Economic Committee 2024: Revealing the New Roster and Their Approach for Keeping IST Stable and Secure

January 13 ,2025

The Economic Committee (EC) is one of Inter Protocol’s essential components, embodying a key mechanism for maintaining IST’s stability and security. While Inter Protocol is a decentralized and community-governed project, integrating an elected committee of economic, crypto, and fintech experts creates a mechanism for quick action when necessary to ensure the protocol’s health. 

Since the first Economic Committee was elected back in 2022, both Inter Protocol itself and the wider crypto market have experienced significant changes. Now that the 2024 roster is about to take office, we thought it appropriate to present its members to the community and inquire about their goals and plans.

Please welcome Chloe White, Chris Berg, and Joe Clark.

1. Please tell us more about yourselves: what do you do outside the EC, and what are you currently working on? The Inter Protocol community has been curious to find out more about the EC members for so long.

Chloe: As an ex-regulator, my specialty is in licensing and compliance. So I’m currently hands-on with a range of projects including DEXs, CEXs, DAOs and AI. Regardless of whether they are centralized or decentralized, they are all led by teams who don’t wish to act recklessly from a legal perspective, but desire to operate in jurisdictions that best facilitate their growth. My role is to create and execute strategies that accomplish this, for each unique situation. Solutions are ideally as simple as possible, but the process of obtaining a license can be surprising in its challenges and complexity, even within crypto-friendly countries.

Chris: I’m a professor of economics at RMIT University in Melbourne. I’m a co-founder of the first academic social science research center into blockchain technology — the RMIT Blockchain Innovation Hub, and have written a number of books on blockchain, cryptodemocracy, and how we can use frontier technologies like crypto and AI to make us more free.

Joe: I’m head of research at Opyn where we spend our time making composable on-chain derivatives. We have a specific predilection for variance-based derivatives like quadratic perpetuals and variance swaps. 

2. For the newcomers in our community, please explain what the EC’s role is and what responsibilities you have as members? What are the challenges of keeping the protocol’s risk parameters in place?

Chloe: The EC has been empowered by the Agoric community to support the stability and utility of the IST stablecoin. This includes evaluating collateral types and setting ratios; mitigating risk by setting debt limits on minting contracts; adjusting stability fees to maintain the peg; reviewing protocol improvement proposals; responding to DAO decisions on changes to contracts and governance; and monitoring and advising on global regulatory developments and risk. Within the EC, we are on call around-the-clock to respond to events that could require us to make adjustments to any of these parameters. And as markets evolve, we are continually assessing the suitability of these settings over time.

Chris: The purpose of the EC is to make sure that Inter Protocol is both completely decentralized, but also able to take advantage of specialization and fast decision-making when necessary. The EC has been appointed by BLD holders to make technical decisions around parameters like collateral ratios and minting fees, and to act fast if there are significant market changes. However, the decision to onboard collateral types and to make major policy decisions are entirely controlled by BLD holders.

Joe: Collateral for a stablecoin is calibrated to have an acceptable expected default risk. The position of the protocol is a lot like someone buying credit default swaps. There, like here, if you can predict the size of price jumps and the liquidity that will be available at those jumps, you can determine collateral ratios and mint limits that keep control of the default risk across the protocol.

3. The three of you have been members of the EC since its creation, and this will be your third term. How do you evaluate Inter Protocol’s evolution and performance until now? Are there any lessons learned you want to share?

Chloe: Since its inception, IST has demonstrated its utility and accessibility, with three assets accepted via the PSM (over two bridges) and a further five assets now accepted via vaults, with more to come. In this regard, Inter Protocol’s growing usability throughout the cycle has been promising to see, and also highlights its role as a cornerstone of the Agoric ecosystem. One of the key moments in the EC’s whole journey to date has been to navigate the market instability that was caused by the unexpected USDC de-peg event earlier last year. IST’s performance throughout that episode shows, happily, that Inter Protocol is at least equal in resilience to the major decentralized stablecoins established in other ecosystems. This gives us confidence that all design mechanisms are working as expected.

Chris: I’m happy with the stability of IST, even as we’ve gone through some of the most extreme market events in the history of cryptocurrency. As Chloe has said, the major event was the USDC de-peg, where we were exposed to the same sector-wide challenges as every other decentralized stable token. I think we, and the Inter Protocol community more generally, learned a lot from this episode, and it plays very much into our decision-making. Looking forward, I’d like to see more adoption in IST, particularly as Agoric’s Orchestration becomes more widely used over the next year. A deeper market for IST is a more stable market.

Joe: A collateralized stablecoin is essentially a lending protocol. Protocol users deposit an asset, then borrow a USD-like asset against it. To be successful, a collateralized stablecoin needs to be competitive with other lending protocols in terms of the typical lending transaction (deposit asset, borrow USD); and also have sufficient liquidity against other widely used stablecoins. 

4. One of the main roles of the Economic Committee is to proactively monitor external factors that could potentially affect the IST health. Are there any crypto actors, market or institutional dynamics you are following closely at the moment?

Chloe: The EC is continually monitoring a range of direct and indirect developments that bear relevance to our priorities. For example, we are monitoring liquidity trends across assets, oracle performance, bridge performance, and of course changes in the evolving regulatory landscape worldwide. In the medium and longer-term, the ongoing integration of real-world assets (RWAs) into DeFi presents exciting future opportunities for IST as it scales, potentially increasing collateral diversity. Worldwide institutional adoption of stablecoins and virtual assets in general increasingly validates the need for smart contract-based payment and settlement tools, especially for transparent community-managed tools like Inter Protocol. 

Chris: There are a lot of things to watch at the moment! The policy environment is moving fast, which will have an impact on crypto asset prices — indeed, it already has. My assumption right now is that AI will drive a lot of innovation in this cycle and the next, and there are going to be some new assets and new dynamics that result from that. Although I’m pretty confident that I understand the impact of AI on cryptocurrency in the long run, i.e., crypto and smart contracts as the economic infrastructure for AI agents, it’s the entrepreneurial short run that’s going to be exciting and unpredictable.

Joe: From a risk standpoint, the possibility of large price moves coinciding with limited liquidity is the core risk of a collateralized stablecoin. Understanding the nature of liquidity across all asset exchanges is important here. This can be a difficult exercise since order books, particularly on centralized exchanges, are filled with market maker orders that are only there because they see other market makers providing liquidity. This liquidity quickly vanishes in a crisis, at the precise point where liquidators need to sell collateral assets. Another perennial issue for stablecoins and lending protocols is the existence of tokens with off-chain backing. USDC, sDAI, and USDCe all derive their value from off-chain assets that lack the essential guarantees of blockchains. We can probably not afford to ignore or exclude these assets entirely, as more will surely come, but it does present challenges for evaluating new collaterals for IST. 

5. With the BTCFi movement gaining momentum, Inter Protocol’s community is eager to start the process of adding BTC as an IST collateral type. Can you shortly describe the risks associated with the different versions of wrapped BTC available in Cosmos? 

Chloe: The prospect of bitcoin integration is an exciting discussion! However, like with any collateral type, there can be risks depending on whether and how the asset is wrapped and/or bridged, and other potential vulnerabilities. Wrapped BTC assets can be easier to integrate with DeFi protocols but may also generate concerns related to centralization and counterparty risks, as well as smart contract vulnerabilities in the minting and/or bridging process. Liquid staked derivatives, while yield-generating, also place trust in third parties via the staking providers. 

Chris: You have to think about wrapped assets in two ways: the risk profile of the underlying and the risk profile of the transmission mechanisms that connect the underlying to the asset you are directly interacting with. There are a lot of transaction costs in the latter that can mean the underlying and the wrapped asset diverge. In a business as usual situation, these transaction costs are relatively straightforward, but in a crisis they can interact unpredictably.

Joe: There are several versions of bridged Bitcoin available on Cosmos with varying liquidity and mechanisms. Each presents two primary risks: one that the bridge itself is hacked or compromised, so that the bridged asset loses some or all of its value, and two that the price feed is manipulated so that more IST is minted than ought to be. One solution is to use a composite asset that can be minted from any of a set of reliable bridged BTC assets. Alloyed BTC is one option. This improves liquidity and probably improves oracle reliability (though this is by no means immediate). The broader problem is that such an asset obeys Gresham’s law that bad money always drives out good money. If the different candidates vary in quality, perhaps one suffers a bridge hack, traders will provide the compromised BTC and withdraw the good BTC. The composite asset will tend to be valued at the value of its worst component. There are mitigations restricting convertibility, but these add complexity and risk. The choice is not obvious. 

6. Building on the previous question, we now have native Bitcoin transferred to Cosmos thanks to Native Network integrating Agoric’s Orchestration API. Would it be less risky to use native BTC?

Chloe: To be precise here, if you’ll indulge me – while BTC’s true “native” state exists only on the Bitcoin blockchain, when it’s referred to as being native in other contexts, it typically means it’s been transferred into another ecosystem with minimal intermediaries (i.e., without being wrapped or tokenized into a derivative). In the case of Native Network’s integration, greater reliance is placed on ‘zero-trust architecture’ cryptography instead of a centralized custodian. This results in a different risk profile for Native BTC relative to wrapped offerings. However, it would still be prudent for us to carefully assess key factors such as liquidity, expected adoption, and scalability path, to determine the right settings and approach for any future BTC integrations.    

Chris: I think this is a great example of what I’m most excited about with Agoric’s Orchestration tech: it radically closes the gaps between blockchains in a way that reduces the costs and risks of multichain interaction. It will be very exciting to use this for the Inter Protocol community.

Joe: It would be superior in every way.