically allow them to open bank accounts, um, and fund those accounts and, and, you know, be able to operate, um, wherever they're, wherever they're living on. Okay. But those, those, uh, you offer the solution to convert uh whatever's in those accounts or wallets into Fiat, local Fiat currencies, whether it be euros or any other, um, uh, locally dominated Fiat currency.
Is that, is that a solution that you can offer? Yeah, exactly. So, um, the ability to hold currencies dollars, Euro Sterling, um, in an account. Uh, to be able to spend that with, uh, a MasterCard, for example, um, and you know, if they want, you know, they have the option of moving their funds into a savings account and earning high yield.
Obviously that's not really the priority. The priority is just basic banking services. So that's something we're focused on. All right. Well, good luck with that initiative. And, uh, I hope to speak to you again soon. Thank you for your insights and the defined markets. Thank you. And thank you for watching Kitco news.
Don't forget to subscribe to our YouTube channel. I'm David.
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