The Editor-in-Chief at CoinDesk Pete Rizzo interviewed Jed McCaleb at Consensus 2018. Below is a transcript of their conversation, which includes potential changes to the protocol to make issuing equity easier, why market cap is the wrong comparison to company value, what Stellar is focused on, and what gives lumens value.
Originally, Stellar was created as a payment network for fiat:
When we created Stellar in the first place, it was this way you could send fiat currencies between each other. The protocol lends itself to representing any kind of token like dollars or euros or bitcoin.
But you can use the network for anything that can be tokenized:
Because of the primitives that we built into the network, it’s good for any kind of asset. Creating a token in the Stellar network is a first class thing. In Ethereum you actually have to build a contract to do this. There is this concept inside Stellar of a token, and that token was meant to represent fiat currencies for the most part. We thought maybe people would use it for gold and for other things. We didn’t fully anticipate what people are using it for now, but it makes sense in retrospect.
You can issue security-based tokens on the network:
Obviously there’s a lot of negative [tokens] out there, and I would hope they don’t put them on Stellar, but we can’t prevent that. But overall it’s a positive development, particularly for the security-based tokens that represent equity in a company or shares of real estate. It does a similar thing to what we have been trying to do with financial inclusion where we level the playing field for economic activity. This does the same thing for participation in funding and raising capital. Right now, it’s really hard to raise money if you are outside Silicon Valley, and this changes all of that.
Why Kik chose to build their network using Stellar's open source software:
[Kik] raised money on Ethereum and they realized that Ethereum is good for lots of things. If they want this token [where] they don’t need smart contract functionality, they just need this representation that is passed around quickly between different accounts. If it is for smaller payments, it doesn’t make sense to pay the gas cost. Stellar is just a much more efficient platform for that because that is what it was built to do - have these tokens and have them passed around from account to account. It’s better at that because that’s what it was designed for. It’s cheaper because there isn’t some smart contract that you are running. It’s just one of the operations in the protocol. It’s a first class thing. You send a token from account A to account B. There’s also a built in exchange so you can trade these tokens for each other once they are inside the Stellar network so you don’t have to get them listed on an external exchange. That’s why they made the switch.
Regarding potential changes to the protocol to accommodate Kik's needs or otherwise:
No. I don’t think we are going to do many changes to the code. There might be some changes to the protocol to make issuing equity better. We may add this simple thing, and it solves it completely for them.
Where Stellar is focusing its time:
We are not even spending that much time on the token stuff. We just want to build awareness so that people know that it’s possible. Most of our focus will be on facilitating cross border payments and getting remittance companies on the platform.
On choosing a platform for your ICO:
ICOs are this huge category. I don’ think that there will be one platform for all of them. If you are doing something with a lot of complication - if you are doing something like Augur - you need something like Ethereum to do it. It would be hard to build that on Stellar. But if you are doing something very simple like a loyalty point or an ounce of gold, that’s better done on Stellar because it’s designed for that. There will be different platforms for different types of tokens. I think we are going to see an increasing amount of tokens in the world, so it makes sense that they would be specialized for what they are good at.
In terms of good uses for blockchain technology:
It allows parties that don’t have a formal relationship to be able to transact with each other. Cross border payments is one that we think is super obvious. Also, this new concept of having different kinds of equity - tokenized equity - where you want this thing to be highly fungible and traded around to lots of people and you want it to be tracked. The list of bad ideas is very long though.
On hype:
I think the whole space is overhyped. The hype is preceding the reality. The values are as if the thing had already succeeded rather than where we are now. People have to keep in mind that 90% of these things are going to be gone in 10 years.
Regarding where the value of lumens comes from:
It’s similar to Bitcoin. It has the added thing of being this bridge currency between these different fiats or tokens now. If you want to send money from Nigeria to Indonesia, there’s probably not a good exchange between those two currencies, so you’d want to go to something like lumens - some common thing in the middle. It provides this common meeting point between these different assets. That need will only increase as there are more and more of these tokens.
On market cap not being equivalent to a company valuation:
I think one of the weird misconceptions in the whole blockchain space is they look at this concept called market cap and they compare that to what companies would be. That’s the wrong comparison. When PayPal started, they had a particular market cap - that is the value of their corporation. But then there’s also the amount of money that’s on balance in PayPal accounts, and that number is way larger than their market cap. And that’s the number that is reported as market cap now. For instance, to use bitcoin you need to have bitcoin and that’s equivalent to having money in your PayPal account. It’s the carrying capacity of the network. If there’s a bunch of users and they all need a certain amount of lumens to be users, it naturally means that the aggregate number of tokens have to be worth more.
On determining an accurate value for tokens:
It’s hard to do analysis on [token prices] because it’s not established enough. In another 10 years, once we have a clearer picture of how these things grow and develop, it’ll be much easier. [Tokens] are still used very little. The potential use is so much greater than the current use. It will be one thing when half the planet is using bitcoin or something like that. Then you’ll have a better sense. Right now, it’s very nascent. The amount of use to the amount of money is not inline.
On the future:
There’s lots of hype but there’s lots of legitimate, interesting projects. I’m still really bullish on the whole space. There are a lot of real improvements to the world that will be done here.
Image credit: TJ Abood of Access Ventures
