Thread by @mayazi

The next few days ppl will make the case for how crypto would have solved the Robinhood saga:
1. Permissionless access - no one can block ppl from trading on DEXes or limit what assets they can invest in (theoretically)
2. Blockchain as a real settlement network instead of DTCC

Where trades are settled on T+2
3. Transparency allows for real time reporting on holding & shorts would bridge information asymmetry
4. Intermediary fees for market makers/brokers/settlements

The truth is more nuanced & grey.
1. Permissionless is only on-chain. Most ppl/capital still trade on exchanges or OTC. Despite a spike in on-DEX trade (with Uniswap even surpassing Coinbase during the DEFi hype), most trades will stay off chain for a while because /

Ppl prefer the most efficient & private route. That might change when private DEXes on L2 reach critical mass & can be more efficient than exchanges. for now privacy & convenience win, especially with early adopters who are usually introduced to crypto on exchanges similar to RB

If we hold crypto exchanges to the same scrutiny RB has received over the last week over blocking users, outages, gamification, collateral calls, then its fair to say crypto exchanges have failed in similar ways.

Most of us in crypto are familiar with how exchanges fail just when everyone wants to trade, that exchange who decided to liquidate its clients’ holding over three weekend cuz it chose not to make its collateral call, etc.
Most exchanges are a gamification biz not a tech infra m

Robinhood, unlike crypto exchanges, had gotten its share of regulatory heat for these very issues & chose not to address the real core of its business- how the fuck does their brokerage offer cheaper/safer/resilient gateways into the financial infrastructure.

The other permissioned aspect is what kind of investor has access to what asset. There were some calls this week to limit retail’s access to options u see the veil of investment protections. The Trump admin did a lot of work lowering accreditation requirements so investors /

Won’t be crowded out of a stake in growth areas, just like they were in the aftermath of the Great Recession. Most of the value add in the economy over the last decade has been in tech (private securities) & finance m.
We like to say everything in crypto is permissionless,

But blockchains being censorless doesn’t mean everyone can access the same assets at the same time. Like any market even crypto markets run on information asymmetry, thats where capital is made. DeFi might mask a lot of that through communities, DAOs & transparency but it’s there

Gas prices, MEV, flash loans, front runners, MM - the game may be different but it’s the game of small fish & big sharks.

2. Settlement infrastructure- traditional finance has been looking into blockchains for years. Their goal was to use the tech as a real time settlement system that can replace the long settlements time, especially for derivatives where T+21 is sometimes used for instruments like

CDOs, CDS, etc. the DTCC has a whole unit working on merging blockchain & so far it hasn’t been proven that better. Why? It’s not the tech. Turns out that net settlement is an advantage to off set counterparts risk

How would that look like on a blockchain if one collateral call ended in instant liquidation? Look no further than Black Thursday. Maker held up as a collateral system for DeFi. Given there are no collateral calls on DeFi, vaults get liquidated & markets react fast & painfully

3. Transparency - blockchains are transparency machines, till they’re not. Right now the public ledger seeks with traders data, but linking that to useful legal data like we see in SEC reports isn’t as intuitive as “it’s on the blockchain”, analysis tools help but that’s hermetic

If we can’t link holdings to legal entities, then that transparency is arbitrary & that’s before DeFi tools move to layer 2 with privacy tools to obfuscate even that data.

4. Intermediaries- just like Robinhood hasn’t democratized finance, crypto hasn’t disintermediated any intermediaries , we just built new ones & let them race to aggregate services so they can call themselves Prime Brokers.
Took me a long time to realize that’s now a failure

Why? Because the infrastructure crypto is built on is designed so that the market infrastructure itself is decentralized thus anyone can own a stake in it & participate in its business even with aggregators or intermediaries

The other force crypto has pushed forward is the means to coordinate money together, just like the WSB did from Reddit threads. So that individuals can coalesce capital together, or give the whales a fight. Look at projects like flashbots, DAOs & Enzyme