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Web3 Claim Analysis for Blockchain and Fintech incrementalism - Steel Man,…
Web3 Claim Analysis for Blockchain and Fintech incrementalism - Steel Man
Claim 1: Everything is moving towards real-time and international finance. Crypto is the evolution of this trend.
Building a T+0 settlement system for equities is a great idea. Real-time settlements would be a boon for the liquidity of US capital markets.
Claim 2: Banks are outdated and slow to innovate. Crypto is the means to fix this
Private money and Central Bank Digital Currencies will compete for market share and will coexist. This will be the future of finance.
The Federal Reserve, and the European Central Bank will keep all of their balance sheets and swap lines on a global distributed ledger providing greater market transparency and efficiency of sovereign flows.
Retail accounts will all be held directly at the
central bank
It’s the natural evolution that banks will simply custody thousands of types of currencies.
Claim 3: Regulation is becoming more robust and will catch up with technical innovation.
Claim 4: We no longer have an economy that runs on two numéraire for individuals: bank balance and credit score. We need to create programmable money whose representation is a hypersurface on a polytope that exists in extremely high dimensional spaces that correspond to every aspect of personhood.
Claim 5: It’s common to have a knee-jerk reaction to financial complexity. While there are toxic products, we need to take things on a case-by-case basis rather than blanket write off financialization.
The Roman Empire was trading options contracts.
Derivatives will always arise naturally in markets of sufficient sizes.
These types of products are natural for portfolio managers to use to hedge their exposure to complex factors.
Trading digital derivatives contracts detached from any underlying or benchmark are the next evolution of markets.
Building more complex financial models and products allows us to create more antifragile structures that remove or disperse risk from the broader market that the public benefits from.
Mortgages are very good financial products that enable vast access to real estate markets and for families to prosper.
The volatility of chicken nuggets is solved by creating synthetic futures on corn and soymeal commodities that would hedge the chicken producer’s exposure to underlying price fluctuations.
There are many types of weird exotic derivative products that have very niche buyers, such as people in the energy production business.
If we can create completely synthetic hedges for a wide range of real-world phenomenal factors then it doesn’t really matter how we do it.
Claim 6: There are a few asset classes that are almost exclusively narrative-driven rather than mathematics or cashflow-driven.
“If gold appears to be a hedge for anything, it’s the fear of inflation, or the fear of financial instability as proxied by changes in government deficits."
The demand curve for gold is, at least partially, generated by emotion and politics. This is squishy but quantifiable.
With crypto tokens we can create new synthetic assets whose demand curves are artificially generated by different psychological forces
Gold is a proxy asset for investing in the “libertarian project”. With crypto can we create a proxy asset for investing in the “anarchist project” or the “Marxism project”?
Claim 7: “The next step in the evolutionary tree of homo economicus, in which all aspects of our humanity sublimates into the free market.”
Markets no longer exclusively exist to price products corresponding to goods and services anymore. We can financialize purely imaginary things that are untethered to humanity and/or the physical world.
Web3 is the “financialization of everything”. Abstract notions of things like public goods goods, justice, politics, ideology, religion, philosophy, and community can become commodities to be traded.
“Self-fulfilling ouroboros derivatives” are the future.
Better banking and finance: Real-time, always on, cheaper, decentralized ...
Better system for processing transactions in any asset e.g. stocks as well as money (payment systems)
✅ Better payments systems (faster, cheaper, ?more decentralized?)
[Payments system shield from government]
HyperFinancialization: we want programmable money, or to create tokens for everything. Meme-onomics is the future. You can turn all your interests and commitments into (tradeable) tokens. The next step for homo-economicus
We want "programmable money"
Claim 4, 7 (6)
Crypto and web3 will deliver that
Claim ? (implicit)
There aren't bad side effects (e.g. with opacity comes systemic risk etc)
Claim 3 + 5
Web3 Claim Analysis for Blockchain and Fintech incrementalism - Steel Man
The costs present in most retail financial services have very little to do with the technology. Transaction costs associated with payments are fraud mitigation, transaction reversal, custodial services, customer service, and compliance.
Central Bank Digital Currencies are a theoretical idea that has yet to prove its merits. Upending the entire space of commercial banks in a massive financial reconfiguration project which needs political will. This does not currently exist either in Europe or the United States. It’s unclear what advantage this actually offers to end consumers.
Remittance use-case makes no sense at face value. Currency A -> Currency B -> Currency C is a very indirect method compared to a 2-hop transaction
Crypto as a payment system is uniformly worse than almost any other service that exists.
Price risk
given the volatility of the asset is a non-starter for commerce.
Can’t denominate contracts or debt products without obscene risk premiums attached to the contracts. This is unnecessary friction from using something not fit for purpose.
That regulation
will
catch up, in the future, is not sufficient.
Building an enormously complex social credit system based on financializing every aspect of our lives is a nightmarish dystopia. (See [Black Mirror]
Global financial crisis as a warning sign about opaque markets, complex products and moral hazard in the presence of government bailouts
None of our models have any predictive power to value crypto assets that present as investments.
These products are zero-sum investments, it’s unclear what advantage these products bring to retail investors who have simple needs (saving for retirement, buying a house, college funds, etc).
There is a massive disconnect between what is theoretically promised with regards to blockchain technology versus what is actually possible or realizable when we factor in real-world constraints.
It is unclear what
crypto assets
offer the institutional finance or asset managers.
We’re still looking for crypto’s killer use case. Even if we accept that expansion of advanced financialization is a good thing. It’s unclear what crypto offers to this program when brought within the regulatory perimeter.
Jury is still out on whether
permissioned blockchain
as a technology removed from token issuance has any applications. The answer seems like no, but if it is yes then it’s probably for mundane things.
Recentralization
is not necessarily progress, especially when it comes attached to bizarre externalities that didn’t exist before and undermine the entire project.
Arbitraging
securities
regulation for crowdfunding comes with significant public risk and no clear advantage. Turning everything into an IPO.