Category: Real-World Crypto

Interesting:

Unicas will be providing banking services for both fiat and crypto assets. Services include savings accounts, crypto exchange, crypto loan and debit cards to spend crypto. Users may receive an instant loan digitally by depositing crypto assets in the Unicas wallet and requesting the equivalent value of INR on their card or bank account.

– UNICAS Crypto Bank Opens in India

Also interesting is that the bank is a joint venture between Cashaa of London and the United Multistate Credit Cooperative Society – certainly not a major Indian bank. This Mint article makes this important point:

Multistate Credit Cooperative Societies are regulated by the Central Registrar of Cooperative Societies rather than the RBI. No specific permission from the registrar is required for this

– Crypto platform makes banking entry in India with co-op credit society tie-up

It was the RBI that had forbidden banks in 2018 from providing any services to cryptocurrency exchanges, sending the crypto industry in India into suspended animation for two years before a Supreme Court judgement in March 2020 overturned it.

Also on Medianama:

… since neither the RBI nor the government has introduced new guidelines or restrictions on crypto investing, Indian banks have begun providing various services to domestic exchanges such as payment gateways, working capital loans and other facilities.

– Indian Crypto Currency Trading Volumes Grow 500% Since March

I find this WSJ article on bitcoin data very interesting:

The discrepancies in the bitcoin data reflect the nature of the industry itself. Bitcoin and hundreds of other cryptocurrencies trade on independent exchanges around the world. Every exchange manages its own data feed, comprising millions of trades. Some are regulated and transparent; others are notorious for unreliable volume numbers and fraudulent trading.

In traditional capital markets, exchanges like the New York Stock Exchange andNasdaq Stock Market provide troves of data that help investors value the underlying assets in mutual, index and exchange-traded funds. That doesn’t exist in the crypto market.

What mainly exists currently, he said, are market-data feeds that average prices across a number of exchanges. That makes it difficult to come up with an acceptable definition of fair-market value.

– What Is Bitcoin Worth? There Is Little Consensus in Fragmented Market

If paying with bitcoin had really caught on, transactions themselves would be denominated in bitcoin, goods would be priced in bitcoin, and one bitcoin would be worth, well, one bitcoin. But payments never caught on, and this decade has ended with bitcoin gaining popularity as a security, albeit a purely speculative one.

Now traditional securities, are made traceable by listing them on exchanges, where price discovery happens centrally. Peloton stock is listed on the NASDAQ, which knows what the matching buy and sell prices are at any time, which is the current price of the stock.

But bitcoin is not a traditional security – not only was it not designed to ever be a security, but it’s decentralised. There’s no Bitcoin Co that lists Bitcoin on a chosen exchange. Literally anyone can buy and sell bitcoin without any intermediary. A bitcoin exchange at its core is merely someone putting up a booth on the internet announcing that buyers and sellers can meet here to find each other more easily. Any number of people can put up any number of booths that do the same thing, no permission needed. The “independent exchanges” that the writer refers to is tautological – all crypto exchanges are independent.

I think the presence of multiple exchanges and the difference in prices on each one of them is a good thing, and attempting to legislate a standard price for bitcoin, for instance by forcing some centralisation, would be a tragedy. Bitcoin as a speculative asset and the exchanges that it trades on is a great free market experiment. There will be exchanges that optimise for different things – including swindling customers out of their money. But there will be others that relentlessly optimise for low price. Still others for transparency. Yet more for access. There will be multiple winners, not all necessarily competing with each other, each reporting different prices for bitcoin. That price will be reflective of their audience: exchanges in India have higher prices for bitcoin. That’s just the premium that Indians are willing to pay for access to bitcoin – prices across exchanges in India are quite close to each other. You could have a hypothetical exchange in, say, Germany that became known for manipulating buy and sell pools. As long as it offered something else – say, an exceptionally large humber of trading pairs – customers may well still trade on it. That price will be determined by the buyers’ balancing of apprehensions about manipulation on the one hand and the availability of trading pairs on the other. There is no parallel to this in highly regulated, centralised capital markets.

A single, indubitable price – until now a core tenet of any reliable security – may well be something we leave behind in the case of bitcoin.

The investor Chamath Palihapitya described how he claims to think about Bitcoin – as a hedge against the collapse of the financial system as a result of poor governmental policies:

Given the events of the last couple days, this clip about #Bitcoin from the Unchained interview with @chamath came to mind … if you missed the full episode be sure to check it out! pic.twitter.com/bbODjsKe4p

— Laura Shin (@laurashin) October 3, 2020

If the government itself just continues to make a string of bad decisions that then have rising consequences… Bitcoin to me is the only think that I’ve seen so far that is really fundamentally uncorrelated to that decision making process and to that decision making body. Because at the end of the day, any other asset class – equities debt, real estate, commodities, they’re all tightly, tightly coupled to a legislative framework and an interconnectedness in the financial markets that brings together many of the governments that are… behaving in this way.

So [Bitcoin] is almost like a bet against the ruling class in some ways and making sure you have a small amount of insurance because… insurance is not something that pays off 50 cents to the dollar, insurance is something that pays off… 1000 bucks to a buck. You want these massive, massive asymmetric payoffs because you want to be sure that a small amount of insurance can basically make you whole…

that’s why I just think that… you should take 1% of your portfolio, put it in Bitcoin, never look at it. Don’t look at the price. Don’t look at anything and hope that that 1% goes to zero. Then you have the 99%. But in the case where that 99% goes to zero, that 1% will probably be worth 120%. And you’ll feel like a genius.

(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)

(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)

(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)