blake west Profile picture
Aug 15 11 tweets 2 min read
/1 The upcoming Merge has revealed that USDC has veto power over any breaking changes to ETH

The problem isn't just USDC. Anything that touches the real world can't support forks. This breaks a core power of crypto

I don’t think ppl appreciate the importance of this. A 🧵...
2/ First the context: On Sept. 15th, the Merge is scheduled, and there will likely be a hard fork of Ethereum to keep Proof of Work (PoW).
3/ In the past hard forks (eg. BCH or ETH Classic) have been over philosophical or roadmap differences. Which serves a great purpose as a release valve on big tensions. It allows ppl to stop fighting and start building!

Fork the chain, copy state, and let the market decide!
4/ But that was before stablecoins.

Now the PoW supporters can build all they want and none of it will matter unless Circle (company behind USDC) supports it. Which is nuts. I doubt Circle even wanted this power.

But It flows out of the fact that USDC ties to the real world.
5/ In the real world, you can’t “fork” the state.

So when the PoW fork goes live, the supply of USDC will — on chain at least — immediately double.

But of course the dollars in Circle’s bank account will not.
6/ Thus Circle must choose one and only one chain. They chose Proof of Stake.

And that alone kills the PoW fork. B/c the on-chain state becomes chaos if USDC value immediately drops to zero. It would honestly be kind of silly to even turn on the fork.
7/ And you may also support Proof of Stake, so you think "whatevs". But as a thought experiment, what if Circle also just so happened to run the world's largest PoW mining operation? What would the situation be like right now? Would they choose PoW? Would they delay PoS?
8/ Taking a step back... this fact that real world things cannot be forked goes well beyond USDC. As crypto become more mainstream, real-world tie-ins will get ever more common. For example, Tiffany’s just did NFT’s that can be redeemed for real diamonds.
9/ Do you think they’ll give away 2x the amount of diamonds just because of a hard fork. Doubtful.

They have to choose too. The growing trend of “real world” lending on DeFi has the same issue. As crypto gets more successful the problem gets more entrenched.
10/ Is this bad?

Well, the future I worry about is Ethereum becoming a “vetocracy”, where any of a handful of large entities (or even many small ones) can block breaking changes they don’t like, backed up by the threat of chaos on the chain.
11/ I’m really not sure how this plays out, but it feels like one of those lurking issues that isn’t a problem until it really is. Which is basically what everyone says about centralization in general. Except this is crypto itself.

idk. I welcome thoughts. I'm still pondering..

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More from @_blakewest

Jul 26
1/ I’m often asked:

“If you’re doing real world lending, why use crypto at all?”

I get it. For a single app, blockchains just look like an expensive, slow database.

But the value is in the network…🧵

Here’s 3 reasons why.
2/ A crypto network, rather than any single app, will collectively improve upon traditional finance through better *access* and *liquidity*,

both of which will lower the cost of capital.

It's like a flywheel: more people ➡️ more liquidity ➡️ more people ➡️ more liquidity…
3/ Access improves as crypto networks create a “common denominator” rather than fractured systems across countries, bringing everyone into the same global financial marketplace.

(Like how we went from many newspapers to globally using Twitter as one conversation market).
Read 8 tweets
Jun 9
/1 Want DeFi to grow 100x from here? The answer is to be boring!
That means DeFi needs to move away from speculation and into boring, everyday financial activity.
Not NFT’s, gaming, or web3 social. Those are all great for crypto. But they won’t help DeFi. Here’s why 🧵
2/ Let’s just look at market sizes for a sec:
-Global e-commerce companies made $2.27T in revenue last year
-The US alone issued $1.3T of bonds + made $8.5T of salary payments last year
-Equity funds have seen ~$1T of funding in the last decade
We need all of that action on DeFi.
3/ NFT creator revenue last year, by contrast, was $3.9B. Video games as an entire industry (not crypto gaming) was around $100B in revenue last year.
Nothing to sneeze at, but orders of magnitude less than boring, everyday finance.
Read 12 tweets
Jun 7
The label “undercollateralized lending” in crypto drives me batty 🦇
It’s factually incorrect (@goldfinch_fi loans = overcollateralized!), misleading, +sounds like extra risk when there isn’t.
But there’s a better term in use: it’s time the industry moves to “credit protocols” 🧵
2/Outside of DeFi, no one segregates lending by “overcollateralized” and “undercollateralized.” There’s many types of lending (asset-backed, consumer, SME, security lending, money markets, mortgages, etc). In all of these, the level of collateralization is just a per-deal detail.
3/ But in crypto, people conflate “over/under collateralized” with “on-chain/off-chain” like no on-chain = no collat. Compound and other money-market protocols only look at the collateral on-chain, while Goldfinch and others are free to look at collateral on- and off-chain.
Read 8 tweets

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