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Patrick McKenzie Profile picture
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Feb 1 • 4 tweets • 1 min read
“We did not pay interest on time” is sometimes considered a consequential issue for financial services providers.
“It will be a day or two late due to computer issues”, posted to one’s status page, is also generally speaking not seen as a complete response.
I’m not sure I even buy the “They can’t pay because of solvency” source of risk; I just think of “Oh you’re going to try continue being a regulated financial entity after this. Um, well, about that.” source of risk.
Glad I’m not their regulatory counsel; it will be a busy two days.

(Generally speaking you want e.g. the Illinois Department of Professional Regulation, Division or Financial Institutions to hear about this from you rather than from a customer complaint or, much worse, MSNBC.)

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More from @patio11

Patrick McKenzie Profile picture
Feb 1
Here's a really interesting thread about a recent startup financing.
With a VC hat on, there's a big question as to whether investors are paying valuations rationally calculated to some discounted percentage chance of an outlier return, and whether businesses on this model can generate outlier returns to grow into market-comparable valuations.
With a technologist's hat on, this seems like disruptive innovation of the early-stage VC model, where funding happens in a dense network not by serial approaching angels or by getting into the YC/Demo Day pipeline but instead by an ad hoc process akin to GoFundMe or crypto.
Read 8 tweets
Patrick McKenzie Profile picture
Jan 31
I watched a creator describe their journey from underutilized technical civil servant to full-time small entertainment business. Won't link to avoid stigmatization but parts of it reminded me of my own experience back in BCC days.
"The only labor market I have available to me misuses me in pathologically bad ways so my options are either a) emigrate or b) do literally anything else, and I choose the subtype of b where there is a script available to me." sums up our mutual thought process quite a bit.
On the one hand: yay for having more choices in the world.

On the other hand: wonder how much of this is just a reflection of non-borked labor markets having structural reasons why they can't hire in XYZ.

(Said creator in Germany, me in Japan, etc etc.)
Read 10 tweets
Patrick McKenzie Profile picture
Jan 30
. @ByrneHobart had this in his newsletter, the last sentence of which is very relevant to the relative size of Tether’s claimed reserves and the commercial paper market.
I’d phrase it as this: “Ponzi schemes have an unbridled urge to expand, and eventually the expansion of the fake books is so large that it should produce a visible change outside those books, but does not. This fact is often noticed casually by someone uninterested in scheme.”
Even the smallest businesses create ripples in the outside world, and are very detectable if one knows what to look for, but Ponzi schemes describe themselves as roiling tsunami generators than fail to measure up to that.

(Satoshi schemes also have this property.)
Read 5 tweets
Patrick McKenzie Profile picture
Jan 27
I invested in @compound because some tech people are going to have a class of very niche financial challenges, and there existed basically no good solution for them, to the enduring detriment of many.

They launched today: withcompound.com/a/introducing-…
It’s occasionally socially discouraged to talk about these sort of things in tech, which is one reason why people who don’t come from money get rolled by commissioned sales reps (or given catastrophically poor advice by the friendly neighborhood non-specialist accountant).
And so most of the existing advice is either a) oral lore or b) a very small number of very skilled professionals who, if you have to ask, do not want to work with you.

Compound is trying to bring that, with some actual software involved, to the broader set of tech workers.
Read 6 tweets
Patrick McKenzie Profile picture
Jan 26
Both a good line and a mostly accurate description of forensic accounting!
Frauds collapse mostly because the scale of lies (promises of returns, chiefly, but then checkable metadata about operations) compounds on itself more rapidly than anything should compound in most legitimate businesses, eventually hitting a checkpoint that can not be bullshit.
Frequently that is a liquidity crisis; less frequently it is intervention by a partner or government.
Read 10 tweets
Patrick McKenzie Profile picture
Jan 19
This is one of those facts that make one go “Huh”, and suggests there might be fewer physical dollars in the hands of people who have long-term positive views on Bitcoin than there are widely believed to be, or that those dollars are somehow not available.
“Is he subtweeting tether?” I mean dollars are dollars and they’re all fungible. I’m referring to longs in their entirety.
Markets can have weird discounts for a long time for structural reasons! But they generally close.

A favorite anecdote of mine: way back in the day, McDonalds spin out Chipotle and retained (then sold) a B share class which was equivalent to As but had more voting rights.
Read 9 tweets

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