Today’s episode is from a 2019 conversation with Katya Kovalenko, partner at P2P Capital, a private investment firm focused on blockchain-based digital assets. We discuss smart contracts – what they are, their role in ICOs, and their uses in decentralized finance. For the full conversation, check out Flippening episode 36.
Links Relevant To This Episode
- Nomics on Twitter
- Clay Collins
- Nomics API
- Nomics’ Fully Customizable Daily Crypto Newsletter
- Katya Kovalenko
- P2P Capital
- Nick Szabo
- Ethereum (ETH)
- Maker (MKR)
Clay: Welcome to Daily Wisdom from the Flippening Podcast. These episodes feature short, to the point clips from our full-length interviews. We talk to the men and women behind the trades, crypto exchanges, and regulations with the goal of helping you become a better, more informed investor.
Michael: Hi I’m Michael Kaplan, editor of the Flippening Podcast. Today’s episode is from a 2019 conversation with Katya Kovalenko, partner at P2P Capital, a private investment firm focused on blockchain-based digital assets. We discuss smart contracts, what they are, their role in ICOs, and their uses in decentralized finance. [00:00:30] For the full conversation, check out Flippening episode 36.
Now without further ado, our conversation with Katya Kovalenko, partner at P2P Capital. Enjoy.
Clay: For the person who’s heard a lot about smart contracts and perhaps needs a refresher course on what they are. What is a smart contract?
Katya: There has been a lot of discussions about the term and I think it’s getting sideways. Computer progress had been called smart contracts now. But basically, smart contracts [00:01:00] started even before there was the word blockchain. It was not called smart contracts, it was just the way two machines interact with each other based on basic IF, WHAT conditions and do some value transfer. And then the term smart contracts itself was coined by Nick Szabo in the 90s, in 1994, if I remember well. He referred to it as a computer system that enforces the condition of a contract.
If we look at the more expanded explanation [00:01:30] of smart contracts, this is any arrangement that is a contract-like arrangement that is expressed in a certain source code, and the behavior of this program actually enforces the term of the contract. I like this definition. It was given by Dean Tribble of Agoric at his Web3 presentation. I think it makes a lot of sense. It’s an arrangement where the program enforces it in the source code.
Clay: I think when it comes to illustrating what a smart contract is [00:02:00] and what it can do, I kind of put this into two buckets. There are smart contracts that have actually been written and shown to work somewhat well, and then there are kind of future-oriented smart contract ideas that on the surface sound like they probably will work but have not been executed at scale.
What are some of the smart contracts that have been shown to work historically or that maybe someone might not realize [00:02:30] that they are using a smart contract but if they are interacting with the Ethereum blockchain or other blockchains in the space that they use pretty frequently, what are some of the existing smart contracts?
Katya: I think the most practically adopted use case of smart contract to-date has been token sales, ICOs and some estimated that there are over eight million smart contracts on Ethereum. I heard this on the presentation last year by the Quantstamp Team [00:03:00] and I was pretty surprised by this huge number. But apparently, there can be a lot of small smart contracts at one token sale event. Token sales were I think one of the largest use cases, no matter if we like it or not, and what came out of it, but it was the largest use case of smart contracts so far.
What I like to give an example is the decentralized finance use cases. MakerDAO for example, their collateral debt, the smart contract that issues their CDPs [00:03:30] on the blockchain, I think it’s a very interesting use case for working smart contracts that survived a very severe bear market. It showed that the system actually performs pretty well. And then all the various multi-seeker implementations where you have multi-signature or multi-signature access to the funds. These are more of the, as you said, the smart contracts that some of the users might not even be familiar with the fact that they’re using a smart contract. [00:04:00] But if we’re going to look forward to more promising use cases, here we see all the different types of industries that can be disrupted by smart contracts.
Clay: Let’s talk about token sales since it’s probably the most popular use case when it comes to smart contracts. I don’t know that the average person that has participated in a token sale really thinks about the fact that a smart contract is being used to issue the token. I think from their point of view, there’s a token, [00:04:30] it lives on the Ethereum blockchain, it’s an ERC-20 token. What are some of the ways that smart contracts are used during token sales? What are some of the logic that’s being enforced?
Katya: That’s basically an IF, THEN condition. If the user sends a certain amount of funds to a certain smart contract, then the smart contract issues a certain amount of tokens and sends it to the user’s wallet, for example. This is the most basic WHAT, IF condition [00:05:00] that smart contracts can enforce in the token sale.
Clay: I don’t know enough about the theory on blockchain to know if there’s any kind of multisig smart contract embedded at the base layer. But one might say that it actually isn’t needed because you can just use a smart contract to enforce multi-sig and that there can be an infinite number of multi-sig scenarios that can be enforced by an infinite number of smart contracts.
When it comes to the future and all of these scenarios that folks have [00:05:30] projected could occur in the future, there’s Uber on the blockchain, there’s sharing electricity on power grids and using tokens to gamify that. What are some of the more compelling future use cases of smart contracts that are particularly appealing to you, both as an individual and as an investor?
Katya: I think the term smart contract has been a little bit overhyped in the last years. [00:06:00] It’s kind of normal for any new technology. When it appears, you assign all the possible use cases to it. There were all these conversations that we’ll all get rid of all the lawyers and accountants and all our supply-chain and our romaine lettuce is going to arrive fresh and clean just because of the smart contract. Even though I am overall quite bullish on the use case, I think again, as I said earlier, investors have underestimated the [00:06:30] time-frame of how fast all these things can happen. Because all these industries have been functioning for a long time and the enterprise cycle of changing anything is very long—the sales cycle is very long.
I’m not very interested in the use cases for smart contracts for enterprises right now because again, working in the big corporations I know how long it’s going to take. But what I’m very interested in is financial use cases that we’re starting to see now. [00:07:00] These are the platforms that are introducing collateralized debt, that are introducing P2P lending or derivatives trading. These are like Dharma, dYdX, Compound for example, and MakerDAO that I already mentioned.
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All opinions expressed by podcast hosts or guests are solely their own opinion and do not reflect the opinion of Nomics or any other company. This podcast is for informational and entertainment [00:08:00] purposes only and should not be relied upon as the basis for investment decisions.
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