Yuval Rooz: Stablecoins risk censorship by issuers, privacy is essential for on-chain finance, and governance is key for blockchain success

Key takeaways

• Stablecoins face censorship risks due to issuer control, which can undermine decentralized infrastructure.
• Moving financial services on-chain requires solving privacy issues and careful problem identification.
• A conservative approach to blockchain development, involving extensive testing, is crucial before launching networks.
• Ethereum prioritizes freedom and censorship resistance over speed, setting it apart from traditional finance.
• The crypto industry should focus on transparency about the problems technology aims to solve.
• Real world assets on decentralized infrastructure are still vulnerable to censorship.
• Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets.
• Privacy and anonymity are distinct concepts, with privacy involving selective information sharing.
• Governance is critical for blockchain networks, especially those supporting significant infrastructure investments.
• Blockchains are not inherently immutable; immutability is a social construct.
• The integration of traditional finance architecture into crypto creates friction with the community’s cypherpunk values.
• The crypto industry has created excessive noise without delivering substantial products.
• Long-term sustainability in blockchain requires real utility and cash flow businesses.
• The market cap of a network should reflect its utility, or it risks going to zero.

Guest intro

Yuval Rooz is the Co-Founder and CEO of Digital Asset, the company behind the Canton Network, a privacy-focused federated blockchain platform for capital markets. He co-founded Digital Asset in 2014 to apply blockchain beyond crypto to financial services efficiency. Previously, he managed an algorithmic trading desk at DRW and worked as a trader at Citadel.

The risks of stablecoin censorship

• Stablecoins can be subject to censorship by their issuers, undermining decentralized infrastructure.
• “The issuers of those stablecoins pretty confident having the smart contract a feature that allows them either to freeze your stablecoins or to in some cases even burn them out of your wallet” – Yuval Rooz
• This vulnerability is critical for evaluating the reliability of decentralized finance.
• Real world assets on decentralized infrastructure still face censorship risks.
• “The second you have the world’s real world unfortunately you open yourself to censorship resistance by the issuer doesn’t matter that you put it on a decentralized infrastructure” – Yuval Rooz
• Trust in issuers introduces restrictions that compromise the permissionless nature of crypto assets.
• “As long as we are in agreement that the second you have an issuer you are exposing yourself to restrictions beyond the permissionless world” – Yuval Rooz
• Stablecoins can be controlled by their issuers, which undermines the benefits of decentralized infrastructure.

Privacy and anonymity in blockchain

• Moving financial services on-chain requires solving for privacy.
• “In order to move everything on chain you need to solve for privacy” – Yuval Rooz
• Privacy is about sharing information on a need-to-know basis, while anonymity means no one can see the information.
• “To me privacy is the ability to share information on a need to know basis” – Yuval Rooz
• Privacy is a significant differentiator for Canton compared to public permissionless blockchains like Ethereum.
• “Privacy is probably the easy one” – Yuval Rooz
• Privacy in transactions can be compromised even with strong encryption due to potential future decryption capabilities.
• “If I took your personal information I encrypted it with the best encryption in the world and I send it to Ryan I have invalidated your privacy” – Yuval Rooz

The importance of governance in blockchain

• Governance is critical for the success of blockchain networks.
• “One of the things that we looked at throughout the years is governance of these networks” – Yuval Rooz
• Governance is crucial for networks that support significant infrastructure investments.
• “For us governance and the ability for people that are putting significant bets on the network” – Yuval Rooz
• The distinction between governance and code in blockchain networks is crucial for their future development.
• “The decision to formalize it and put it as code formal code in the system” – Yuval Rooz
• Canton’s governance model aims to reward those who contribute effort to the network rather than just financial investment.
• “We want that the super validators are going to be those that are aligned with the network” – Yuval Rooz

The role of super validators

• Super validators have specific roles that differentiate them from regular validators in a blockchain network.
• “The super validators in the case of canton do two operations” – Yuval Rooz
• Super validators in the Canton network provide a guarantee that all counterparties to a transaction receive the transaction information.
• “The super validators are those that run kind of the glue as we talked before” – Yuval Rooz
• Becoming a validator should be accessible and not require significant financial staking.
• “Our view is that becoming a validator is a commoditized product” – Yuval Rooz
• The concerns around super validators may not be as significant as perceived, especially in the context of the Canton network.
• “I’m not even sure that I share the concern that David has around super validators” – Yuval Rooz

The evolution of financial services on blockchain

• The next generation of ETFs and financial products will be natively on-chain.
• “I think you’re gonna see the next generation of etfs and other products that are natively on chain” – Yuval Rooz
• The DTCC is a central hub for capital markets, representing a massive concentration of assets.
• “If you try to bring capital markets like I said you go to where the balance sheet is” – Yuval Rooz
• Canton Network is one of the first pilots for tokenizing securities with the DTCC.
• “The announcement that canton network is one of the dtcc’s first pilots to tokenize securities” – Yuval Rooz
• There will likely be additional blockchain networks involved in tokenizing assets based on customer demand.
• “I expect that based on you know customer demand and opportunities there will be others” – Yuval Rooz

The impact of traditional finance on crypto

• The integration of traditional finance architecture into the crypto space creates friction with the cypherpunk values of the community.
• “You have the old style architecture but you are marketing it to our industry” – Yuval Rooz
• Canton’s approach to blockchain is seen as an upgrade to old systems rather than a revolutionary change.
• “I see that’s what canton is trying to do… it’s doing it inside of the confines of the old rules” – Yuval Rooz
• Canton’s architecture is perceived as relying on established companies rather than empowering individual validators.
• “When they look at the architecture of canton and they see the words super validators” – Yuval Rooz
• The technology in crypto is creating new intermediaries rather than removing them.
• “A lot of the intermediaries that have been created in crypto are even more centralized” – Yuval Rooz

The future of blockchain networks

• Blockchain networks must evolve to remain relevant, and Bitcoin’s inability to upgrade poses a significant limitation.
• “These networks have to evolve… the only blockchain that I as I know it that can’t upgrade” – Yuval Rooz
• By 2030, Canton could facilitate trillions of dollars in daily settlements.
• “I think that canton will be driving you know not 300 billions but potentially a few trillion of dollars” – Yuval Rooz
• The market cap of a network should reflect its utility, or it risks going to zero.
• “If we don’t bring utility to this network we think that the market cap of this network should go to zero” – Yuval Rooz
• Long-term sustainability in blockchain requires real utility and cash flow businesses.
• “For the most part I would say that there haven’t been really long sustainable business models” – Yuval Rooz

The impact of regulation on blockchain

• US laws restrict equities from being permissionless or bearer instruments.
• “There’s a law in the us that says that equities in the us cannot be permissionless” – Yuval Rooz
• Regulated institutions currently cannot rely on blockchain social contracts to convince regulators.
• “I don’t think in today’s world a regulated institution would be able to convince a regulator” – Yuval Rooz
• The DTCC is a market-neutral financial market infrastructure, which means they do not favor any specific blockchain.
• “The dtcc is a market neutral financial market infrastructure” – Yuval Rooz
• Real world assets on Canton are being maximized through partnerships with regulated institutions.
• “We are trying to maximize real world assets on campton with regulated institutions” – Yuval Rooz