Decentralized Commercial Banking and Stable Currency

During the third day of Devcon2, Dominic Williams presented his vision of Decentralization of Commercial Banking on Ethereum.

The co-founder of String Labs previously gave a presentation on synthetic assets at Devcon1. His research specifically focuses on how Ethereum can be utilized to revolutionize our existing financial infrastructure.

The Troubles with Commercial Banking

Existing commercial banks present consumers with a series of problems that have become particularly evident since the financial crisis. Through wrong incentive schemes, commercial banks have demonstrated chronic bad judgement in providing consumer loans, Williams explains. Furthermore, consumers are burdened by a massive historical infrastructure and HR, as well as compliance costs which result in high lending fees.

In addition, traditional commercial banks have been hostile towards cryptocurrency users by freezing bank accounts related to cryptocurrency transactions with little possibility to appeal. He pointed out the fact that banks essentially created fiat currency out of thin air on the databases of banks in order to provide commercial loans.

Algorithmic Loans on Ethereum

His vision is to give out and secure loans algorithmically through a world computer and simultaneously by issuing a stable coin Phi that is backed by loan collateral. Essentially, Phi would play a similar role as traditional fiat currency that is backed by loan collateral.

The major difference is that instead of being issued by a bank, it would be issued by a loan computer. The collateral would be provided to the computer by Phi Validators, which receive interest by providing their collateral in the form of Ether. This is similar to the economic model that incentivizes validators in Proof of Stake.

How Phi Loans Work

  1. A lender requests a loan from a loan proposer
  2. A loan application is created
  3. The proposer requests Phi from the computer
  4. The computer generates the Phi
  5. The loan is issued in a stable currency to the lender

Delinquent Lenders

Now, what stops lenders from running away with the money? Williams explains that if the computer isn’t repaid it will take repayment from the loan proposers deposit. In this case, the original peer to peer contract activates and the lender will need to repay directly. In this case, existing debt recovery systems could be used to track down the delinquent lender.


The potential of commercial and simple lending systems on Ethereum is evident. Removing the bank as a lending intermediary would result in significantly lower fees. The lending computer would work with much lower operational costs than a bank. These costs would be forwarded to the user and make the Ethereum-native alternative significantly more competitive. String Labs has yet to provide a timeline or roadmap for their product, but it seems evident that competitive commercial lending schemes could provide significant value to the public Ethereum chain.