Month: September 2020

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Real-World Crypto

China and programmable money – Part 4

(Part 3)

The following examples from Bits and Blocks, Electric Capital and Bankless:

Compound and Aave.. protocols allow people to pool their tokens together and loan them out, earning interest. This interest is captured by yet another token that can be traded secondhand (“cTokens” and “aTokens”). In essence, these lending pools are like legacy money markets, except they are distilled into a programmable money lego which can be composed with other DeFi protocols.

Staked has a protocol that dynamically deposits and withdraws tokens into/from lending pools, seeking the highest yield. Called “Robo Advisor for Yield”or RAY, it is a protocol built on top of protocols built on top of programmable money.

Liquidity providers pool two or more tokens together into a smart contract. This smart contract has logic that enables it to trade autonomously with the rest of the market, earning fees for liquidity providers in the process.

One of [a Ghanian mango farmer’s] big pain points is the volatility of mango prices on the global market. In the future, apps that enable hedging mango prices via futures and options will be trivially easy and something that even small businesses can do. This may sound speculative, but we are already heading down this path.

You can even put constraints on wallet balances or money flows. For example a recipient’s balance can’t exceed $2,500, or any payment can only be made up to $50, or any account can only send or receive a total of $1,500 per day, or whatever.

To come full circle, we return to use cases for central bank use cases. Meltem Demirors, a writer on a number of decentralised ledger tech topics, demonstrates these with the example of a digital currency proposed by Cambodia’s central bank NBC:

Reducing Dollar Dependence: Because the central bank can now exert control over the mix of assets that make up the Bakong system’s native token – which is currently set to include USD and Riel, but in the future, could include a broader mix of currencies, the NBC can start to actively monitor and manage the impact of monetary policy set by other central banks, most specifically, the US.

Influencing Current Account Balances: NCB will now have a way to manage financial flows into and out of the country and a way to manage the basket of currencies that makes up these payments, presumable working to minimize its economic dependence on dollars and optimize its own currency’s competitiveness.

Economic Data Gathering and Controls: Lastly, its important to note that anyone participating in the Bakong system will be required to attach their digital wallet to the bank account in order to exchange payment tokens for currency, and back.

This gives the central bank a few levers of control including

levying tax on these flows that have historically happened outside the system, limiting daily transactions between wallets, or perhaps even blocking certain individuals from using the digital payment system.

(ends)

Categories
Real-World Crypto

China and programmable money – Part 3

(Part 2 – What could programmable money look like?)

Contrasting the existing system of electronic money with true programmable money

First, this excellent post from Bankless, a newsletter about ‘crypto finance’ makes an important distinction:

digital money is not programmable money. Currently, money exists as an entry in an ad hoc confederation of private ledgers our society refers to as “the banking system”. The banking system is replete with unnecessary redundancy and a commensurate level of inefficiency. Although the legacy system is electronic, it merely digitizes a process that was designed during a time when money was explicitly tied to a physical asset, gold. Banks stored the gold in their vaults and rather than physically settle every transaction with hard currency, they kept track of transactions on their ledgers, netting out inflows and outflows…. It is a miracle that my Visa card issued by a small US bank still works in a place like rural Tajikistan. The success of companies like Visa, Stripe, PayPal etc show just how hard it is to interface with the legacy system. And their healthy profits show how much we are willing to pay for the added convenience.

and, memorably, this

Trying to imagine the future of human commerce at this point is a bit like Renaissance merchants in Florence trying to visualize Standard Oil.

From an essay on the crypto-focused site Bits and Blocks:

My Citibank-dollars are legally, and practically, a different instrument to your JP Morgan-dollars. My Citibank-dollars are a legal agreement that Citibank owes me dollars; your JP Morgan-dollars are a legal agreement that JP Morgan owes you dollars… The result is that money, controlled by all of these different entities, is all different and behaves in different ways.

Think how hard it is to implement anti-money-laundering rules across the board. Every participant has to attempt to apply the same logic. Every. Single. Participant. No wonder it’s ridiculously expensive, and has many gaps.

What makes money programmable

More by Bits and Blocks:

Now you can create money where the money itself has control logic built into it. This is done at the smart contract level. A smart contract is typically a bunch of code that is run by all participants in a blockchain network. It that defines:

* The characteristics of the money (how many units there are, who initially owns it, etc)
* How users can interact with the money (ask for a balance, make a payment, etc).
* The constraints are coded into the second part of the smart contract, so that all payment requests are subject to those constraints – no matter who is in control of the money at the time…

Vinay Gupta, one of the original members of the Ethereum team, writes

[Ethereum is a] universal computer which is accessible from anywhere by anybody, and (critically!) which always gives the same results to everybody. It’s a global resource which stores answers and cannot be subverted, denied or censored.

This, as he says, is a big deal when it comes to money and policies about money and securities. Of course, in the case of the Chinese government’s – or any central bank’s – digital currency, the total ownership of the chain has the opposite results, that unlike cash, digital currency can always be denied or censored.

(Part 4 – more examples of programmable money)

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Real-World Crypto

China and programmable money – Part 2

(Part 1 – China’s proposed pilot of its central bank digital currency in Hong Kong)

Currency is typically agnostic of how it is used. It’s a store-of-value and a medium-of-exchange. Banks’ accounting systems built on top determine whether deposits will bear interest, and if so, how much.

Ditto for credit. Each bank and nonbank lender implements its own loan accounting system that’s tied to it. This is why transferring a loan between two lenders, or between two borrowers is cumbersome. With programmable money, either a lender or a third-party could create credit tokens that represent aspects of a loan: interest rate, lock-in, transferability, a claim on other (similarly digitised and programmable) securities, and so on. Buying and selling loans, combining them, trading them could become a lot simpler.

With programmable money, ideas that today seem outlandish could become much more commonplace in the future. Sticking with credit, you could borrow money from another person, like today’s P2P lending, with your repayments sent directly to the lending person’s account as Didi ride credits, because that’s what the lender chose to be paid in – they take a lot of rides and this is a nice way to have their Didi wallet topped up with a known amount every month.

Take this further. The friend could ask to be paid in a mix of Didi credits, Starbucks credits, and a mutual fund investment, because all have been securitised via the central bank digital currency contract standard.

As for the P2P marketplace where this loan originated, this illustration bypasses the marketplaces’ role as both the matchmaker and the facilitator of the loans – in this new world, they focus solely on matchmaking innovation. Their fee, which would typically be a % of the final loan amount, would be paid out in interest-bearing tokens as well.

(Part 3 – Around the Internet on programmable money)

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Real-World Crypto Uncategorized

China and programmable money – Part 1

Bloomberg reports that Hong Kong will trial China’s upcoming digital currency:

In trials in Shenzhen, Suzhou, Xiong’an and Chengdu, the digital yuan has relied on banks for distribution. The People’s Bank of China gives out the tokens to state-run lenders, which transfer it to customers’ mobile wallets when, say, a municipality pays workers. However, this money isn’t part of bank accounts. A digital yuan transaction from Hong Kong can go global, bypassing both the dollar and the heavy fees of correspondent banking channels, which are under American surveillance and control. Payment can be received in Europe or America as private stablecoins such as the ones Facebook Inc.-sponsored Libra Association is planning…

a recent Brookings Institution paper found that the People’s Bank can issue tokens that carry interest rates. This could be a new way for people.., to take out mortgages — directly from the Chinese monetary authority.

Very recently, the mobile app of one of China’s largest banks temporarily surfaced an interface to set up a digital currency account and send/receive digital ‘money’ to/from this account. The same site CoinDesk had reported the ridesharing app Didi’s public statement that it would trial the use of the digital currency as well. So the issuer (central bank), providers (banks) and use cases (merchants/businesses) are all part of the trial. Despite all the concerns about a parallel money system, this is going to be exciting to watch.

It’s also becoming clear that this isn’t a typical blockchain-based system, as early reports had had it – and with China, it was hardly going to be decentralised. But the reports of interest-bearing tokens does mean that there are elements of programmable money, which borrow from smart contracts.

(Part 2 – A simple, entertaining but ultimately useful example of what programmable money could look like)

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Uncategorized

The brokenness of IPOs

The venture capitalist Bull Gurley published a great long read comparing the traditional IPO process with the more recent direct listing process and with Spacs or special purpose acquisition companies, of which there have been some recent high-profile examples.

I found the details of Spacs somewhat hard to follow, but the bulk of the article is readable and darkly fascinating. He describes just how inefficient the IPO process is for both the company going public and ordinary investors buying into the newly public company.

In simple terms, the intermediary investment bankers set the listing price below what they estimate its market value would be. This is so that private investors, typically clients of the investment bank, who buy into the company right before it goes public have a rise in price, and the investment bank itself, which facilitates this. This is unfair to most retail investors who now buy at the much higher market price, and to the company and its promoters, who are giving away equity to these pre-IPO investors at a price lower than what it will (shortly) command.

You are told the “optimal” target is to be 30X over-subscribed. This is not a joke. You are told that you actually need 30X more orders than you actually plan to sell. This is an explicit admission that they plan to ignore 97% of the actual orders and fill only 3%…

Now imagine you are selling any other asset, be it a piece of art, a home, a piece of software, or perhaps your car. Where would you have to price that asset to ensure that 97% of the people that considered that purchase would make an offer, and you would have 30X more demand than you need? It is truly tautological that underpricing is happening, because this flawed process is being used by each and every investment bank… it is increasingly hard to understand how a board of directors can legitimately exercise their fiduciary duty, while subjecting the company to such a structurally backwards approach…

Who benefits from underpricing? Clearly the people that are handed the shares in the hand-chosen allocation process. On the IPO process the underwriters are agents for both the company and the buyside (the shareholders who are allocated shares). The IPO may stand-alone as the only very high-dollar transaction in our world where a single agent represents both sides of the transaction.

Categories
Wellness when Always-On

Asana

In the early days of the task- and project-management software Asana, I had been interested in a number of public statements made by the co-founder Dustin Moskovitz, also a Facebook co-founder, on calmness and deliberation while working, and how that influenced their product decisions. That resonated with me enough to try it out in the business unit I ran in 2011-12.

From then to now the company has mostly flown under the radar. Now it’s getting some press as it files for its IPO. One of those articles once again covered their company culture:

Internally, Moskovitz and Rosenstein took their time crafting their idealized corporate culture. They interviewed experts, brought in executive coaches and tapped a diversity-and-inclusion officer and a “head of people” over the years to get it just right. Moskovitz, who spent years studying Buddhism and leadership strategies, set up a company org chart with himself at the bottom, to represent the trunk of the company tree. Asana eschews traditional executive titles and instead makes people heads of a particular topic or business outcome. Moskovitz says it’s only right that a company focused on better teamwork invest in it as well: “We want to practice what we preach, figure out what’s best and export that.”

Along the way, Moskovitz leveled up as a leader, too. Known for his temper as a twenty-something at Facebook, he says he has learned not to agonize so much over setbacks. He invokes a saying from mindfulness expert Jon Kabat-Zinn: “You can’t stop the waves from coming, but you can learn to surf.”

Categories
Wellness when Always-On

Burnout and distraction

From the venture capitalist Fred Wilson, writing about something I have experienced first-hand myself:

I’ve gone through a few periods of burnout in my career and it was usually brought on by a string of painful failures. I’ve watched others navigate that similarly. If you are heavily invested in something that doesn’t work, it hurts. And the more the investment is of yourself, your time, your enthusiasm, the worse it is.

I’ve gotten out of these periods of burnout by turning my attention to something else. Crypto was helpful for me back in 2013 and 2014 when I was going through one of those periods. It was something new that I could throw myself at, that was different, and that was working.

The first time I experienced burnout I spent time laying the groundwork for an India-specific Demand Side Platform for ads. This is before my current thinking on privacy and anonymity evolved to what it is, and in retrospect I’m glad I never built upon that work. The second time, with burnout combined with poor mental health, I spent time on the Someone To Talk To chat application that we recently discussed.

Categories
Decentralisation and Neutrality Privacy and Anonymity

Pi-hole

We’ve discussed home-network-wide ad-blocking a few times before. Every few weeks I’ll remember that I have have had a Raspberry Pi attached with twine to my home router, running pi-hole silently, for a few years now. I’ll login to the web interface and dwell on how well it does the one job it was created for. This is one such time.

It tells me that over the last 24 hours, a typical day, one in every seven requests was to an ad network or tracker. And that the numbers really add up.

I also see that it replies to 16% of queries from its cache, and a little over 8% are queries from itself – the pi also does some file syncing for me. That means 14 + 16 + 8 = over 38% of queries don’t need to be resolved by the public internet. It’s a rough measure of how much more efficient the Internet feels at home.

Finally, it reminds me just how many devices we have at home that connect to the internet. Two phones, two iPads, a PC and at least one Mac, the Pi itself. That just ten years ago most of us had no tablet and used either a dumbphone or a smartphone that had no meaningful wireless syncing. Everything was on one laptop we carried around everywhere. That today we are firmly in a multi-device world.

Categories
Making Money Online

When your work network is no stronger than your other networks

In a free flowing look at how the move to remote work will impact cities, the office, the way people approach a job itself, even politics, I found this interesting:

Working from home, our connection to the office weakens, and our connection to the world outside the office expands. At the kitchen counter, hunched over your computer, you are as close to the people and communities on LinkedIn, Twitter, and Instagram as you are to the Slack messages and chats of your bosses and colleagues. By degrees, the remote experiment can weaken the bonds between workers within companies and strengthen the connections between some workers and professional networks outside the company.

With the effect of

I am alone, and I might as well monetize the fact of my independence. A new era of entrepreneurship may be born in America, supercharged by a dash of social-existential angst.

Categories
Real-World Crypto

Blockchain and incumbents obviate, seek blessing or ignore?

The security writer and author Bruce Schneier, in an article about blockchain that we will refer to in a future post:

I listed [in his book Liars and Outliers] four very general systems our species uses to incentivize trustworthy behavior.

The first two are morals and reputation. The problem is that they scale only to a certain population size. Primitive systems were good enough for small communities, but larger communities required delegation, and more formalism.

The third is institutions. Institutions have rules and laws that induce people to behave according to the group norm, imposing sanctions on those who do not. In a sense, laws formalize reputation.

Finally, the fourth is security systems. These are the wide varieties of security technologies we employ: door locks and tall fences, alarm systems and guards, forensics and audit systems, and so on.

Then he paraphrases another writer who described four trust architectures:

 The first is peer-to-peer trust. This basically corresponds to my morals and reputational systems: pairs of people who come to trust each other.

His second is leviathan trust, which corresponds to institutional trust. You can see this working in our system of contracts, which allows parties that don’t trust each other to enter into an agreement because they both trust that a government system will help resolve disputes.

His third is intermediary trust. A good example is the credit card system, which allows untrusting buyers and sellers to engage in commerce.

His fourth trust architecture is distributed trust. This is emergent trust in the particular security system that is blockchain.

This immediately brought me back to a recent post, where I said that blockchain-based solutions that tried to reinvent parts of the regulated financial system were doomed to face heavy opposition from regulators and incumbents. This makes it clear why. Regulators are institutions, representatives of leviathan trust above. Incumbent players in finance are intermediaries, pillars of the third trust system above.

A blockchain based system that looks to obviate the need for either of these systems is going to be blocked by both of them. A blockchain based system that seeks the blessings of either of these system renders the blockchain superfluous. It follows that blockchain use cases that will really succeed are those that are either unregulated, or existing regulation has utterly failed at.