1/ The recent enforcement actions against @coinbase & @binance by government authorities has resulted in incredible hand-wringing by crypto market participants, for a variety of reasons. This indicates to me a few points & lessons learned I'd like to share. 2/ The growth of the crypto industry writ large in terms of onboarding, liquidity, adoption, etc. has been largely attributable to the growth of centralized exchange (CEX) virtual asset service providers (VASPs), predominantly by the defendants.

Open sidebar
Probabilistic FOMC Interest Assessment

Model: GPT-4

Provide a probabilistic assessment of the Federal Funds Rate by the Federal Open Market Committee on March 21st, 2023. Ensure the probabilities are distributed between rate hike scenarios, no rate hikes, and lowering rates. Use past FOMC statements and behaviors as correlated to GDP, real estate prices, rates of core inflation, unemployment rates, and bond and equity market performance.

SVB Bank Run Resolution

Model: GPT-4

Create a financial and risk management plan of action to resolve the Silicon Valley Bank bank run without having to insure deposits above FDIC insurance limits. Be sure to account for interest rate risk on bond holdings and anticipated future Federal Reserve monetary policy.

Title: Financial and Risk Management Plan for Silicon Valley Bank Bank Run Resolution

I. Executive Summary

1/ Everyone knows that Bitcoin (& by extension the digital asset markets) has cycles. It also grows exponentially according to network effects (Metcalfe's Law) adjusted for trading volume (bull / bear cycles). It is now on a long-term exponential support line (log chart). 2/ What isn't discussed was that the monetary regime that established the growth of the network in the first place, as a value capacitor for excess liquidity, was always in relation to central bank policy. Value flowed into the network in search of yield (outperformance) vs. risk

Some trolling for this beautiful Saturday morning is in order:
1. @a16z is a Silicon Valley Web 2 supporter of platforms building Web 3 applications on top of public permissionless networks.
2. Case in point, @opensea was funded in lead Series A (it's VCs all the way down) 3. Evidence of this support is widely public as can be seen here:
a16z.com/2021/03/18/inv…

1/ CBDCs often associated with a dystopian behavioral control model of governments at the individual level. What's overlooked is that we already have this in the aggregate sense today. Given proper privacy implementations, the concerns over discrete control could be ameliorated. 2/ Studies have shown that a CBDC model, wherein issuance against government debt is on the order of 30% of GDP, could increase steady state aggregate economic output by as much as 3% over the long term, while at the same time dampening the magnitude of inherent boom/bust cycles.

Empire Strikes Back!
Mark my words that the traditional banking system intends to compete both technologically, & via regulatory moats, in 2022 in a manner that will shock the crypto space to the core.
The Fed/OCC/SEC will play whack-a-mole w/ VASPs/FinTech while FIs pull forward

https://twitter.com/TCHtweets/status/1470821050447454215

Oh, and FinTechs, you're on the hit list too!

People seriously think that the banking system will allow disruptors to unilaterally operate using their payment first rails (onramps/offramps) to destroy their business hegemony.

Does anyone have a good argument why they would?

Nature of NFTs

1/ Blockchains are unique database architectures that allow for shared state, or consensus between participants on common truth. This architecture lends itself to designating of basic property rights via tokenization & encryption (private keys). 2/ The 1st use case for property on chain was currency, designed for payments, fiat hedging, expressing/storing value on a common platform. The holder of the keys is assured by network enforcement with property rights. That's valuable in of itself & doesn't require governments.

One of the things that is interesting to me is teasing out the differences between how digital assets are value relative to the Bitcoin liquidity waterfall & their own inherent properties that drive their network effect inflation. For example, one can study the narrative drive of Ethereum as a composable, smart contract platform that continues to add diverse use cases like DeFi, NFTs, AMMs, SCs, etc. (network effect drivers) vs. a single purpose digital asset like Monero (XMR), a privacy coin.

1/6 "Hand in hand with this centralisation, or this expropriation of many capitalists by few, develop, on an ever-extending scale, the cooperative form of the labour process, the conscious technical application of science, the methodical cultivation of the soil,..." 2/6 "..the transformation of the instruments of labour into instruments of labour only usable in common, the economising of all means of production by their use as means of production of combined, socialised labour, the entanglement of all peoples in the net of the world market..

This should make you angry if you use PoW chains that utilize concentrated mining pools. Shows via data that there is likely collusion in processing mempool fees are processed & overall resources optimized for the miners. Why anyone would build a financial system on top of this? Strategic Capacity Management is the name of the game. Keep your resource at a premium at all times, even if means not delivering on the end user. Wow! Talk about being held hostage when blocks are left underutilized even during congested periods.

Tokenized shared platforms (ICOs) w network effects are superior at delivering value to participants than a simple competition between centralized monopolists. Rent seeking can be overcome more efficiently by tokenomics & shared prosperity than competition. Entrepreneurs essentially become issuing mini-central banks in their micro-economy that represent the platform network but with predetermined issuance policy that participants can transparently view.

Wash trading on low ranked unregulated exchanges is highly incentived by rank improvement and attraction of traders that place a premium on liquidity. WT comprises a significant portion of the industry activity, dominates.

Excellent paper by Lin William Cong and team at Cornell. XRP is the favorite to spook wash trading, but the arbitrage bots collapse the effect in less than 1 week. Likely due to low final settlement chain fees & large investor base.

Excellent paper by Giovanni Compiani & Matteo Benetoon of UC Berkley on the role of belief in the price action of digital assets over demographics (early vs. late buyers & age).
cowles.yale.edu/3a/bcwp-invest… Creating the model and sorting out some relative effects on a the data set.

The Arbitrary Nature of Economic Policy Preferences
1/ The vast majority of FinTwit / CrypTwit is consumed by the arbitrary application of preferred monetary policies. Constant tribalism between Keynesians/Austrians, De-/Inflationist, Centralists/Decentralists, Traders/Investors. 2/ What are economic principles & "schools of thought" if not arbitrary ideological preferences as to how we as human beings relate to one another? Money & Value are distillations of our collective efforts & obligations to one another across space & time, humans serving humans.

Non-Fungible Tokens (NFTs) as Peak Property Rights

1/ Distributed Ledger Technology (DLT) has afforded humans the idea of claims on digital abstractions as property rights on the internet. I can purchase ETH or XRP or any other digital asset & the double spend is protected. 2/ What we are really talking about is the careful accounting of shared states in distributed databases so that consensus is arrived at & disagreements are precluded. This naturally lends itself to the concept of property rights as those are conflict resolution concepts.

Don't normally connect dots, but hey, it's almost Christmas, let's have fun...
Mr. Jay Clayton was once a partner at Sullivan & Cromwell LLP, where he was a member of the firm’s Management Committee and co-head of the firm’s corporate practice. OK

sec.gov/biography/jay-… Sullivan & Cromwell advises some of the largest firms and investment banks in the world, one of which is Goldman Sachs. The firm happens to be very familiar with global banking infrastructure including cross border commodity swaps & even SWIFT messaging:
sullcrom.com/publication_de…

A Thread on the Tax Treatments of Staking & DeFi
1/ There are many digital asset projects whose L1 offers a native digital asset to reflect utility, governance, assignment of ownership, etc. From a tax implication standpoint the main view has been primarily establishing basis. 2/ Some of the projects require that you own the digital asset in order to stake it against some network function (like committing compute resources, or having a vote on governance, etc.). The claim is typically security as a game theory solution. OK.

Digital Asset Encryption is Not a Panacea for Society

1/ As a proponent of digital assets, personal privacy, encryption, and value as information, I hold in high regard the privileges afforded by digital assets. However, I don't view that regard as superseding human institutions 2/ Often times you will hear that digital encryption is an essential component on the path towards "self-sovereignty", or the ability to choose the direction of one’s own life, & being the exclusive authority over one’s own body & mind. Synonymous w/ personal freedom & liberty.

Fundamentals of Interledger Protocol

1/ ILP as a standard allows the connecting of value networks (a network of networks). The networks allow for value to flow across many ledgers while preserving value (avoiding double-spend) so long as the routing table is verified / reputable 2/ The underlying architecture rests on top of accessible ledgers, like API enabled PayPal, or public permissionless blockchains like BTC. ILP enables the routing of value packets across these ledgers. ILP stacks become interoperable.

The Real-Time Tragedy of Aggregation in the Age of COVID19

1/ The current health tragedy surrounding the spread of COVID19 cannot be discounted, however the real tragedy isn't the health crisis, it's the aggregation of power (both economic / political) with the virus as pretext. 2/ This thesis is clear based on 2 trends:

a. The consolidation of monetary power with "the Fed" in terms of money creation -> disintermediation of banks.

b. The destruction of global SMEs during the current supply / demand crisis to the favor of large e-commerce.