The economic crisis of 2008 was a fatal moment for many people, as the collapse of the US housing market led to a chain reaction that seriously affected the working lives of millions of people.

According to Wall Street, one of the main reasons for this dilemma is the lack of transparency in the mortgage sector. Mortgages are tied up into a package called mortgage-backed securities (MBS), which can be traded by banks or other clients who rely on credit rating agencies to determine the level of risk of securities.

Financial institutions sometimes "package AAA-rated securities and relatively low-quality securities, which are passed off as the most rated securities when sold as investors." Such investors do not necessarily understand that they are buying low-quality securities, which are likely to break their contracts and cause high damage once the predicament shows the truth.

Ralph Kublai, a member of the supervisory board of the Caspar Research Society, said that the historic problem that caused the disaster still exists, but can be solved according to the blockchain application.

Kublai Khan comes from the traditional financial industry account and password field. He has previously held various M & A, marketing and executive positions at Sika, Star International, BCM Europe and other companies. In 2021, he joined the shareholders' meeting of the Caspar Research Society, a non-profit organization that marketed the Casper blockchain system.

She told Cointelegraph that the tagging of mortgages would make it more "observable, verifiable and actionable" in the chain of public blocks, make the mortgage sector more transparent and help prevent accidents of the kind that occurred during the difficult period of 2008.

Explain the paper agreement in the data world

Kublai Khan explained that when accounting agreements are written, they can be written "page after page of blank paper". It is then distributed to investment analysts and programmers who interpret these written text documents as device-readable codes.

However, he stressed that such investment analysts are often divided. Under normal circumstances, there is little contradiction and can be dealt with through negotiation. However, situations such as the 2008 financial turmoil show that contradictions are sometimes more likely to be more serious, with devastating adverse effects. As Kublai Khan put it:

You have a written agreement, and then you are translated into computer code, and then you operate in this critical banking business, about 40 years later, so when the critical banking business is still running, no one really remembers what they write and how they write programs […] This gives us a way to see the world in the Big short (the film about the financial storm).

Kublai Khan also believes that symbolization is conducive to economic development and reform. "everything will be symbolized in the future," he said. " But, he claims, real estate developers should pay special attention to how they mark mortgages. One way to tag a mortgage is to create a PDF document of the product instructions and put a hash of the contents of the document into a symbolic agreement. But it will be an "unwise token", no stronger than anything else you already have in the financial industry in the past.

He believes that if OTP is to be successful, OTP must be "intelligent", which means that financial agreements must be device-readable and the parties involved must be allowed to encode themselves. Otherwise, disputes at the level of expression and analysis will continue to exist, resulting in financial market confusion in the future.

Defi cannot handle the problem

Today, lenders and lenders have accepted device-readable contracts through decentralized finance (Defi) applications. For example, when lenders get loans from Defi applications such as Complex, they never sign all the legal and regulatory agreements to repay the loans. In turn, according to the use of the intelligent contract associated with the application, the lender is interpreted as agreeing to the operating code in the agreement.

However, most Defi applications require lenders to give digital currency as collateral to obtain loans, and the value of the collateral must exceed the loan limit. Kublai Khan felt that this restriction prevented Defi from competing with traditional financial markets. At DEFI, you don't have cash flow over time. At DEFI, you can only mortgage loans with too much collateral, "but" the universe operates on bank credit, which is collected over time, "he said.

Some field experts have pointed out that "life-related" OTP-- a digital identity OTP that means the characteristics or credibility of a person or company-- can extend Defi to loan guarantee problems and loans with too high loan guarantees.

But Kublai Khan noted that this one only overcame the problem of credibility of the insured transaction object. It cannot symbolize the cash flow over a period of time.

Instructions for the use of data provisions

Kublai Khan believes that in order to ensure that the terms of the mortgage are transparent, it is necessary to establish and obtain the permission of all the parties involved in the mortgage. in order to establish a "device readable, equipment operable, equipment financial audit of the original data strip table." This agreement needs to be written in the form of a formula to sign an observable, verifiable and operable smart contract, which he calls the "smart financial contract".

Kublai Khan shows that once the data provisions are symbolized solely according to the smart financial contract, the breach can be noticed transparently on the blockchain. This avoids the situation that happened in 2008, when mortgage investors could not see the mortgage breach, as he put it:

"Financial storms often occur because they cannot observe or verify that none of the borrowers in California who have obtained all these mortgages have not repaid their loans. [.] No one noticed this payment process […] But the point here is that this gives you a shrewd financial contract, which is a very different small animal, followed by the future development of finance.

To the extent that the loan has collateral in this respect, the collateral can also be symbolized and locked in the blockchain smart contract. For example, the symbolic right to use a house or vehicle should be placed in a smart contract, and if the customer breaks the contract, it will be handed over to the lender after a certain period of time.

Kublai Khan said that once a loan was put into a smart finance agreement, he could securitize it "at the touch of a button".

For example, suppose a bank lends money to plumbers and painters in the United States, and there are some floods in Missouri and Virginia. Pension funds are likely to want to buy loans from some states, where plumbers and painters have a lot to do. Once such loans are symbolized, the fund should be able to easily buy a basket of loans, "and then securitisation is complete," he said.

Open source system specification used to mark change

Kublai Khan believes that in order to achieve this symbolic change of financial products, it is necessary to establish an open source system standard to define how to create intelligent financial contracts. He believes that this is all done according to the establishment of a unified standard for contract types of optimization algorithms (Actus), which can also be obtained in GitHub.

CasperLabs has been doing scientific research on Nucleus Finance, an attempt to produce financial wealth management products that conform to Actus standards, he said. The research team has provided loans to two users, one of which is said to be a large car rental company and the other "one of the larger infrastructure service providers in the European capital markets".

However, he points out that such products are not "pragmatically selected" by customers, but Nucleus is looking for new customers who can benefit from the technology.

Other symbolic mortgage solutions

Kublai Khan is not the only expert who boasts symbolic mortgages as an authoritative solution to the financial crisis. John Gafni, head of exploration at Security token Consulting, wrote an online article that gave a similar view. He declared that if mortgages experienced "two-way tagging", wrapping mortgage markers in one more marker to build a tagged mortgage-backed securities, it would "give clarity to the pricing and rating of MBS's own products, as well as openness and rating for basic mortgages."

Gaffney claimed that Security Token Advisors had "seen a lot of promising customers trying to deliver moderate technology to the industry" and announced these initiatives "when it achieves results."

Cointelegraph had already contacted Security Token Advisors for comment, but had not received a text message as of the time of the announcement.

Several researchers have recently tried to label all areas of the mortgage industry. In March 2022, Cointelegraph Research announced that the real estate industry has become a leading securitization blockchain asset. In June, a study released by Citigroup found that more and more mortgages were likely to be pledged against encrypted assets, although the investment bank warned that such behavior would increase the risk.