So there are *ahem* some 'defi' projects which claim to get you risk-free returns on your Ethereum deposits. Time for a not-so-hot take (thread)
First of all, for those of you saying 'Isn't that, like, the classic red flag for a Ponzi scheme?' Well yeah that's a reasonable instinct, but I'll try to make a case for these things and point out more specific problems
First of all, a stablecoin has a business model: Some fraction of the funds are never redeemed, so whenever deposits are made you can keep some fraction as profit. If nothing else, there's some breakage in the system (but more on that later)
So you can set up a business which has this business model, which gives it profit, sell off interest in it as a token, and use the proceeds as deposits to get reserve backing up your stablecoin started.
The actual projects have a bunch of other stuff thrown in about reserve requirements and price oracles and such. It doesn't improve the story at all and they aren't terribly clear externally (and possibly internally) on the details, so I won't get into the weeds
This of course has the failure mode that people redeem more than the reserve amount, either because there's a run on the bank or because the technology has gotten myspaced. Anyone who doesn't know about George Soros and the Bank of England has no business designing \
these things but that seems to be the norm. And of course most tech stacks get myspaced eventually, with Myspace itself being a great example but also Friendster, Yahoo, Altavista, etc.
There are also numerous legal risks. I am not a lawyer and this is not legal advice, but the investment and issuance sure looks like unlicensed securities and the stablecoin activities sure look like unlicensed banking
This isn't a 'This is an innovative model and the existing legal frameworks don't apply' sort of situation. What's being done looks pretty normal from a legal standpoint and some parts of it are securities and other parts of banking and everything looks like it's skirting the law
Also that thing about breakage? In many jurisdictions that money can't be pocketed, it has to be held in reserve and eventually handed over to the state. This isn't a an old regulation stopping an innovative business model. Banks stealing from \
their customers is an old business model, and stopping it is exactly what the regulations are there for.
So where are the returns coming from? It's a combination value from a (possibly) legit business, counterparty risk that the whole thing possibly (maybe inevitably) goes kaput, and slow moving Ponzi scheme.
In the past I've given analysis assuming the second explanation, which may be charitable. As you may guess I'm not terribly bullish on this stuff. On top of everything else these projects start with a price oracle which \
they assume fixes the whole pricing problem, apparently unaware that price discovery is one of the primary functions of financial markets and needs to be solved first before tackling more advanced problems. Yeah, I'll be staying away from that one.
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OpenAI's chatbot doesn't have much experience in the material world
Don't let OpenAI's chatbot take care of your pets
They seem to be updating it in real time so it gives better answers to specific questions than it did just a few hours ago but sometimes small variations can trip it up
Good morning everyone. Today's rant will be about analog audio and some truly maddening myths in that field (thread)
There's a persistent myth that as soon as any step in audio processing is digital the entire thing has been reduced to a lower digital quality and that's what you're stuck with. This is wrong.
The truth is that every step of processing, either analog or digital, reduces quality, and each specific process will have its own effects, but the limits of how little quality can be lost are much better when both the inputs and outputs are digital
There's a myth in the general public that Know Your Customer programs are important for banking. This is incorrect (thread)
KYC has nothing to do with bank auditing and solvency. It is a relatively recent program which is solely for helping law enforcement. To that end it is extremely expensive and ineffective
The thing which really keeps bank together is federal reserve auditing and FDIC insurance. You know, the things which keep them from turning into FTX. KYC didn't start until 1970. It makes up a significant amount of all banking costs with no benefit to bank customers whatsoever
Something which offends me about SBF is that he's a finance bro's notion of a charmingly autistic founder. He plays that role well because he's a finance bro himself (thread)
Here's the chart of SBF's corporate empire. Nobody sets up something like this without damn well knowing that they're up to something shady
Another obnoxious thing is his inability to tie his shoes supposedly being cute. An adult being incapable of tying their shoes is a red flag of someone who doesn't take pride in their work and can't be bothered to do much of anything for themselves
Someone who has not made major charitable contributions, either through money or deeds, can't claim to be an 'effective altruist' any more than they can claim to be a philanthropist
Someone who's starting out their career and plans to do it can claim that they aspire to be an effective altruist some day, or even have direct plans for it, and if they haven't yet made lots of money that's a reasonable claim
If someone had a plan of making lots of money and using it for charity in the end but their investments never panned out I'm even happy to give them the benefit of the doubt that they would have been very generous