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DeFi: a shell game at the speed of light
I’ve never understood how “programmable money” was supposed to be good in any way for ordinary citizens who just want to use money as currency.
I don’t see how anyone who’d ever programmed anything could think “programmable money” was a good idea. “Programmable money” really obviously leads directly to a financial hell world that no normal person at retail level would want exposure to.
For a worked example, see Decentralised Finance. The present state of DeFi is hostile bots that watch all transactions, and front-run anything that might be profitable — this is what “programmable money” always implied. [Medium]
HOW TO DESTROY ETHEREUM: use it for something. This cripples it every time. It’s not CryptoKitties — now it’s the DeFi bots bringing Ethereum to its knees, as transaction fees go through the roof. Perhaps Bitcoin maxis are getting into DeFi degeneracy to finally kill Ethereum. *taps head* [CoinDesk; Mine Digital]
Bots front-running everyone is a long-known failure mode of decentralised exchanges. Trades happen on-chain — so there’s arbitrage, miners front-running traders, race conditions, and slow order cancellations. And — despite being provably worse than a centralised exchange — the “decentralised” exchange is still controlled by a single entity. [Hacking Distributed, 2017]
Reuters covered DeFi last week — a pretty good mainstream outline. I spoke to them for this piece, though I didn’t get quoted — we seriously discussed whether there should even be an article, ‘cos suckers were going to see those juicy interest rates and dive all-in no matter how many cautions there were. [Reuters]
But it’s probably time for proper articles to be written — CNBC, 2017’s greatest public ICO minor altcoin publicists, are starting to mention this trash on-air. [Twitter]
In DeFi, the techno-gabble is turned up to 11, in the hope of fooling people into thinking there’s substance to this shell game. And it’s all obviously stupid, because crypto is still a derivative of actual dollars — nobody gets into crypto trading for any reason other than actual dollars — and the system is still cripplingly short of actual dollars. The DeFi craze is the ICO craze of 2017, with even less pretense at legitimacy. [Medium]
Sure, there’s an innovation versus scam dialectic. But this is crypto — so all the innovations are in scamming.
Just as crypto is speedrunning financial fraud, DeFi is speedrunning crypto fraud — and DeFi has hit the mania phase already. [Bloomberg]
There’s even new jargon for DeFi scams. “Rugpull”: an exit scam where you issue a worthless token, take the collateral and abandon it. The innovation is that you can come back to run a second, third and fourth exit scam. Dig this breathtaking chart for $HOTDOG: [Twitter]
$4000 to $1 in 5 minutes.
ok can you guys stop trading pic.twitter.com/cZRTBfyJj3
— lowstrife (@lowstrife) September 2, 2020
Australian Senate report on fintech
In Australia, the Senate Select Committee on Fintech and Regtech has finished its public hearings. There will be a report in March. What will it look like? Well, Senator Andrew Bragg’s press release says: “A perfect example is blockchain for farmers which would allow them to connect directly with their consumers and bring additional profit margin back to the farm.” [Press release]
The draft report is up. It draws heavily on the wisdom of the RMIT Blockchain Unit, and one of its positive examples is Power Ledger — whose article just got deleted from Wikipedia on the basis of being a pile of press-release churnalism, and the only genuine press coverage was about how Power Ledger was a scam. [Parliament House, PDF]
The substance of the report is that Bragg wants to promote “innovation” — payday loans but “fintech,” that sort of thing — and all his examples are scams blocked by existing laws that were put into place because people were pulling scams. [Twitter]
The draft report is 280 pages — but search “regulation” or “block” or “innovation” for the highlights. ICOs start on p84 (p108 of the PDF), and a whole blockchain chapter starts on p120 (p144 of the PDF).
I’d love Senator Bragg to get into DeFi, and lose ten times the price of his shirt — but these guys only gamble with other people’s money.
“”literally zero risk”” has to be my favorite new finance phrase
— CasPiancey (@CasPiancey) September 3, 2020
I didn’t notice this at the time — but in January 2020, Mark Zuckerberg posted his challenges for the coming decade: his vision for 2030. One challenge was “decentralized opportunity.” His example? In the astounding future, you might be able to … “send money home to another country instantly and at low cost through WhatsApp”! Not mentioned: that crypto he was starting, what was it called … [Facebook]
(Mark Zuckerberg happens not to have mentioned the word “Libra” in public since the October 2019 House hearing — except in direct response to questions on Facebook earnings calls.)
Libra has replaced its general counsel Robert Werner after 3 months — “I decided that the role wasn’t the right fit for me,” said Werner. He’d also have had to give up his board seats with Deutsche Bank Trust Co.
The new GC is Stevan Bunnel, who brings legal blockchain experience — he was in the group of lawyers that advised the Crypto Rating Council in September 2019 that a bunch of ICO tokens definitely weren’t securities! Probably. In October, the SEC settled with Block.One over EOS quite definitely being a security — less than a week after the Crypto Rating Council said EOS maybe wasn’t one, hopefully. We didn’t hear much from the Crypto Rating Council after that. [Bloomberg, archive]
The Reserve Bank of Australia won’t be issuing a retail Central Bank Digital Currency any time soon — because payment systems in Australia are pretty good, even in the pandemic. [RBA]
Andrew Bailey, Governor of the Bank of England, spoke on a Zoom chat today about cryptocurrencies, “global stablecoins” and CBDCs. The sound is not great — you’ll need headphones — but if this is your area, you should spend an hour on this video. Bailey’s speech starts around 9:35.
Bailey says that crypto assets such as Bitcoin “strike me as fundamentally unsuited to the world of payments, where certainty of value matters.” But global stablecoins, i.e., Libra, may have potential in retail payments — if regulated to the same standards as commercial bank money. Because retail is different to crypto trading. The global stablecoin should start as a single-currency coin, not a basket. Bailey lays down precisely what Libra — sorry, a “global stablecoin” — is going to need to do. [YouTube]
Update: The full text of Bailey’s speech is up: “Reinventing the wheel (with more automation).” [BIS, PDF]
Crypto folks: It's so hard to work with regulators.
Also crypto folks: Here's a way to get 2375% APY with DeFi. pic.twitter.com/MR8kCtqZjS
— let me know how i can be helpful (@vcstarterkit) September 2, 2020
Good news for Bitcoin
Tether finds its use case! Laundering money for North Korea. Another example of a Bitcoin “institutional investor.” [Justice Department]
You can buy credit default swaps against Tether’s solvency! The Opium derivatives exchange is offering this valuable hedging tool. They pay out if the price of USDT drops on a trading pair that isn’t specified in the story. Opium pays out in crypto, which strikes me as quite the counterparty risk itself should the default happen. Also, all the USDT/USD trading pairs I know of seem to be weirdly thin, and a bet like this might be trivial to rig. [CoinDesk]
J. P. Koning: 18 things about Tether stablecoins. [Blog post]
Bitcoin miners in Inner Mongolia are being cut off from subsidised electricity — they have to pay full price now. 5c/kWh is still pretty cheap on a world scale — but it’s a bit of a hit when they were paying 3c/kWh before. [CoinDesk]
The Swiss Canton of Zug is now accepting Bitcoin and Ethereum for payment of taxes, up to 100,000 CHF! They are, of course, being very sure not to touch a crypto at any point — “We do not take any risk with this new payment method, as we always receive the amount in Swiss Francs, even if payment is made in Bitcoin or Ether.” I’m guessing a pile of the crypto guys are well behind on their taxes, and Zug would like their money right now, thanks. [Press release, PDF]
It will never cease to amaze me that Bitcoin has engendered a whole new language to describe the various and clearly manipulative market schemes around it, that applies to literally no other commodity because other commodities have legally regulated markets.
— Jobson Hobson (@jobson_hobson) September 3, 2020
South Korean exchange Bithumb’s offices were raided by police on 2 September. Bithumb pre-sold about 30 billion won (about $25 million) of its own BXA tokens to investors, and then didn’t list the token. [The Block; Seoul Shinmun]
Tezos has settled with the class action that alleged their ICO was an unregistered sale of securities, and class members will get $25 million! Well, $16.5 million after legal fees. [CoinDesk]
The Australian Securities and Investments Commission has banned Louis Biggaton, a BitConnect promoter, from providing financial services for seven years. [ASIC]
Remember when you could stake BitConnect coins, and get more coins, and become a millionnaire in a few months?
DeFi is the same, but in a good way. First off, it’s not a pyramid scheme, because the name is different. And if you don’t get it, sorry, I don’t have time to explain.
— Trolly McTrollface (@Tr0llyTr0llFace) September 1, 2020
Bryan Herrell goes from his previous job as a forum moderator to a new, tenured position with the US Government, that includes room and board — because he thought ahead, and used the blockchain! Herrell worked on darknet market Alphabay, he was paid in Bitcoin, and he’s just been sentenced to a decade in jail for racketeering. [Decrypt; press release, January]
Four months after Binance acquires CoinMarketCap, the entire executive team has been fired. [The Block]
My current theory is that cryptocurrency’s widely popular asset bubble for 2021 was pre-empted — Covid-19 left a lot of people stuck at home bored, so they got into “real” stocks. The key point is that it’s speculation on speculation — completely disconnected from anything the real economy is doing. All the suckers Bitcoin was hoping for went and bought Hertz after it went bankrupt instead. Robinhood = Bitcoin 2020. At least Robinhood is now under the slightest bit of investigation. [Times]
This week’s worst attempt to boost blockchain collectibles with a license for something actually popular — Care Bears Go Crypto in the Sandbox Blockchain Game! ERC 721 non fungible, popular IP, 0% market crossover with crypto, buy into our crappy ICO, etc. Sandbox have sort-of-licensed a buttload of properties — you probably like at least one of them, right? Please buy a token. Please. [Medium]
The British Blockchain Association publishes “Evidence-Based Blockchain: Findings from a Global Study of Blockchain Projects and Start-up Companies” — finding that there is not, in fact, evidence that blockchain is good for anything. “Our study concluded that almost half of the blockchain firms show no explicit evidence of the problem to be solved. Approximately one-third fail to cite a comparison and intervention analysis, and less than 2% demonstrate evidence of outcomes backed by filtered (critically appraised, peer reviewed) information.” [JBBA, PDF]
Gabriel Shapiro on the trouble with being a lawyer in crypto. “I get how most lawyers either go native or become no-coiners.” [Twitter]
Christian Harrington: I Have Complete Financial Security Thanks To My Collection Of Beanie Babies. [Medium]
Goddamn, some auditors are very real with it pic.twitter.com/ADQCgvOccN
— CasPiancey (@CasPiancey) September 2, 2020
— Daniel Leufer (@djleufer) August 31, 2020
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