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Regulatory clarity, systemic edition
I had a chat recently with someone whose job involves worrying about systemic risks to the world economy. It’s horrible when investors get ripped off, and it must be stopped — but it’s even worse if crypto breaks the whole system.
I thought the main threats from crypto were:
- Global stablecoins, i.e. a Libra-like private currency — if they were issued by someone less stupid about it than Facebook were.
- Crypto gets its tendrils into something systemic — e.g., pension funds, which it’s been trying really hard to get into.
- Another retail bubble. This must be forestalled by regulation. Just keep tightening the regulation.
The reason for 3. as a systemic risk is that fresh dollars from suckers are the necessary fuel for the risk to be really risky.
I said the best news was that the US Treasury are really on crypto’s case — and they care a lot. Here’s a nice report from the Treasury’s Financial Stability Oversight Council (FSOC). [fact sheet, PDF; report, PDF]
FSOC is loudly warning of stability risks if crypto’s “interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation, including enforcement of the existing regulatory structure.”
That is: the Treasury’s specific fear is that these bozos will contaminate the real economy with crypto’s slapdash incompetence and fraud.
- Legislation to assign or establish a financial regulator for the non-security crypto asset spot market (the crypto exchanges);
- Address regulatory arbitrage (jurisdiction-hopping) between the affiliates of crypto entities (e.g., US and non-US versions of a crypto company);
- Study “potential vertical integration by crypto-asset firms,” which sounds to me a lot like anti-trust.
The full report details a wide range of crypto market disasters, untethered speculation, liquidity fragmentation, manipulations, operational centralisation, bridge hacks, rug pulls and scams in general. The ongoing crypto meltdown caused by UST-luna and Three Arrows Capital gets a mention too — Amy and I will cover this bit in our next crypto collapse newsletter.
The FSOC report looks mildly worded, with lots of “could” and “might” and “possibly” and so on. But this is how regulators phrase “NO AND HELL NO.”
The real problem is that even those who do remember history are cursed to repeat it.
[CHIEF ECONOMIC STRATEGIST AT THE TREASURY] you say capitalism bad but use phone?
[10 FOLLOWER ACCOUNT CALLED "MILFING FREIDMAN"] if you look at the ways in which engels actually used the terms base and superstructure it's clear the english translation has introduced a degree of
— Crowsa Luxemburg (@quendergeer) September 3, 2022
Idiot joy showland
In July 2021, CNN announced with great fanfare its plan for NFTs for News! “Vault is a Web3 project by CNN to reflect on the world events we experience together. Collect NFTs of historic artistic interpretations from digital artists.” Anyway, they’ve just shut it down. [CNN Vault, archive; Twitter]
People who spent actual money on CNN NFTs are yelling that they’ve been rugpulled. Press Gazette estimated that CNN had taken in at least $329,700 by April 2022. CNN was actively promoting spending your money at Vault up to a few weeks before the shutdown. [Press Gazette; The Verge]
CNN claim Vault was just an “experiment.” This doesn’t really match up with the detailed project roadmap they published, which extends into 2023 with a “globe” icon. [CNN, archive]
Vault was running on Dapper Labs’ Flow blockchain. CNN has offered a refund of 20% of minting price — why only 20%? — in USDC stablecoins or FLOW tokens. Flow limits stablecoin withdrawals to $10 per transaction, with a $4 transaction fee. [The Block]
my advice to anyone who lives on twitter: don't try to argue economics or politics with anyone who has bitcoin/"web3" in their bio. they are living in a completely different spacetime reality to us. scientists cannot yet explain it
— Cain Maddox (@ctrlshifti) August 30, 2022
Fol de rol
Mexican businessman and art collector Martín Mobarak takes today’s prize for Worst Person in NFTs. Mobarak said he had made 10,000 NFTs of a drawing that he tore from the pages of one of Frida Kahlo’s diaries, believed to be worth $10 million — and burned it to promote the NFT collection.
The authorities are not pleased with Mobarak: “the deliberate destruction of an artistic monument constitutes a crime in terms of the federal law on archaeological, artistic and historical monuments and zones.” The only good news is that there’s some doubt it’s a genuine Kahlo. [Independent]
The fashion world is still promoting NFTs! One brand’s evidence for consumer interest wasn’t anything so tawdry as “sales” for actual “money,” but … the number of views of something they built in Roblox. That is, the number of users who were in the vicinity at any given time. With quotes from me. [TechMonitor]
Brian Roberts has quit as CFO of OpenSea and sold all his apes. He thanks OpenSea for the “rare opportunity,” and remains “incredibly bullish on web3 and especially OpenSea.” Just not bullish enough to stay financially involved in any way. [LinkedIn, archive; Twitter]
“Hey everyone!” said a Wal-mart executive to the single person in its new Roblox metaverse nightmare. [PC Gamer]
Facebook lets US Instagram users use NFTs anywhere on their sites! Everyone wants that in late 2022, right? [CoinDesk]
A grand total of six people have bought one of the chess.com NFTs since their inception in March 2022, for total sales of $1183. [Reddit]
I'm not trying to scam you I just mistyped NTFS
— SwiftOnSecurity (@SwiftOnSecurity) October 14, 2022
Former Pilsen footballer David Limberský and three other men are being investigated on allegations of attempting to extort 4 million Czech korunas (USD$160,000) at gunpoint. Limberský had paid the man for crypto mining rigs, and was unhappy with his profits. The man first offered Limberský crypto mining equipment. Then, when one of Limberský’s companions (allegedly) put a gun to the guy’s head, he promised to return the money by the end of November. The target then left and called the police. [Novinky, in Czech]
Limberský has a track record of falling for con men. He said of Čenek Pazderka, who took him for millions in a luxury car scam through the 2010s: “He was dressed luxuriously, he had expensive watches, he looked like he was successful, that his business was going well.” [Blesk, in Czech; Deník, in Czech]
Just the facts of the initial story convince me the “victim” is the bad guy here, and Limberský is not excessively equipped with good judgement or business negotiation skills. Even as pointing guns at people is rightly considered antisocial.
It's been a slow few days on @web3isgreat.
Turns out there was a –allow-rugpull flag when deploying smart contracts, that nobody knew about and which defaulted to true. Default was changed to false in Version 0.15.6.1 and now smart contracts are secure.
— Niko (@00xou) September 14, 2022
Grayscale runs GBTC — a fund that buys bitcoins and sells you shares in them. (Or exchanges bitcoins directly for GBTC shares.) The GBTC shares are then sold in over-the-counter markets in the US. GBTC used to be priced above BTC itself, but has been down for quite a while. So Grayscale wanted to convert GBTC to a proper Exchange-Traded Fund (ETF). [Amy Castor]
Grayscale has filed its 100-page brief against the SEC for not allowing GBTC to be converted to an ETF, just because the bitcoin market is unregulated trash. Grayscale holds that the SEC’s refusal was arbitrary, capricious, and creates unfair discrimination between issuers — because the SEC already allows bitcoin futures ETFs, which Grayscale claims carry similar risks.
Grayscale also says the SEC’s refusal exceeds the SEC’s statutory authority — because the Exchange Act does not contain the “significant markets” test that the SEC has used in refusing this and other bitcoin ETFs. Good luck with that one, guys.
“The Commission received more than 11,600 comment letters on the Exchange’s rule-change proposal, with more than 99.9% favoring approval” — because Grayscale put up a website and bought public advertising telling customers to spam the SEC with form-letter comments. Grayscale doesn’t mention that bit, but I expect the SEC’s response will. [Brief, PDF]
(US) Crypto industry at large: We want the @CFTC to be our primary market regulator
CFTC: 'K, we are on it
Industry: Wait, no, not like that
— Nikhilesh De (@nikhileshde) October 1, 2022
They say damp records the past. If that’s so, I’ve got the biggest library yet
I have a half-finished blog post, that’s been in my drafts pile for a few years, on Urbit and its founder Curtis Yarvin, a.k.a. Mencius Moldbug. Yarvin is the founder of the political ideology “neoreaction,” a precursor to what we now call the alt-right — that is to say, neo-Nazis with big words. And it’s freshly across the blockchain press of late.
I tried and failed to explain the idea of Urbit as a new paradigm for computation that combined functional programming with what happens when libertarian anarcho-capitalism goes so right-wing reactionary that it openly turns into Hans-Hermann Hoppe’s vision of neo-feudalism. But that previous sentence needs about a Wikipedia article per jargon word just to get started.
Urbit itself has blockchainy elements and has long been written up in the crypto press. The Urbit “land registry” is written to the Ethereum blockchain for secure timestamping. Yarvin has previously claimed Urbit is not a blockchain, and doesn’t need blockchain. [Urbit, 2018, archive; Urbit, 2017, archive]
Tlon, the company developing Urbit, got a small amount of venture capital from Peter Thiel, then ran a “land sale” of Urbit addresses. The money seems to be running out — because Urbit has transformed into just another blockchain that runs the Ethereum Virtual Machine. It even has its own minor altcoin, $URBIT, not yet bridged or traded, which has been airdropped to Urbit users. They’re actively reaching out to DeFi and DAOs, trying to get them to set up on Urbit. After the crypto crash. [CoinDesk, archive; CoinDesk, archive; CoinDesk, archive]
Like all the finest blockchain projects, Urbit isn’t really useful for anything at all. The applications mostly don’t work, and the ones that do work do so by bypassing the language the system is supposedly based on. This means Urbit has no technical merits to succeed on, and only has its political cult as its audience — so it leans hard into that cult. “We like to think this hard work is exactly what makes Urbit special.” [The Point]
Urbit already had NFTs. Even CoinDesk just straight-up called Urbit’s Milady NFT project a bunch of neo-Nazis in May this year — which somehow slipped past a senior editor. There’s only one kind of person with an Urbit address in their bio. [CoinDesk, archive]
Understanding how Urbit works doesn’t answer “yes, but why on earth?” — any more than the bitcoin white paper explains the ensuing subculture. I recommend that you come to understand Yarvin himself by reading Elizabeth Sandifer’s book Neoreaction a Basilisk (UK, US), which is an absolute delight. And I’m not just saying that because my name’s in the first sentence.
our great-grandparents dreamt that we'd live in a technological utopia where every headline was like "more kinds of cancer cured forever" and instead we got a tech nightmare world where every headline is like "can blockchain be used to monetize the concept of having ears?"
— Janel Comeau (@VeryBadLlama) October 15, 2022
New facts emerge
Crypto.com was reported to have laid off hundreds of staff in recent months — but in fact, 2,000 employees out of about 5,000 have left or have been pushed. It’s also quietly downsized a lot of the sponsorship deals it made over the last year. And stiffed Angel City FC on their sponsorship deal. “They were just writing checks they could only cash when things were good,” said one former employee. [AdAge]
Why did Circle shift its USDC stablecoin from being backed by assorted weird garbage to near 100% US treasuries? Circle feared being deemed an investment company by the SEC — “investment securities exceeded 40% of the value of our total assets as calculated under the 1940 Act.” [SEC filing, PDF]
Coinbase has been sued for patent infringement by Reggie Middleton and Veritaseum Capital over some “crypto transfer technology.” Veritaseum had previously settled charges with the SEC over their 2019 ICO. Software patents are deeply odious, and, since Alice, largely invalid — but, hmm, let them fight. [Reuters]
ASIC has put a temporary halt on Holon offering its bitcoin, ethereum and filecoin funds to Australian retail investors — they think these funds are just too risky to even offer to retail. “ASIC may consider further regulatory action in relation to Holon and the Funds.” [press release]
The Central Bank of the Bahamas has published a paper on their Sand Dollar CBDC and financial inclusion. They conclude that the Sand Dollar has helped. [CBB, PDF]
What’s left after the crypto crash? A whole pile of dead minor altcoins. “Of the more than 64,400 assets Nomics tracks, only about 13,800 had trading volume in a recent 24-hour period last week, Gauthier said. And there are myriad coins that are not quite zombies yet but nearly so, and trading at a fraction of a cent.” [Bloomberg]
Ethereum advocates said the “Merge” would eliminate more than 99% of Ethereum’s power use. It turns out the power use was just shifted elsewhere. David Rosenthal estimates the real reduction to be around 35% — because most of the power has been diverted to mining bitcoin. The real constraint was rack space in data centres close enough to the cheapest electricity, and they filled those out with old and new bitcoin mining rigs. [blog post; Bloomberg]
David Rosenthal concurs that “decentralisation” in crypto is pretty much always a lie. [blog post]
A complete map of the US tech landscape pic.twitter.com/B6GWcUzUIh
— Workweek 🤝 (@workweekinc) October 5, 2022
Living on video
This is me being interviewed about Facebook’s Libra and my book “Libra Shrugged” on Swedish crypto podcast Kryptoteket. It’s in Swedish with my bits in English, starting around 7 minutes in. [Spotify]
The Way podcast did an interview with me about Facebook’s failed Libra initiative. [The Way]
Le Monde on le coin du butt. With quotes from me. [Le Monde, in French]
WealthSimple on the Ethereum merge, with a quote from me. [WealthSimple]
Crypto Policy Symposium by Ben Munster in Decrypt, with quotes from me. [Decrypt]
Le Monde on the Crypto Policy Symposium, with quotes from me. [Le Monde, in French]
— Eamon Costello (@eam0) September 17, 2022
Bravo, David, Bravo.
As penance I have ordered a copy. pic.twitter.com/mriQKnxAM7
— ⚯ Michel de Cryptadamus ⚯ (@Cryptadamist) October 9, 2022
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