, 16 tweets, 17 min read Read on Twitter
@nic__carter 1/ TOUR-DE-FORCE, *MUST READ* from @nic_carter. Well-researched & well-reasoned. I don't agree w/ all of it, but it's a timely call to arms to #bitcoin intermediaries to PROVE YOUR SOLVENCY cryptograhpically. Thanks for naming names, Nic. I wasn't aware that one exchange has...
@nic__carter @nic_carter 2/ ...routinely issued #ProofofSolvency reports (Coinfloor). Your point is well-taken that Coinfloor puts its better-capitalized competitors to shame--bc when an intermediary holds 100% reserves, that means it is SOLVENT & it doesn't really matter how well-capitalized it is. I'd
@nic__carter @nic_carter 3/ ...rather trade via a small but provably solvent counterparty than a big but insolvent one any day. @nic__carter's chart is worth studying in detail & it shows what everyone should realize--that we're in a debtor/creditor relationship with #crypto exchanges when they take...
@nic__carter @nic_carter 4/ ...custody of our coins, & if the exchange/custodian/lender goes bust, we're general creditors in bankruptcy. There's massive asymmetry of information between the intermediary (which knows whether it's solvent) & its customers (who can only guess). How to fix the transparency
@nic__carter @nic_carter 5/ ...problem is a big question. #Wyoming provides a carrot to intermediaries wishing to meet it--if you're SOLVENT you can qualify for the most stringent banking license available. *SHOCKER* that other states regulate the heck out of financial institutions on stuff that doesn't
@nic__carter @nic_carter 6/ ...really matter but misses the big stuff, like whether the institution is actually SOLVENT. 🤦‍♀️So many insidious tricks make banks appear solvent when they're really not--& those tricks are legal in NY. So, in addition to @nic__carter's #ProofofSolvency, another way to weed...
@nic__carter @nic_carter 7/ ...out the wheat from the chaff is to watch who re-domiciles to #Wyoming vs. who stays in #NewYork or #California--that should start to become clear in the next 9-12 months (applications open Oct 1)--& you won't be surprised to hear that #ProofofReserves is a voluntary part...
@nic__carter @nic_carter 8/ ...of the compliance rules in #Wyoming. So awesome that you got this #ProofofSolvency ball rolling now--perfect timing!!! Like @TraceMayer's #ProofofKeys, I support it & hope it pressures institutions to prove they're solvent! 👊It sounds like we disagree on the age-old Mises
@nic__carter @nic_carter @TraceMayer 9/ ...vs Rothbard debate about #freebanking, a good summary of which is here: garynorth.com/public/9714.cfm. I come down on Rothbard's side--that fractional-reserve banking should be banned & that's one of the few legit uses of govt--bc I've seen how insidious the various methods of
@nic__carter @nic_carter @TraceMayer 10/ ...fractional-reserve banking are (up close & personal) AND BECAUSE IT'S NOT A ZERO SUM GAME. It distorts market prices by fulfilling real demand for an asset with phantom supply, thereby suppressing the price for all owners of the asset (since, all else equal, an increase
@nic__carter @nic_carter @TraceMayer 11/ ...in supply--regardless of whether it's real or fake--leads the price to drop). As you correctly point out, fractional-reserve banking is happening to #bitcoin already--in myriad ways. The market has empirically proven itself bad at sniffing out #crypto exchange insolvencies
@nic__carter @nic_carter @TraceMayer 12/ ...And the math shows that. In both the MtGox & Quadriga bankruptcies, #bitcoin traded at a premium on those exchanges toward the end (a risk premium=the market sniffed something was wrong)--but the % premium in MtGox hit double digits only 1 month before it went offline &...
@nic__carter @nic_carter @TraceMayer 13/ ...for Quadriga that happened only 2 weeks before it went offline. Those premia should theoretically have approached 100% long before either exchange went offline--but it didn't in either case. Why? Zero transparency. So, I agree the intermediaries need to prove solvency...
@nic__carter @nic_carter @TraceMayer 14/ ...and should voluntarily do it. If they do, they're welcome in #Wyoming. 🤠 One last point on which I'd be interested in hearing your thoughts. I, too, spent a lot of time thinking about whether #crypto lending is good or bad--and came out that it's good ONLY IF it's fully
@nic__carter @nic_carter @TraceMayer 15/ ...collateralized. Any re-lending/re-pledging of collateral creates an unbacked claim to #bitcoin, which suppresses its price by satisfying real demand with a phantom version (an IOU, not the real thing). Anyway, it's here if you'd like to explore: forbes.com/sites/caitlinl…
@nic__carter @nic_carter @TraceMayer 16/ ...I'll end the thread w/ what I saw as your best quote in a fantastic piece of work. Thank you for posting it. 🙏 Kudos to you for laying the challenge to #crypto intermediaries: PROVE YOUR SOLVENCY. #ProofofSolvency
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