Thread by @NYcryptolawyer

1/ This thread (and the various comments/responses within) deserves more attention. There is both incredible promise and incredible risk in including “real world assets” (#RWA) in #DeFi. As usual, @lex_node is asking very relevant questions.

https://twitter.com/lex_node/status/1475900678778372098

2/ As a long-time RWA securitization lawyer who lived through 2008-9, I speak from direct experience here. The Financial Crisis arose from a paroxysm of yield-chasing leverage financing purportedly “safe” and “high quality” financial assets.

How about let’s not do that again?

3/ @lex_node correctly points out below that, wrt RWA, “transparency“ is not just about which assets exist (which you can determine with tools like Etherscan). It is also about the character and collectibility of the underlying RWA themselves in “meat space”.

4/ During the Crisis, there was scant accurate real-time information available to market participants, leading to a complete withdrawal of liquidity and utter collapse of asset prices.

5/ In response, the Dodd-Frank Act imposed a wide range of disclosures on various market participants (not just issuers) dealing in the newly defined “Exchange Act ABS”. These rules apply even to securities sold only to “accredited investors”.

6/ This is because it was recognized that the crisis was in significant part a failure of supposedly sophisticated private markets (e.g., the banks and hedge funds that bought CDOs).

7/ A good starting point to learn about the post-Crisis regulation of “asset-backed securities” for those interested can be found in this SEC release:

sec.gov/spotlight/dodd….

8/ To be clear, I would love to see new blockchain-based tools developed that can allow the efficient and effective securitization of RWA without the reliance on rent-seeking intermediaries. I believe this can be accomplished.

9/ But failing to understand or take stock of the the relationship between complex and highly leveraged securitization (blockchain-based or otherwise) and the potential for another crisis resulting from the sudden withdrawal of liquidity would be a grave mistake.