The cryptocurrency space has had its fair share of organizations that claim to deliver on their ecosystems but in the end, the experience usually leaves much to be desired.
SmartFi launched by cryptocurrency end-to-end solutions company Power Block Coin LLC caught our eye and we decided to dig under the hood to find out more.
We spoke to Aaron Tilton CEO at SmartFi who is also apparently a former Utah State legislator. Here is what he had to say.
Aaron Tilton CEO at SmartFi
Congratulations on your successful launch! What’s next for SmartFi?
We are working on the SmartCycle Token sale at the end of this month. Also we are incorporating cryptocurrency backed funding with traditional lenders.
Please, can you tell us the main concept behind SmartFi?
SmartFi is a unique cryptocurrency monetary system. It combines monetary policy with the freedoms of cryptocurrency to create self-sustaining open-lending platforms. The holders of SmartFi Token become the beneficiaries of the wealth creation that would otherwise accrue to traditional lenders like banks. Token holders also participate in the monetary policy that manages the system. The SmartFi networks also eliminate transaction fees
How did you get involved with cryptocurrencies and their underlying technologies?
SmartFi originated from a company called Power Block Coin. Formed in 2017, Power Block Coin worked developing energy infrastructure for cryptocurrency mining companies and provided loans, investment hedges and innovative financial transactions for crypto related businesses. The founders of SmartFi are specialists from the energy industry who saw many correlated opportunities in the crypto markets. Ultimately Power Block Coin’s market expertise and experience led to the ideation and creation of SmartFi’s self sustaining open-lending platforms and its novel innovations
of CLP and SmartCycle protocols. Since its inception, SmartFi has continuously evolved to solve a problem that has stymied crypto-related businesses and the crypto mining community. That problem is the funding of mining operations during crypto bear markets. Miners and other cryptorelated businesses do not want to sell their most valuable assets, cryptocurrencies, at the bottom of the market to fund operations.
To address this problem, the SmartFi team developed a lending process and started lending capital to these companies. When Power Block Coin began in May of 2017, Bitcoin’s price was approximately $1,500.00. At the end of 2017 BTC was peaking near $20,000.00. The cryptocurrency market collapsed shortly after this peak and BTC fell to $3,500.00 within the next few months.
Many miners who had invested in overpriced mining equipment at the time became unprofitable almost overnight. Crypto-related businesses were struggling to survive, let alone break even. Since the SmartFi team had experienced similar ups and downs in the energy business, they were well-equipped to deal with volatility. Firstly, SmartFi started lending US dollars to pay for current costs of the mining operations and other cryptocurrency-related business.
How has the journey been so far?
So Far so good, to date, SmartFi has completed over $1 billion in transactions. We love the fast pace, although it is not without its challenges though. Scaling with automation and trying to keep our customer centric empowerment focus is a constant challenge. Making technology simple requires accepting the fact that sometimes we do not get our user experience optimized in the beginning when launching products. It also requires a willingness to change which can delay bringing a product to market.
What are the features of the SmartFi ecosystem?
SmartFi has two maximalist cryptocurrencies one USD stablecoin (SFUSD) the other a speculative token (SMTF). SFUSD has no transaction fees SMTF will get rid of its transaction fees in Jan of 2022. Both can be redeemed on the SmartPortal for the exact original value.
SMTF’s value is designed to increase and resist bear market volatility. It does such a good job at it, if you purchase it in the SmartCycle Token sale, we will always buy it back from you any time after one year, could be 10 years later no questions asked. In addition to the crypto backed loans We have a decentralized exchange, a centralized exchange, and coin interest accounts.
We have a referral program that pays a percentage of the product transactions for the life of the customers referred on the SmartPortal.
How can these features help cryptocurrency users solve problems that currently exist within the cryptocurrency space?
No transaction fees, is obvious I think. Being able to redeem a speculative token for the original purchase price provides safety. Although if the price of SMTF is higher than what you bought it for you won’t send it back. The way we can offer that is that our process has fundamentals.
We don’t sell all the SMTF tokens at once and the value of the SmartFi token is tied to the loan portfolio. SmartFi uses its SmartCycle token sale proceeds to directly fund loans. If the loan portfolio is growing the SmartCycle SMTF token price is going up. If the loan portfolio is shrinking the US dollar reserve is growing, therefore we have the $ on had to offer the buyback on SMTF. It is pretty simple really. Our design is bank-like, but not a bank.
Please, can you give us a brief history of Power Block Coin, and what’s in store with SmartFi?
What’s in store is the following:
- SmartBusiness – Small business loans, not cryptocurrency collateralized
- SmartPay – A Person to Person, and customer to merchant payment system, replaces credit/debit card and other smartphone payment apps using the SmartFi minable stable coins.
- SmartAdvisor – US Registered Investment advisors manages your digital investments
- SmartSelf-IRA – Cryptocurrency self-directed IRA
SmartFi Decentralized Network Loans
Decentralized Peer to Peer network for OTC Derivative Transactions
ISDA Contract (smart contracts)
SmartTreasury Pool – Implementation of Commodity Layer Protocol Block Rewards
Equality Prices Discovery Risks Metrics and Economic Codes
Sophisticated Accounting Integrations
Where do you see SmartFi in the next decade?
We have always believed that for crypto to reach its full potential people have to be using crypto without knowing they are using it. Next month we will have an announcement that incorporates the successful execution of that very concept. That means we will be competing with traditional finance next month. The next ten years we will compete with them at scale in financial products. The goal is to go from $1billion in transactions to over $100 billion in loan portfolio.
What are your thoughts on the regulation of the cryptocurrency space?
As a recovering politician, current and potential regulation are always shaping our product design and company operations. The constant hope is, the simpler and safer the experience with our cryptocurrency products the less regulatory oversight will be sought by policy makers because they will not be hearing complaints from voters.
By voluntarily incorporating things like SmartFi Sheriff nodes that can reverse transactions by putting bonds in place and having a personal appearance required to dispute a transaction you can dramatically cut down on fraud and theft. By just having a process to reverse transactions even though it would require a bond and be difficult, thieves would concentrate their efforts on blockchains that do not have those features.
Sheriff Nodes were conceived from a piece of legislation I passed in the Utah Legislature (the governor vetoed it) related to environmental litigation. It requires someone to post a bond to engage in litigation. If you lose the litigation then you pay the bond to whoever you sued. If you can force someone to show up to an in person venue to adjudicate a transaction reversal, only honest people will show up.
If you are a thief and you know there is such a thing as a sheriff node that can reverse transactions and that process requires the parties to make an appearance to convince the sheriff node from reversing the transaction, you would never show up because of the threat of being caught. Which means your unlikely to commit theft or fraud on a blockchain that can reverse your transactions.
Do you think that smart-contract-enabled cryptocurrencies like Ethereum will outpace legacy cryptocurrencies like Bitcoin? Please, can you tell us the reasons for your answer?
Yes absolutely, if the smart contract enhances simplicity and better user outcomes. If they tend to focus on complicated transactions then no.
People want money to be simple and 95% of people do not have time to learn complicated smart-contract transactions.
What are your thoughts on the recent dip in prices within the cryptocurrency space?
Unnecessary bear market crypto volatility is the result of single market tool core design flaws i.e. speculation only features of virtually all cryptocurrencies. Simply put they have no fundamentals for forward price curves. There is no exact correlated hedge on-chain, therefore there is no market safety. This results in unnecessary bear market volatility.
This design flaw is something SmartFi corrected in its SmartFi ecosystem SMTF design. SMTF resists unnecessary bear market volatility with its fundamentals.
Individuals like Elon Musk recently had an outsized influence on cryptocurrency prices. What do you think should be done to limit the influence of such individuals and institutions?
I don’t think there should be any restriction on the expression of opinions. Opinions are not the problem. I think people should not rely on the opinions of celebrities to make investment decisions. Designing better cryptocurrency ecosystems that don’t rely on speculation only market prices will solve that problem. Fundamental in market design with cryptocurrencies solves this problem, without encroaching on free speech.
Do you think Proof-of-Work will be replaced by Proof-of-Stake? What are the reasons for your answer? What other consensus mechanisms do you think people will think of next?
All cryptocurrencies-regardless of consensus algorithms-need basic commodities, such as electricity, servers, or computation. Even in proof of stake, the commodity costs (coins staked) that go into consensus algorithms need to be calculated and shared.
If basic commodities are not factored into the cost of the network and correlated to the value of the native toke, regardless of technical innovation, the cryptocurrency will be plagued with the same unnecessary bear market volatility issues previously stated.
Staking alone is also a one-sided speculation without a hedge. Without a correlated on-chain hedge, and the balance needed to address inflation and deflation, staking algorithms cannot overcome the design flaw of speculation-only source code.
Staking is not inherently flawed. In fact, a similar type of model is a Balance Coins fundamental in the SmartCycle of SMTF. However, it is not used for consensus but for speculating in the future time value of money or savings.
Proof of Work (PoW) and delayed Proof of Work (dPoW) is used for consensus in the SFUSD blockchain which ties the coin to objective discernable value derived from the past cost of commodities.
SmartFi uses a delayed Proof of Work (dPoW) for consensus. SmartFi’s consensus mechanism provides the same level of security as the Litecoin network and uses the Litecoin network as a storage space for “backups” of SmartFi transactions. By this method, in the event of an attempted attack on SmartFi’s blockchain history, even a single surviving copy of the SmartFi main chain will allow the entire ecosystem to overwrite and overrule any of the attacker’s attempted changes.
A key difference of SmartFi’s dPoW consensus mechanism from regular PoW networks, is that the dPoW consensus mechanism does not recognize the Longest Chain Rule for any transactions that are older than the most recent “backup” of the SmartFi blockchain. For conflicts that may arise, which refer to transactions that are older than the most recent “backup,” our consensus mechanism looks to the backups in the chosen dPoW blockchain Litecoin, to find the accurate record.
How do you think the mass adoption of cryptocurrencies will occur? Please, can you give us a practical scenario?
Crypto mass user adoption will occur when cryptocurrency can be used without thinking more about the transaction than about the actual purpose of the transaction, in other words everyday transaction like buying a meal does not cause you to think about the risk of the future value you may be giving up to make the purchase.
Mass user adoption will be possible when there is actually an economic advantage to cryptocurrency use. When a retailer can eliminate the merchant fees (3%-5%) by accepting a cryptocurrency that does not have a transaction fee. The merchant will encourage his customers to pay him with a currency that makes him more profitable. Mass adoption is not about who holds a currency, it’s about who will actually accept it.
What are your thoughts on the massive amounts of institutional flows into the cryptocurrency space?
Institutional participation in cryptocurrencies is about creating leverage in derivatives. Creating derivatives is the natural evolution of a maturing market. That is basically how SmartFi started 4 years ago.
Historically derivatives are always an extension of trade and market expansion. We have a section on this in our SmartFi More Than a White Paper. The Institutions use derivatives interchangeably to take risks on or de-risk transactions, here is a quote on the view on Institutional derivatives.
“The world has been engaging in contracts that act as a medium of exchange for thousands of years, some more successful than others. Today’s derivatives markets are no different. Fiat currency-denominated contracts are used for exchanging value without the actual notional value of the currency being traded. Basically, these are settlement contracts that reduce the risk of an underlying asset (hedging) with the option for speculation for one or both counterparties.
Once again, the trade is real and the majority of the settlement is virtual, only a fraction of the real currency exchanged. In 2017 the derivatives market was notionally valued between $550 trillion to $1.2 quadrillion, more than 13.3 times the $90 trillion broad money market value then. These analogue virtual currencies settlements, created by the derivatives market, affect virtually every aspect of commerce today. When combined with significant leveraged debt, the effects can be astounding. The derivative market is closely tied to other financial markets as demonstrated by the mortgage-backed securities crisis of 2007.
At that time, mortgage-backed securities comprised 3% of the derivatives market. The collapse of this market, due to overleverage, brought the fiat currency supply, the money market and banking industries to their knees while the rest of the derivatives market was relatively unaffected. The government responses to this liquidity crisis were the inspiration for the creation of the world’s best known digital currency, Bitcoin.”
What are SmartFi’s plans for generation Z?
My children are part of Generation Z. Personally my plans so far have been to make sure the 2 kids that my wife and I contributed to this generation understand a good moral upbringing which includes treating others as you would have them treat you and realizing individuals are accountable to themselves, society and God. SmartFi as a company is somewhat an extension of that philosophy. In our More Than a Whitepaper we have a few sections that answer that (I will share below) not just about Generation Z but anyone who uses our networks.
“Money, like technology, is neither good nor bad by itself, it only makes you more of what you are. It provides convenience and amplifies the consequences of actions. Neither money nor technology has a purpose without input from a person(s). Its usefulness in improving our circumstances is subjective by individual choice.”
“At SmartFi we will always use technology that can account for human behavior of agency. We plan for changes in technology so that our cryptocurrencies systems will adhere to time tested principles, not to the fads or whims of changes in people’s current behavior, but in the principles of choice and freedom.”
“SmartFi gives control to SMTF holders. They set the value of the Balance Coins. No transaction fees mean no manipulation – the network’s success sinks or swims on what its participants do. They must provide credit and financial products to the market at a rate and quality that is in balance with the market expectations, and they must serve each other equitably.“
If Generation Z or anyone else for that matter learn to treat each other equitably because the SmartFi Cryptocurrency products work best in their favor when they chose to make choice that serve others as well as themselves we will have lived up to our potential as human beings and crypto will live up to its potential as freedom of choice.
How do you think automated solutions help improve the adoption of cryptocurrencies and their underlying technologies?
Choosing a technology is like hiring a sheriff. All of us have days of reckoning to societies and their hired “sheriffs”. At the end of the day, when using cryptocurrencies, we are actually hiring a sheriff to protect our property. This sheriff is empowered by us Sheriffs can be software technology or a board of people. It is important to ensure that you retain the ability to replace the sheriff. In the beginning, a sheriff may serve you well, however, the sheriff can become a tyrannical master through fees or taxes.
The sheriff may get outgunned by superior technology and can no longer protect your property. When making that decision about how to protect your property and freedom, you will be best served when you retain the ability to hire and fire the sheriff. SmartFi’s ideology is to never give up the ability to choose to use another technology, platform, etc. We will always build our systems with choice in mind. When a newer, better technology comes along, we will adapt and innovate that technology to meet our ideology of choice and freedom – fire the old sheriff and hire a new one.
Automated technologies that we hire can more easily be fired because we personally hold the only vote that matters. People and governments that do not serve our best interests are not so easily dismissed. Most people who understand the benefits of freedom and choice will usually adopt technologies that promote that idea.
Do you have any plans to launch an independently distributed ledger in the future? Please, can you tell us the reasons for your answer?
We already have with our SFUSD stable coin blockchain. We innovated a new protocol and set of algorithm’s called the Commodity Layer Protocol. This is a necessity for many reasons, but one of the key reasons is that it creates the incentive mechanisms for the DEX version of our SmartFi open lending platform and creates a minable stablecoin.
Virtually all cryptocurrency algorithms today use a socialized mechanism to subsidize cryptocurrency value and rewards. The designers of these new cryptocurrencies were unaware of the pitfalls of relying on transaction fees and socialized reward incentives patterned after the old banking and payment systems. How ironic that in the very creation of a new monetary system intended to liberate people from the old tyranny, the creators used some of the main features, socialized rewards, and transaction fees that helped create the tyranny it intended to supplant. The old tyranny has essentially been replaced by a new kind of crypto tyranny.
SmartFi is unique in that it connects this data to an algorithm called the Commodity Layer Protocol (CLP). This protocol, along with its reward algorithm, provides the SmartFi Network with a balance and stability of its minable native protocol coins. In this section we will describe the Treasurer role, hash rate inputs and reward mechanism. The block reward is an auction allocation model. The highest ranked Treasures’ hash rate reported receives first allocation of block reward. The block rewards are generated from the Block Revenue which is the interest paid on loans. The CLP combines data from three sources to create the algorithmic lending platform:
- Treasurers’ (self-reported) hash rate commodity cost,
- Total liquidity value (from lenders), and
- Total loan value (from borrowers).
Using the Treasurers’ hash rate cost information, the CLP correlates the cost to run the network with the block rewards gained from the loan interests. This effectively hedges the Treasurers’ rewards to the base currency (SFUSD) of the hash rate costs. The CLP embodies the foundational basis for the value of all cryptocurrencies. All virtual currencies or cryptocurrencies possess this element, but no system to date has been able to capture the price discovery needed to effectively govern this key element. In fact, there has not been a project that has demonstrated an understanding of the need for incorporating this component.
If you had three wishes and a genie that could make them come true, what would they be for SmartFi?
All we want is for people to come see for themselves the difference in using SmartFi cryptocurrencies, safety first, speculation second, ok and maybe a never ending pistachio ice cream cone and waterproof socks would be good too.