The Island of Crypto

or Why Crypto-for-Crypto is OK.

We often discuss how crypto and defi can be used to impact the “real” world. My view is that crypto-for-crypto is a normal part of a paradigm-changing shift, it’s to be expected, and follows a natural path – a similar path that the internet took. Crypto-for-crypto capital and tools create a flywheel effect that drives the ecosystem to get it to a stage ready to integrate with the “outside” world. Effort and time is needed to build an infrastructure that is useable by all, it doesn’t happen by magic.

Let’s use an analogy, which by definition is imperfect, but is helpful for building a mental model. The analogy is a physical one, but we’re using it to try to understand a new digital crypto-native economy.

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Top 20 Coins: Uncommon Core Podcast Episode 15

Throwing this up for discoverability: I enjoy the Uncommon Core podcast and this is a helpful episode for those looking to get a quick summary of the top coins by market cap as at December 2020, as discussed by prominent crypto trader Su Zhu of Three Arrows Capital and prominent researcher Hasu of Deribit.

Errors in summary notes are my own. I haven’t fact-checked. Assume the podcasters may have long or short positions in any of these coins. I note the the podcasters are quite diplomatic about how they describe these coins.

Note: This was broadcast on Dec 11, before Bitcoin reached its all time high and before the SEC lawsuit against Ripple and its cofounders.

20) 1:10 Compound DAI (cDAI)
19) 5:55 Tezos (XTZ)
18) 12:26 NEM (XEM)
17) 13:56 Tron (TRX)
16) 17:11 Wrapped Bitcoin (WBTC)
15) 21:59 Monero (XMR)
14) 29:46 EOS (EOS)
13) 35:04 USD Coin (USDC)
12) 40:48 Bitcoin SV (BSV)
11) 46:26 Stellar (XLM)
10) 50:24 Binance Coin (BNB)
9) 56:50 Polkadot (DOT)
8) 1:03:09 Cardano (ADA)
7) 1:05:25 Chainlink (LINK)
6) 1:08:44 Bitcoin Cash (BCH)
5) 1:19:32 Litecoin (LTC)
4) 1:24:40 Tether (USDT)
3) 1:28:03 XRP (XRP)
2) 1:33:35 Ethereum (ETH)
1) 1:46:51 Bitcoin (BTC)

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It ain’t just about programmability

I read with interest JP Koning’s post “Programmable money isn’t new, we’ve had it for ages“. As an independent monetary economist, JP is well worth following on Twitter, and his blog Moneyness is one of the most thoughtful sources of fact-based commentary on how money is evolving.

Although I agree with the post’s content, I feel it’s missing a few key points about public blockchain based money vs the programmability of payment instructions today. This post is a respectful response and addition to the narrative, and should be read after reading and appreciating JP’s post.

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Tokens vs Accounts: A love letter to the NY Fed (and a quibble)

I was just reading an excellent recent post on the New York Fed’s blog Liberty Street Economics, entitled “Token- or Account-Based? A Digital Currency Can Be Both” by Rod Garratt, Michael Lee, Brendan Malone, and Antoine Martin.

The post is right, of course (except for a paragraph right at the end). The “tokens vs accounts” distinction no longer works in the world of blockchains. In some ways it’s a helpful distinction, in other ways it creates confusion.

Crypto tokens, especially those on Ethereum shouldn’t have a claim on the word “token”.

Ready?

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CBDCs – Asking the Hard Questions

I’ve been following along the CBDC narrative for a number of years. It has been fun watching how the talking points have rapidly evolved. CBDCs seem to be getting closer to reality, driven by central banks (rather than customer demand). But there are some harder questions that are still not (in my view) adequately explored.

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Money, Programmable Money and Central Bank Digital Currencies (CBDC)

Note: This article was first published on 19 Aug 2020 on the OpenNodes blog, republished here with permission.

The greatest trick played on modern society is calling a whole bunch of different instruments with different credit ratings and characteristics “money”, and conflating them.  It is a neat trick, and very useful in some situations, for instance when businesses invoice each other and make payments.

It is much more convenient to say “Please send me money” than to say “Can you tell your bank to reduce its debt to you, such that my bank increases its debt to me?”  But by using these more accurate words, we can already get a sense that no asset, or instrument, moves all the way from end to end, but rather there are some coordinated accounting adjustments that make the appearance of an asset moving.

Conflating these different instruments and bundling them into one called “money” has enormous positive effects – it has reduced friction and created a common language which is used across the world to enhance trade.

Yet, calling everything “money” can sometimes be unhelpful when we start thinking more deeply about money.  So in these cases, it is helpful to think about two things:

  1. The asset itself
  2. The medium of record
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The Sweet Spot for Programmable Money

Bank of Thailand just announced a project to develop a prototype system for a CBDC issued on a blockchain, accessible to businesses.

This is meaningful to me for two reasons:

  1. I was part of the original team that created the Inthanon series of projects in 2018, and it’s great to see that these early pioneering efforts continue to be built upon.
  2. I think that they have hit the near-term sweet spot for programmable money. They really seem to get it.
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The New Libra Coin – An Unofficial Explainer

I’ve been looking at the design of the new Libra coin (LBR) in the updated Libra Whitepaper. Here’s what I think the differences are between this new “synthetic” coin and the previous iteration of the coin as described in 2019. Hope it’s helpful!

Note, this is just my attempt to explain it with the information that is available. It is probably still subject to change. If you’ve found it useful, feel free to share!