Decentralised finance is booming, but it has yet to find its purpose
economist.com
economist.com
Bitcoin is for those who blame and antagonize the government and the Fed, as well as the IRS.
Ethereum is for those who blame and antagonize big platforms such as Facebook, Google, Youtube, but also JPMorgan, RobinHood, Bank of America.
People who gravitate towards bitcoin are the Liberatian types, they are extremely scared of inflation, money printing, government overreach, they hate taxes, IRS, Customer due diligence laws, KYC etc.
They think Bitcoin is the way towards techno-utopia and that the single, most impactful thing you can do to reach techno-utopia is to base the entire global financial system of on Bitcoin, so that its inherent scarcity, deflation, no-taxation and freedom would enable countless of positive externalities and effects downhill.
People who gravitate towards Ethereum on the other hand are the Silicon Valley types: they don't have strong belief with regards to government , they don't spend too much time worrying about government at all. They spend time worrying about themselves and their surroundings.
They are concerned with 2 things:
1) Escaping personal irrelevancy by creating products/services that people will use , but always within the framework of the government
2) Productively channel their inner hatred towards existing products/services, and I'd also add their personal hatred towards the successful creators/administrators (eg. Zuckerberg, Jamie Dimon, Vlad, Ken Griffin..). All that in order to convince themselves, their co-workers and most importantly the public that such old institutions not only can be disrupted, but need to be disrupted ASAP because they are evil, and their creators/administrators are evil, and if they are not disrupted they'd cause harm and spread evil.
However, please keep in mind that they are generalizations. There are a ton of people in the space that are simply fascinated by the technology and looking to build something cool, and also people that are simply using crypto as a portion of their portfolio as it's been the highest performing emerging asset of our lifetime. There are also people that are just using cryptos as currency. There's countless reasons for being in the crypto space, and generalizing them to two simple groups is not quite accurate.
(Of course generalizations are never 100% accurate, but they can highlight a theme which is interesting to observe)
The same way the state does it: Paying them money.
> officials who willingly leave office when they lose elections or are fired
I don't think that will be hard in a DAO since the real power is with the DAO, not with any official acting on its behalf.
Anyway these kinds of questions and many more are why we need this playground, to discover all the edges and gotchas and find solutions.
Not so decentralized in the technical sense, but the motives are very similar.
The sad part is that much of crypto is owned by a very small number of whales, who can and do manipulate the market at will.
I really, really hope DeFi or something similar comes up to at minimum challenge the traditional finance institutions. This is very early stage, a decade or two from now, things might look different, hopefully better. There are lots of super smart people working in the space, even if 5% of them succeed, it might bring out some meaningful change
Banks telling us what we may or may not do with OUR hard earned cash is not OK.
For example, I had to close my Swiss bank account (I'm Swiss) when I spent a lot of time in the US (no green card or residency there).
I'm not out to defend traditional banks here, just saying that this is not something specific to crypto.
For what reason? How did they know you were there?
Your bank knows an awful lot about you.
Credit card transactions for starters.
The huge problem is that they are subject to these things called laws and fines and government pressure.
Until there are none left. Reports on reddit suggest most are affected.
Remember UK doesn't have a bunch of small regional banks like the US
These are the building blocks of more interesting stuff that will come later.
SocGen, the 3rd oldest French bank recently put up a loan request on the Maker forums for 20 mil backed by bonds iirc.
exciting times!
Let it grow organically. The more that people throw shit against it, the stronger it gets. I wouldn't expect bitcoin to replace something as large as gold, without a huge fight. It has to win on its own merits.
Really, it is the story of bitcoin from day one. Those who got in early got all the rewards. Those who didn't... well... will pay nearly any price for it.
Free? I only know of Robinhood and that's only for US, and you get frontrun anyway. If you are interested in holding equities only for value appreciation then I can understand DeFi not sounding that interesting. But if you are into saving, lending, leverage or market making then it should at least tickle curiosity.
More: https://www.nerdwallet.com/best/investing/free-stock-trading
Also I recommend subscribing to Matt Levine’s email newsletter. He covers stuff like this and is also very funny.
We should be careful with these claims in this context.
The layer 1s that have sub-second finality tend to be heavily centralized either relying on a very small pool of DPoS-backed and I slash able validators, or a completely centralized protocol component (relay) that is a trusted component of the system.
They get low fees and speed by keeping central control, but unlike the large brokers we’d traditionally use. The difference is that they don’t protect their users or have any consumer protections while still having the same ability to censor you or extract value from you.
Layer 2s can solve this, but they currently have training wheels on which give operators a high level of control (in some cases, they can freeze assets). Once training wheels are off, layer 2s will give us low fees and fast finality while users are still protected from having their assets frozen or stolen.
>Free? I only know of Robinhood and that's only for US, and you get frontrun anyway
any sources for this? AFAIK they make money off the bid-ask spread, but you're guaranteed at least the NBBO.
Robinhood Crypto does not guarantee you the NBBO because the NBBO doesn't exist.
Yeah sorry, I was pattern matching on "robinhood frontrunning" and didn't take the fact we're talking about crypto trading into account. With that in mind, they're not front running you, they're just providing worse rates and making money off the spread. It's basically how the "no commission" currency exchange places you see at airports works. They sell EUR to you at 1.15 EUR/USD, but they buy EUR from you at 1.10 EUR/USD.
Due to the nature of x*y=k pools, the spread would just be 2x the fee (but increases based on how much you transact vs how much liquidity there is). Or you can think of it as 0 spread with 1bps fees on both sides for the usdt/usdc pools.
This is quickly being solved with modular blockchain architectures. If you haven't read about zkrollups yet I suggest looking into that. While still in early stages transaction throughput on Ethereum has scaled from ~13 tx/s to ~2500 tx/s with rollups.
If you time it right it's more like $40-50. Not great, obviously, but it isn't "hundreds".
And ultimately, the problem goes away when centralized exchanges provide direct on-ramps to L2's -- which is already happening with some smaller exchanges.
If you want or have a need to add more funds to trade with, then it's an additional bridging fee, but not every tx is $40-50.
Those "free" trades may be costing people more than having a 'traditional' fee, and claiming otherwise will get you fined for false advertising as Robinhood found out:
> The Securities and Exchange Commission today charged Robinhood Financial LLC for repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer orders to them, and with failing to satisfy its duty to seek the best reasonably available terms to execute customer orders. Robinhood agreed to pay $65 million to settle the charges.
* https://www.sec.gov/news/press-release/2020-321
Further, I'm not sure 'free' trades may not be a good thing: it's long been observed that the more active a person is in trading, the less they tend to generally make compared to market averages. Some friction in trading seems to be a good idea as it forces one to actually consider the action you're about to take and whether it's actually a good move.
The dynamic here is to pull in tons more retail investors, all of whom are at a disadvantage compared to firms. Robinhood is a gambling app marketed as an investment app, and we should start regulating it as such.
Random is not actually all that bad! I got what I wanted. Professional traders will prefer to trade against random traders because trading against someone who actually knows what’s going to happen is bad for them. This means trades by random traders get sufficiently subsidized that trades are free for us.
When buying or selling we often pay for convenience, and when the cost is very low, it’s not worth worrying about. In just about every other business, the prices we pay for convenience are a lot higher.
Is this true? My understanding is that Robinhood was fined millions for taking more PFOF (vs price improvement) than they disclosed. At no time were they below NBBO for the vast majority of their trades—the difference was just that they were only giving consumers 20% of the better then NBBO prices they were getting, which was lower then many other broker-dealers, and taking the other 80% of the spread for themselves. From the SEC order:
For most orders of more than 100 shares, the analysis concluded that Robinhood
customers would be better off trading at another broker-dealer because the additional price
improvement that such orders would receive at other broker-dealers would likely exceed the
approximately $5 per-order commission costs that those broker-dealers were then charging. The
analysis further determined that the larger the order, the more significant the price improvement
losses for Robinhood customers—for orders over 500 shares, the average Robinhood customer
order lost over $15 in price improvement compared to Robinhood’s competitors, with that
comparative loss rising to more than $23 per order for orders over 2,000 shares.
99% of people are coming out ahead with robinhood.
Free might be too expensive. We don’t need to stop there. They might be making enough money to pay us.
Just like Facebook and google are free, they could pay us to use them with the profit they make from us.
I deal with a credit union and they pay me $5/yr for having an account (well, I did buy a $5 share to become a member).
Why does one of the brokerages not pay us then? Did they all sit at a meeting and discuss with each other that they should compete until it is free, but to cease competing after that?
I'm not trying to be difficult, I'm honestly asking, has someone changed market structures in a way to eliminate those functions? Things like timed, incremental markets and filling all orders at vwap have been suggested and sometimes tried in the non-crypto space, but I don't think it's ever worked...
The purpose of trading is to get money, not to share it.
While China offered a centralized solution to p2p payments, the concept of paying for everything digitally is already ingrained into their culture. Stable coins are not far off from that.
Instead of getting a "cash rebate" by giving up all of our information to credit card companies (they are making a whole lot more than they are giving back), we should be collecting interest on our holdings and spending it more anonymously. Most people won't need credit when they have collateral. That seems like a more entertaining future.
For example if I wanted to take out a loan, it'd take me days to weeks, high interest rates, and may not even get approved. With defi I can take out a loan in just a few minutes, no permission needed.
Also put aside your privilege and realize not everyone is in a first world country privy to the banking many take for granted.
You get to keep what you borrowed in the case of liquidation but your assets are gone.
Example. You have $1000 btc deposited in a lending platform, you can borrow up to 80%. You borrow $800 usd. You keep the usd no matter what. If btc drops to $850 then someone pays $800 (usd debt) and gets btc worth $850. The buffer is so assets never drop below debt value.
You could spend $800 but your total capital is $1000 vs $1800.
In my example, you would only be out $200 because you have $800 usd and the btc was $1000 when you put it in.
Even if you go get a loan from a bank, you need 20% equity and either collateral (this case) or co sign or proof of income. All collateral just the same. It’s just risked out to be possible to borrow many multiples due to the stability of real estate collateral.
In business loans, you have to put in 20% and the assets of the purchase are collateral.
It’s the same but crypto doesn’t have debt collectors since it’s not an org. Instead the collateral has to be in the system directly so they can automate liquidation.
This is a tool that lets you keep the car and get the $1k by mortgaging the car for the $10k. If car prices drop precipitously next month, you won’t get it back. But if they go up, then you have your car (now worth more than $10k) and you pay back the loan and keep the extra $1k you made too.
Perhaps you are familiar with house mortgages, etc. The closest thing a normal person would come to this is probably a HELOC.
As to why, there are any number of reasons.
- you can avoid capital gains in deposit since a loan is not capital gains. Pay for an expense or start a biz. Anything.
- you can keep your btc while borrowing usd and put it into a yield. 5-20% isn’t uncommon to earn.
- you can buy other coins with the usd to extend your exposure although risky.
- you can borrow any coin, not just usd, as an effective short. Borrow a meme coin and pay back same amount of meme coin later but it’s worth less usd now.
Compare this to say credit card borrowing rates of 20+%. Borrow rates are based on the coin but can be effectively zero.
The why is up to you. It’s just not something that is possible with the regular system because of lock out.
When you use defi for a while, it becomes clear how much the traditional system locks us all out.
I personally deposit usd to get 5+% apy and then borrow for investing or expenses.
No, it's only obvious that people haven't thought through their supposed solutions.
If all we had was Defi, someone would have this glorious notion of inventing a regular centralized system and we'd all be the richer for it.
Our monetary system works pretty well. Some things are a bit tricky, but otherwise it's fine.
We've been believing that story for years.
Convenience and simplicity (from the user's perspective) is a big factor too. Crypto exchanges solve this problem, but then we're back to square one in terms of trusting an institution, rent seeking etc.
- Your government can freeze your assets on a whim, because you criticised the wrong people or exposed some of their institution's crimes ( whistleblowers ).
- Destroy your business in an instant, by cutting you off from funding and other services for whatever reason they deem appropriate.
Every system has its pros and cons, but I totally understand why people are excited about defi.
Finance can IPO a startup so that it can hire people to write code and use that code to make money.
Finance can let a farmer enter a contract to sell his future crop today, when he’s buying seed and fertilizer, without worrying that the grain price will plummet.
Insurance — finance’s cousin — moves risks using money, so your life won’t be ruined forever if your crop dies or your house burns down.
I'd only add that assessing risk, that is, assigning a numeric and subsequently monetary value to the likelihood that a prediction will not happen in the future, enables this to occur. Without being able to move risk around you cannot move money through time.
In fact I'd go so far as to say all of finance is about managing risk because assets (all loans are assets)/financial positions generally fall on a line from <not risky, low-yield> to <risky, high-yield>. This is true for both aggressive speculative hedge fund managers and conservative banks. Everybody (who knows their shit) is following the Kelly Criterion in some way as a result, even if they may not know it. And your competitive advantage as a financial entity is generally to price risk better than other market participants.
This still benefits the public because by pooling, commodification of financial instruments, and accurately assessing risk financial entities are able to compete against each other in a mostly-open market leading to competitive and fair pricing.
Or can anyone post job posts? [0]
But I imagine a government's point of view on a cryptographically verifiable way to associate a property with an individual owner and a transparent history of ownership and built in fraud protection is very positive.
Humans are the weakest link in any realistic security model.
That's the point, a blockchain doesn't solve this.
So what do you think it brings in this case?
For example: Greece is still in the process of trying to centrally account for ownership of land [1]. There are certain regions where that was accomplished many years ago (e.g. some of the former Italian possessions in the Ionian, where the Italian-era surveys were accepted by the modern Greek state). But in many regions, property boundaries are still informally demarcated and based on oral tradition, which not everyone agrees on. The difficult part is that aspect of it: agreeing on who owns what, and precisely where the boundaries are. Once everyone agrees on the results of surveys and demarcations, actually tracking the result in a ledger is comparatively easy, as evidenced by the fact that nobody has trouble retrieving 19th-century Italian property ledgers.
[1] https://int.ert.gr/greek-land-cadastre-will-be-complete-by-f...
There have been pilot projects in countries like Sweden and India and even the US. Wyoming has been a test area for the US since 2018 and looks promising.
https://www.yahoo.com/now/overstock-subsidiary-put-wyoming-c...
Also, is transparency is a problem that needs to be solved for land records? That is, what are we missing now?
For redundancy, decentralized is either inefficient or insufficient. There has to be something motivating various someones to maintain the infrastructure. That is, money. Since the resources can’t be planned or organized, you can’t have the right amount — there has to be a wide, general incentive or you risk having too little, redundancy. That means either a bunch of money spread all over or a significant risk the decentralized data will simply stop existing.
And then there are the issues with a decentralized ledger. E.g., what so you do when it is out-of-sync with the legal authorities? Say I swindle you out of your keys and transfer the blockchain deed to your house to myself. I end up going to jail and am ordered to return the property. Or maybe you sue in civil court and obtain a legal order to recover your property. Only I refuse to transfer it back, or loose my keys and can’t transfer it back, or die without transferring it back. Now there’s a decentralized blockchain that is wrong and can’t be corrected. After all, if it could be reliably corrected at the order of a central authority it’s not actually decentralized.
I don’t know how this can be considered promising without a solid plan to address the various issues.
I've been able to find references to pilot programs in Sweden, Ukraine, and Georgia (the country), but is there anywhere that's actually adopted it such that a blockchain-based registry has the same force of law that a traditional registry has?
I'm particularly curious how a registry would handle an “I lost my private key” scenario. As I see it, either the blockchain is absolute and losing keys would mean losing the land, or there's another authority who can override the blockchain's version of the truth. In the latter case, it kind of obliterates the advantages of a blockchain.
A blockchain-based registry would prevent such forgery. A master key holder could change ownership, but not without a visible record of the change.
And if land ownership was actually enforced based on cryptographic proof, then this attack would work even better: https://xkcd.com/538/
Here are two more recent articles from The Economist, the first on the general problem (not all of which can be solved with a blockchain) and the second specifically on applying blockchains to the problem.
And if you don't mind a link from Reason, here's one with a specific example of the issue I'm talking about:
> Currently, Honduras stores its title records in a room at the bottom of "dusty stairs" in a "nasty old government building," Factom CEO Peter Kirby said in an interview last year with Reason. Until recently, the room had no door.
> "Anybody could go in, pull down a book, open up the spine, and replace a title record with a new title record," Kirby said. Some government bureaucrats have altered the records to assign themselves beachfront property.
https://reason.com/2016/04/30/bitfury-desoto-blockchain-land...
In other words, you might as well ask "what difference do notarized documents make?" Anything we can do to establish reliable documentation helps the enforcers of property rights do their job. Blockchains provide reliable records even when you can't trust a critical mass of low-level human record keepers.
(And I'm not making this stuff up, see the links I posted in a cousin comment.)
Who cares? The record is entered by a government official. That's it. The land bow belongs to whoever is written the record. Blockchain doesn't help here at all.
There are also multiple other cases around land ownership that blockchain proponents don't consider because blockchain proponents en masse have no idea how reality works.
But I suppose when double-entry bookkeeping was first introduced, it faced a lot of dismissive snark as well.
Where I live the tax agency has no problem having transparent records of everything that happens. And yet tax evasion is an enormous problem. Recordkeeping is not the reason why people evade taxes and why they won't stop. Same thing with a violent police force or corrupt border police.
It's a computer system where you enter records. That's it. These poor high-level government officials that can't do anything could already have implemented/procured such a system without blockchain. They haven't.
But sure, they are only lacking blockchain to make this magically happen.
Edit:
> Unlike the skeptics here, I've provided reference supporting these claims.
If you refer to pilot projects using blockchain in some countries, these are nothing but scams looking for easy grant money, don't solve the actual problems (especially not in countries with bad record keeping), and can be implemented faster and more efficiently with any other tech.
As an example, this mini-thread on land registries in Afghanistan: https://twitter.com/dmitriid/status/1386994745218584580?s=20
Also this discussion: https://news.ycombinator.com/item?id=27212564
And this lower down: https://news.ycombinator.com/item?id=27217681
How's that for references?
Those comments have real problems that none of the blockchain "magic" can solve. And, of course, the moment actual real problems are discussed all the crypto shills just disappear into the thin air.
By putting registry data on the blockchain and allowing anyone to independently verify state of an immutable distributed database makes it much harder to get away with the corruption.
You're not going to find experiments quantifying this corruption; you'll find lived experiences and anecdotes coming from the same countries with the similar MOs.
Blockchains don't solve the problem of a police captain knocking at your door telling you that if don't go through with a shitty deal your son isn't coming back from school the next day.
You're assuming the government is a monolithic entity, either corrupt or not. The truth is that often corruption is widespread but there are people at the top trying to fix it. That's not an easy task, and it's where keeping good, unforgeable records can help. That's why several governments are in fact running pilot blockchain programs.
Of course no references! Do you think even local journalists cover these things? Are you wrapped in a first-world bubble where you've never heard of local land rights being fought over? You've never met people from third-world countries willing to tell you about their fights with getting basic property rights enforces?
> You're assuming the government is a monolithic entity, either corrupt or not. The truth is that often corruption is widespread but there are people at the top trying to fix it.
I know enough governments officials in sufficiently high-enough places to know that there's people at the top who want to do the right thing.
> That's not an easy task, and it's where keeping good, unforgeable records can help.
This is where things are wrong. Where I live there's tons of illegal construction, disputed properties, and illegal sales. Recordkeeping has never been the issue; the issue is that legal disputes can take decades to settle with no particular recourse even for egregious lawbreaking.
You can probably solve this with multiple signature wallets. So you have some relationship with custodians where none of them independently can transfer ownership but a certain number of them would be required to do so. These custodians could be contractually obligated to act on your behalf. They can have their own policies for verifying ownership. It's more decentralized than our current system and courts could still play a role in disputes.
You have the issue today where ownership is difficult to determine ownership. You can tell how broken the system is when you have to pay title insurance regardless of the strength of your claim today in all (?) states. And the fee is 0.5% to 1% which is considerable. Some states even impose a minimum fee for title insurance and only allow a handful of politically connected insurance providers to offer this product.
Of course politicians wouldn't like this solution because the companies already in the system don't want efficiencies and lower costs and they contribute to campaigns. While homeowners don't feel that strongly since although considerable when buying or selling a home, it not top of mind or a frequent occurrence.
Your title/escrow representative will definitely throw a bunch of FUD at you if you decline to purchase though, cause it's a very profitable product for them.
And then, the owner gets no benefit from it either. In the case of sales, you're still going to go through the state to certify the sale (with an actual, physical person). In the case of terrain where ownership is still blurry (which is already the case in lots of places in Europe, so the absolute fucking mess in the rest of the world is just a nice wrench in your plans), you still need a physical person to look around and figure out who it belongs to for months, before making a decision. Your blockchain doesn't help.
Blockchains are shit, expensive databases, part 342
Land ownership is already public record in many jurisdictions including I'm guessing all of those now using blockchains.
“Show me real decentralised apps with users?” A. DeFi Q.”that’s just moving crypto around, what else?” A. NFTs Q. “That doesn’t count”
You’ll keep doing this until X is on crypto making money. What’s the data point that would convince you ? Tell me honestly ? What is X where this sort of question stops making sense?
Cryptocurrency-related crime fell sharply in 2020 to just under $10 billion worth of total transaction volume. With non-illicit transactions also rising, just 0.34% of all cryptocurrency activity in 2020 was related to crime. [1]