FDIC & regulation kind of makes it so for most people most of the time it doesn't matter that banks are custodial.
Offering these services without being custodial is innovative though.
EDIT:
The other major (IMO) innovative piece is the permissionlessness. zapper.fi is a great example of being able to build something that adds lots of value (given you've already bought into crypto & defi) without needing anyone's permission to integrate into their systems.
Non-custodial means the owner is responsible for protecting the asset from theft and operational risks. Nobody wants that, especially not in the case of digital assets, which aren't governed by property rights and instead rely entirely on effective control of the asset to determine who "owns" it.
> Users can trade the tokens anonymously 24 hours a day, seven days a week, from anywhere, unhindered by capital controls, “know your client” rules imposed on broker-dealers, and other frictions of the traditional financial system.
These are certainly new innovations and features, be they good or bad.
In context, they also mention traditional markets being closed at certain days and times. This is also friction, but negative.
So yes, I understand where you're coming from, but my libertarian instincts to reflexively think of KYC/AML as excessive and annoying regulation and untrammeled exchange as a good thing, turn out on closer examination to be simply wrong.
And I'm not sure that it's all that effective, especially after seeing HSBC launder money for cartels and get away with it [2]. Oh and none of these regulations obviously stopped 2008 or any of the previous crises.
To me a lot of these regulations seem like the TSA security theatre, seems useful, but at this point, pretty outdated and inefficient.
1: https://www.cpomagazine.com/cyber-security/global-cost-of-fi...
2: https://www.investopedia.com/stock-analysis/2013/investing-n...
The question of whether it's worth it is a real one, and more honestly answered (whether positive or negative) if we admit these substantial costs.
I am not sure if the burden is worth it, when living in the right country makes cashing out without KYC kinda easy?
Sure no way to pull out millions, but I would argue most bad actors are rather on a 10k level.
People argue that voter ID is an unreasonable burden on vulnerable populations. If that's the case then how is it a reasonable burden for interacting with the financial system?
If cryptocurrency does anything useful at all it will be to make privacy invasions like that sufficiently toothless that the case can be made to eliminate them in the ordinary financial system as well. Arguably it already has and all that's left is to eliminate the pointless KYC requirements.
It astounds me how even principled civil libertarians wholesale accept an Orwellian level of surveillance on anything related to money. The Founding Fathers would have all revolted at anything even resembling modern KYC/AML law.
You might try reading the Federalist Papers before making claims about the founding fathers. Again, it is not surveillance by government anyhow.
> These are certainly new innovations and features, be they good or bad.
That's saying a car with its seat belts removed has an "innovative new feature." The usual word for that situation is "regression."
The usual phrase for your argument is "false analogy."
I quoted the full sentence, but I was mainly referring to:
>> unhindered by capital controls, “know your client” rules imposed on broker-dealers, and other frictions of the traditional financial system
While you can always find some little exceptions, most financial regulation has actually has good reason to exist and solves actual problems (though maybe not your problems, as in burglary laws do not solve burglars' problems). It's not much of a "feature" to do away with them, since then you just invite the re-emergence of problems that have already been solved or mitigated.
No seatbelts means it's easier to get out of the vehicle (if you planned to or not). Some seatbelts are uncomfortable. Seatbelts add to the materials and assembly cost of the vehicle, and add weight to the vehicle which increases fuel usage and wear on the tires and suspension and road. Maybe they wrinkle your clothes? Installing retrofit seatbelts on a vehicle without them can be difficult and the result may be really uncomfortable. Very ocassionally, it might be preferable to be flung from a vehicle rather than retained in a vehicle during a colission, although that would have to be a pretty specific set of circumstances, because being flung from a vehicle results in a lot of undesirable injury.
Not having seatbelts has minor benefits. All of them are outweighed by the benefits of seatbelts in my opinion (and I think there's broad consensus) but claiming there's no benefit to not having them or that there's no cost to having them is silly.
Where does all this HN hostility come from, I thought this crypto stuff would mesh so well with the Silicon Valley mindset. Trading should be instant, totally free, in any increment you choose, across borders! That’s the kind of mentality we apply to so much else in tech right? Is this really a bunch of hackers defending oppressive government regulations written by lobbyists for oligopolies?
Since when does Silicon Valley defend the old ways?
"dubloons"? Stock prices used to be in binary fractions. Barely over 20 years ago.
Obviously moving to decimals is going backwards, how many people program with BCD these days?
Might have something to do with the Spanish dollar being called "Real de a ocho" or "pieces of eight".
Also, I think it was silver based, not gold. Doesn't "silver dollar" in old books ring a bell?
I'm guessing you got your information from here:
https://www.investopedia.com/ask/answers/why-nyse-switch-fra...
It's poorly written and misleading, if not technically false.
"even before the decimal conversion, some ECNs permitted their customers to enter orders in penny and subpenny increments or their equivalents (e.g., in increments as small as 1/256 of a dollar)"
...from https://www.sec.gov/rules/concept/34-44568.htm
It appears that 8ths were the official minimum until mid 1997, which must be why I don't remember smaller fractions being very common. I feel like maybe it was mostly penny stocks that traded in smaller fractions?
The following mentions stocks trading in 32nds:
Crypto has become monstrous, filled up with fake stable coins and most of them ( i think) consider it a pyramid scheme currently, nothing more.
Move fast and break things is a slogan for your own company for growth. Not when you are playing with other people's money.
Crypto is filled up with pump and dump schemes. Not much of the original intentions remained by now.
For much or most of the world, that isn't true.
Even In the USA or EU, a significant proportion of people do not have access to something like buying some Apple stock legitimately. Just think of all the people who use those extortionate "cash apps" and payday loan services. Why not just use a bank? The same reason they're not going to be buying Apple stock the proper way.
Most obviously, perhaps no bank account, or no ID. They may not have legal status in the country they live in. They may owe child support. Or tens of thousands of unpaid fines for criminal convictions. Or they have a garnishment against them. Or banks simply won't open an account for them because of bad credit. So on and so on, reasons legitimate, and not, for not engaging with the formal financial system.
This adds up to something like 5 - 20% of Americans depending how you set your threshold. To those people, both cryptocurrencies and possibly-scam crypto-investments are attractive because they offer something otherwise not available.
T+0 settlement seems pretty innovative to me, especially in light of the GME fiasco.
Decentralized, automatic trading that can route liquidity for direct asset swapping does not exist in traditional finance for retail investors.
Yes it’s far easier for retail investors to play the role of the market maker but the financial services themselves are the same. Also realize that if defi becomes mainstream retail will still be pushed out by institutions as yields approach zero.
OP says “nothing like uniswap exists” but the goal is literally to democratize lending, market making, and currency exchange. (All of which exist in centralized forms)
If I contact my bank, will they allow me to become a liquidity provider for USD-EUR pair and give me a cut of USD-EUR exchanges that they make? If not, which traditional financial institution do I have to contact for this?
Actually, I would be ok if you could point me to a bank that provides positive yield (or at least nonnegative yield) if I deposit my money there. Is there a traditional financial institution that can provide me with some sort of working "savings" solution... If there is, please let me know, because I'm looking for one.
The way I see it, entities like Uniswap/AAVE/etc. are surely emulating aspects of the traditional finance system, but are not exactly redundant. Perhaps if banks start offering positive interest rates on deposits (not even above inflation... just positive), I'll change my mind.
A quick google search will show you that lots of savings accounts have positive yields. Rates have been low cause of fed action but banks have provided positive returns in savings accounts since like forever ago.
The original discussion was whether or not defi protocols enable new financial services. I argue they do not, but instead attempt to automate/decentralize those services.
Speaking broadly, finance involves trades and loans and bets on future prices, and pretty much anything defi does will fit into those categories, even if it does it in a different way; anything that doesn't fit in those categories won't be called "finance."
The emphasized part is important. Most people either can't or don't know how to jump through these hoops. Is it even worth it to jump through these hoops, when I only have 100 USD to "invest"? Entities like Uniswap make the process much easier and widely-accessible, which makes a big difference (particularly if you live outside the developed world).
Furthermore, you did not respond to what I asked: which institution do I need to contact for this? My bank?
> A quick google search will show you that lots of savings accounts have positive yields. Rates have been low cause of fed action but banks have provided positive returns in savings accounts since like forever ago.
This comment is rather US-centric. My experience where I am right now (outside of the US) is that interest rates currently are either negative (yes, you have to pay money to the bank to park your money there; example: [0]) or basically zero (an interest rate of 0.01% might not even cover the "maintenance fees" of your account, let alone losses due to inflation, particularly if you are not rich... might as well just stash the cash under my mattress and keep the maintenance fees to myself).
So, yeah... this is what entities like Uniswap provide that traditional financial institutions don't. Among other things:
* Capacity to borrow, lend, buy and sell "crypto-assets" or whatever you want to call them (most traditional financial institutions will not touch them with a 10-feet pole, for obvious reasons);
* Capacity to do those things with minimum friction/overhead, from anywhere in the world, at any time (no KYC, no gatekeepers);
* Exchange and interest rates that are actually decided by the market, rather than centrally planned (by your bank and central banks), which leads to reasonable interest rates for borrowing/lending (i.e. positive rates).
Of course, you can argue that some of these "features" are "anti-features" (e.g. no KYC = no friction, but it also means that perhaps money laundering could take advantage of it). Either way, it seems clear to me that Uniswap et al. enable you to do things that you (or, at least, "most people") simply cannot do within the traditional financial system; you may not see too much value in these things, and even be generally suspect of "cryptocurrencies", but it seems complicated to argue that Uniswap does not bring anything new to the table.
The proof is in the pudding... if Uniswap was not useful (beyond what traditional financial institutions already provide), you wouldn't see so many people flocking to it.
[0] https://www.nationalbanken.dk/en/marketinfo/official_interes...
I think the conversation has diverged quite a bit from my original point. I’m not even trying to argue that uniswap is not useful or an improvement. Instead I’m pointing out that when we compare defi protocols to the traditional system, the core services are largely the same. Defi is an attempt to allow anyone to participate in the roles which are usually accessible only for institutions. That doesn’t mean those roles are just now being invented by uniswap/aave/whatever.
Unrelated Opinion: defi’s practical utility comes from circumventing regulation and adding leverage to a crypto position. (Eg no KYC, selling AAPL tokens, borrow tether against an ETH position to buy more ETH)
Sorry, I misread what you wrote, then.
> Instead I’m pointing out that when we compare defi protocols to the traditional system, the core services are largely the same.
Sure, I don't disagree. Why reinvent the wheel if it has already been invented? But... just because the wheel has already been invented, doesn't mean that inventing a "tire" is not novel (because a tire is just a fancy wheel, after all, no?).
My point: in many ways, defi is replicating "service-types" that already existed in the traditional financial system (as you say); on the other hand, it is not replicating the exact same services (note: my bank does not allow me to borrow BTC from them) and in the same exact way.
In a nutshell, defi is a "copy" of the traditional financial system the same way that "a tire is a copy of a wheel" (i.e. they are clearly not the same thing, and a tire is an innovation over a wheel, but they can also be thought as being "more or less the same thing", since they both are used to make cars move).
> Defi is an attempt to allow anyone to participate in the roles which are usually accessible only for institutions.
More than that. Even an institution cannot convince a bank to give them a USD loan using BTC as collateral.
> That doesn’t mean those roles are just now being invented by uniswap/aave/whatever.
Agreed. The same way that, when Dunlop and Goodyear invented tires, they did not try to claim that they had invented wheels. I am not sure you'll find anyone trying to argue that (e.g. that AAVE invented "loaning against a collateral").
> Unrelated Opinion: defi’s practical utility comes from circumventing regulation and adding leverage to a crypto position. (Eg no KYC, selling AAPL tokens, borrow tether against an ETH position to buy more ETH)
Not necessarily just that. Even if I have no problems with any regulation that needs circumventing (i.e. I'm not doing anything illegal), and have no need to borrow crypto-assets, the traditional financial system (currently) provides no way to lend crypto-assets. If, for some reason, you have 100 ETH, you're going to use Uniswap et al., and not the traditional financial system (since that's not even an option, currently).
By giving the contract both X and Y, you're providing liquidity. You get a new token Z, specific to that pair. Every exchange of X for Y (or vice versa) skims off a transaction fee, which is apportioned among holders of Z.
(This actually describes the first version of Uniswap. The new version 3 has more complex math that lets you do fancier stuff, but is the same basic idea.)
I'm not sure if this is impressive, but the US government must be glad that USDC is controlled by an American company (Coinbase) and an Irish one (Circle).
20th century-Contract for Difference
21st century-Tokenized uh stocks
This is not a new idea
"In a form of what is now considered illegal front running and self-dealing, a bucket shop holding a large position on a stock, and knowing a client's vulnerable margin, might sell the stock on the real stock exchange, causing the price on the ticker tape to momentarily move down enough to exhaust the client's margins. Through its opportunistic actions, the bucket shop thereby gains 100% of the client's investment.
The term bucket shop came to apply to other types of scams, some of which are still practiced. They were typically small store front operations that catered to the small investor, where speculators could bet on price fluctuations during market hours. However, no actual shares were bought or sold: all trading was between the bucket shop and its clients. The bucket shop made its profit from commissions, and also profited when share prices went against the client.
Bucket shops were made illegal after they were cited as a major contributor to the two stock market crashes in the early 1900s."
Not bad for the 1st decade of a long story.
Those AAPL tokens are not insured by the SIPC…
They are synthetic assets that track the price.
The fact that there are no dividends or voting rights means they should be worth less for anyone that can purchase the actual asset.
On one hand, the crypto-economy is still too small to represent the same kind of systemic risk that took down the banking system in 2007/8, so there's less urgency to do anything about it.
Additionally, both governments and regulators, in the US at least, tend to prefer to let new technologies incubate and evolve for a time before regulating it more strictly.
On the other hand, it's too small to have the armies of lawyers defending it that the banking system does, so it's an easier target for regulators looking for wins than Wall Street is.
The SEC, CFTC, Treasury are all looking at it in the US and doing some triage regulation, only going after the most blatant and worst problems atm. I'm sure they'll step it up if/when the crypto-economy continues to grow.
Let’s say the government outlaws Uniswap tomorrow and throws the entire team in Supermax prison for life. The protocol will just keep running forever. There’s nothing that can be done unless the government can shut down every Ethereum node in the world. Even “outlawing” Ethereum in the US wouldn’t work, unless they put in a Chinese style Internet firewall.