Diem has been through several iterations since it was first announced in June 2019, with adjustments not being limited to just a change of name. Now those behind the project are beginning to reveal where they expect Diem to sit within financial markets and how the stablecoin will overcome regulatory and structural hurdles as it enters use.
On 11 February, an OMFIF audience heard Diem’s plans of becoming a bridge between traditional banking and new, digital assets. Christian Catalini, chief economist at the Diem Association and co-creator of Diem, tackled many of the concerns surrounding it, presenting it as a tightly regulated organisation that is also incorporating some of the best features of new digital currencies.
Diem had already made the transition to focus on single currency stablecoins fully backed by reserves, concentrating on the Diem dollar initially and abandoning a move toward a permissionless system in the future. Catalini went further at the OMFIF meeting, detailing how Diem will not allow the stablecoin to be fractionalised or leveraged elsewhere.
In his session with OMFIF’s Digital Monetary Institute, Catalini also gave new insights into the ongoing regulatory process. Diem, in its payment license application, is essentially being treated as a new bank by its regulator, the Swiss Financial Market Supervisory Authority, Catalini said. Diem’s reserves follow closely Basel III’s capital requirements and incorporate additional buffers to account for redemptions…
Diem has always maintained that there will be no fractionalisation of reserves, but concerns about how to enforce this have lingered. Even without lending by the issuer, virtual asset service providers, such as wallet suppliers or operators, could engage in fractional reserve banking with the coins as collateral. Catalini revealed that Diem will address this risk with new requirements for these service providers to back liabilities fully with Diem coins.
This makes ‘Diem different relative to any stablecoin today’, Catalini said.
Developing…one lesson is never underestimate projects initiated or sponsored by Facebook! And more generally, the continued interest in stablecoins (which are not appreciating, by definition) shows there is very real interest in some kind of direct digital transfer mechanism, call it money if you wish. So I am happy to see some major players moving to fill this space and in a manner designed not to collapse once the regulators get their paws on it.
Here is the full story and further detail.
Ye Hong and William Neilson have solved for the equilibrium:
This paper models cybercrime by adding an active victim to the seminal Becker model of crime. The victim invests in security that may protect her from a cybercrime and, if the cybercrime is thwarted, generate evidence that can be used for prosecution. Successful crimes leave insufficient evidence for apprehension and conviction and, thus, cannot be punished. Results show that increased penalties for cybercriminals lead them to exert more effort and make cybercrimes more likely to succeed. Above a threshold they also lead victims to invest less in security. It may be impossible to deter cybercriminals by punishing them. Deterrence is possible, but not necessarily optimal, through punishing victims, such as data controllers or processors that fail to protect their networks.
Via the excellent Kevin Lewis.
In order to break down the information barrier, I partnered with my local faith community to set up a vaccine outreach program. We have a dedicated vaccine information email address and a website consolidating information about vaccine eligibility, sites, and benefits. We call community members who don’t have email, offer personal assistance making appointments and connecting to ride services, and provide information about best practices for riding safely in a car with masks and open windows. After vaccine appointments, we check in to see how they are feeling, make sure their second dose is scheduled, and offer to drop off comfort foods. One recipient replied, “It makes this daunting time just a little easier knowing there is someone out there to guide one through this process. My technology skills are minimal!”
By Margaret Scharle, for Oregon. We need much more of this.
He is the co-founder and CEO of Coinbase, here is the video, audio, and transcript. Here is part of the CWTeam summary:
Brian joined Tyler to discuss how he prevents Coinbase from being run by its lawyers, the value of having a mission statement, what a world with many more crypto billionaires would look like, why the volatility of cryptocurrencies like Bitcoin is more feature than bug, the potential for scalability in Ethereum 2.0, his best guess on the real identity of Satoshi, the biggest obstacle facing new charter cities, the meta rules he’d institute for new Martian colony, the importance of bridging the gap between academics and entrepreneurs, the future of crypto regulation, the benefits of stablecoin for the unbanked, his strongest and weakest interpersonal skill, what he hopes to learn from composing electronic music, and more.
And an excerpt:
COWEN: Recently, you cited an estimate that if bitcoin were priced at $200,000, that about half the world’s billionaires would be from crypto. How is that world different? What does it look like? How does it feel different from the world we have?
ARMSTRONG: That’s a big question. I guess the most honest answer is, I don’t know for sure. One thought I’ve had, though, is that if there are more people who generate a lot of wealth with crypto — which I think is already happening, and it will probably keep happening. Most of the people who bought crypto early on — they’re believers in the power of technology to change the world. They’re interested in the ethos of crypto in many cases, and I suspect that they would allocate their capital towards more things in that vein.
You could almost have this — I don’t know if you’d call it a renaissance or a golden age or something, of people who are technology believers. They want to see a better future coming from science and technology, and they’re going to use their capital for good in that direction. That could be one outcome.
There is much more at the link, interesting throughout.
That is the topic of my latest Bloomberg column, here is one excerpt:
If you don’t already know, Clubhouse is a year-old social media service consisting of virtual “rooms” where people can talk to each other — by voice. That may not sound impressive, but many users swear by it, seeing it as a communications platform that could help restore peaceful discourse and civility rather than exacerbate tensions. I think of Clubhouse, which I joined last summer, as somewhere between talk radio and a dinner party.
Back in the 20th century, famed communications theorist Walter J. Ong suggested that oral cultures are more aggregative, more redundant, more conservative, and more openly questioning and dialogic. Given the social turmoil and polarization that the U.S. is going through, that all sounds pretty good.
To me, a lot of Clubhouse sounds like elders chatting around a traditional campfire, with many of the younger people listening in (noting that “elder” here is defined more by status than by age). Extra points go to those who are genuine, engaging and good at thinking out loud and leading a group. There is a subtle but definite set of hierarchies, though to the benefit of the conversation.
One of the great strengths of Clubhouse is its celebrity-friendliness. If you are a major tech executive, why not speak in a Clubhouse session rather than to a journalist? The assembled crowd will spread your message, and can vouch for what you said and its context. It would not surprise me if Clubhouse soon becomes the major conduit for news about tech and tech executives, perhaps for Hollywood stars too. The one group that seems most out of place on Clubhouse are the journalists, who possess no special status and are discouraged.
There is much more at the link.
Decentralized finance to date seems mostly to be about speculatively trading one cryptocurrency for another. I see little real investment. But in my post on Elrond, I also wrote, “The DeX’s or decentralized exchanges have shown that automated market makers can perform the services of market order books used by the traditional exchanges like the NYSE at lower cost while being easily accessible from anywhere in the world and operating 24/7/365. Thus, every exchange in the world is vulnerable to a DeX.”
One of the reasons that I think DeFi has a big future is that there is much more innovation in the space than in traditional finance. Decentralization is really not a big deal for consumers–it’s even a negative in some respects–but it’s a huge factor for producing innovation.
- One patented concept is that at a specified limit price, priority is based, not on the time when the order was received, but on order size, which incentivizes placing larger orders.
- Additional issued patent claims concern variable prices on limit orders depending on the number of shares traded and other technical details for new ways to facilitate the matching of institutional orders with large retail orders.
- The reason this platform would actually build liquidity is because of the preference given to the largest orders. In operation, a slight price advantage is achieved by the larger investors while the counterparty smaller investors achieve a very quick fill of their entire order.
Or consider the Budish, Crampton, Shim idea for batch auctions to avoid resource waste (rent-seeking) from high-frequency trading. Are these good ideas? I don’t know. But what I do know is that there is little chance that either will be adopted by a major exchange–the transactions costs, including bureaucracy, fear and complacency (why rock the boat?) make it very difficult to innovate. But these ideas could be implemented very quickly by a DeX.
DeFi illustrates “the perennial gale of creative destruction,” and right now we are in the creative phase. New ideas about how to exchange assets are being rapidly deployed and destroyed but a few will prove robust and then watch out. The destruction phase has yet to be begin. Wall Street is unprepared for the onslaught.
Addendum: See also Tyler’s post Will the Future be Decentralized?
That question is the topic of my latest Bloomberg column, here is one contrasting excerpt:
When I hear laypersons discuss the future of the internet, the most common question is what kind of company or service is coming next…
When I hear internet entrepreneurs discuss the future, the biggest question is what kind of decentralized service or platform might be next.
Another vertigo-inducing vision of the future can be glimpsed at zora.co. If you are initially baffled — join the club! Think of Zora as like Spotify, except for more than just music, and the creators keep the rights and sell at prices they decide. It attempts to be an open-source ecosystem for building the future of art.
Having grown up in an analog world, I find these ambitious visions both unsurprising and bewildering. On one hand, I have seen the transition of so much activity to the digital world that another major revolution should not shock me. On the other hand, (a possibly atavistic) part of me likes knowing that someone or something is in control, whether it’s a government, a bunch of people in Mountain View, or even just my dean.
I don’t pretend to know what this really means, but here is the report:
Planned legislation to establish new business areas in Nevada would allow technology companies to effectively form separate local governments.
Democratic Gov. Steve Sisolak announced a plan to launch so-called Innovation Zones in Nevada to jumpstart the state’s economy by attracting technology firms, Las Vegas Review-Journal reported Wednesday.
The zones would permit companies with large areas of land to form governments carrying the same authority as counties, including the ability to impose taxes, form school districts and courts and provide government services.
The measure to further economic development with the “alternative form of local government” has not yet been introduced in the Legislature.
Sisolak pitched the concept in his State of the State address delivered Jan. 19. The plan would bring in new businesses at the forefront of “groundbreaking technologies” without the use of tax abatements or other publicly funded incentive packages that previously helped Nevada attract companies like Tesla Inc.
Sisolak named Blockchains, LLC as a company that had committed to developing a “smart city” in an area east of Reno after the legislation has passed…
The Governor’s Office of Economic Development would oversee applications for the zones, which would be limited to companies working in specific business areas including blockchain, autonomous technology, the Internet of Things, robotics, artificial intelligence, wireless, biometrics and renewable resource technology.
Zone requirements would include applicants owning at least 78 square miles (202 square kilometers) of undeveloped, uninhabited land within a single county but separate from any city, town or tax increment area. Companies would have at least $250 million and plans to invest an additional $1 billion in their zones over 10 years.
The zones would initially operate with the oversight of their location counties, but would eventually take over county duties and become independent governmental bodies.
The zones would have three-member supervisor boards with the same powers as county commissioners. The businesses would maintain significant control over board membership.
Here is the full article. I will keep you posted if anything comes of this. Addendum: Here is a legislative analysis of the bill, at some point these zones simply become counties? The underlying reality still is not clear to me.
And here is a different article: Joe Lonsdale Wants to Build a new Tech City Near Austin and a Tunnel Transportation System to Develop an Even Bigger Tech Hub.
Last week I wrote about Elrond, yesterday another one of the blockchain firms that I advise, LBRY, made the NYTimes. LBRY is YouTube on the blockchain and it’s not just a White Paper but a working product and potentially serious competitor to YouTube. The piece by Nathaniel Popper, however, is swarmy with a lot of bullshit innuendo like this:
Minds, a blockchain-based replacement for Facebook founded in 2015, also became an online home to some of the right-wing personalities and neo-Nazis who were booted from mainstream social networks, along with fringe groups, in other countries, that have been targeted by their governments. Minds and other similar start-ups are funded by prominent venture capital firms like Andreessen Horowitz and Union Square Ventures.
Get it? Without exactly lying, Popper associates venture capital with supporting neo-Nazis. Garbage reporting. It’s like saying last year 75% of neo-Nazis ate at McDonald’s, their favorite all-American restaurant. Or, neo-Nazis have been known to use Apple phones to arrange their rallies. Or neo-Nazis often pay for their purchases using a private, untraceable means of payment marked by strange symbols and widely used to illegally purchase drugs, guns, and prostitutes.
Surprisingly, the real story is in the sub-head, “companies inspired by cryptocurrency are creating social networks, storing online content and hosting websites without any central authority.”
And do check out LBRY, a platform from which you cannot be deplatformed.
I’m an advisor to a number of firms, including several in the crypto space such as Elrond (eGLD coin). When I signed on as an advisor more than two years ago, Elrond was almost completely unknown, which wasn’t surprising as they were based in Romania. I thought the Romanian base was a positive, however, because it meant that Elrond could hire extremely well-educated computer scientists, mathematicians and software engineers at below Silicon Valley prices. Moreover, the blockchain world, true to its foundations, is decentralized. Like a modern day Erdos, Vitalik Buterin operates out of his suitcase. The Silicon Valley of the blockchain is the internet. Why the blockchain world has evolved differently than Silicon Valley is an interesting question (with implications for whether SV could loses its centrality) but because it is decentralized I thought location was less important than the quality of the team. And the team, led by hard-charging founder Beniamin Mincu, is excellent. In the last two years the Elrond team has built a completely modern blockchain from the ground up using secure proof of stake and sharding to achieve a potential throughput of upwards of 16 thousand transactions per second with 6s latency and $.001 transaction cost and a toolkit for developers. I was also impressed by the commitment Elrond had to security, including formal verification methods, and especially to making Elrond accessible to the masses. Today Elrond/eGLD is on a tear and by market cap it is one of the top 50 projects in the space with a strong upward trend.
Will Elrond take over the world? I hope so! But, of course, it is unclear. Aside from ranking Elrond versus other projects the space itself still doesn’t have a killer app for the masses. In 2017 near the peak of the market at that time, Vitalik Buterin tweeted:
So total cryptocoin market cap just hit $0.5T today. But have we *earned* it?
How many unbanked people have we banked?
How much censorship-resistant commerce for the common people have we enabled?
How much value is stored in smart contracts that actually do anything interesting?…
The total market cap is now close to a trillion, about twice the level when Vitalik tweeted, and these are still good questions. Bitcoin has established itself as a new asset class that is rapidly supplanting gold as a store of value (gold is lame) but not as a payments platform. Ethereum, Elrond and competitors like Algorand were built for smart contracts, including things like stable coins which will be used for payments, but smart contracts are capable of doing much more. In theory, smart contracts let people cooperate in new ways, potentially unlocking trillions in value. But we aren’t there yet.
Decentralized finance or DeFi is one suggestive hint of where things are going. Already many billions of dollars are “lent” and “saved” using DeFi. The lending and saving, however, is almost entirely done in one cryptocurrency for another. In essence, the DeFi system is leveraging off of crypto speculation and trading.
Nevertheless, something interesting is happening in DeFi. The DeX’s or decentralized exchanges have shown that automated market makers can perform the services of market order books used by the traditional exchanges like the NYSE at lower cost while being easily accessible from anywhere in the world and operating 24/7/365. Thus, every exchange in the world is vulnerable to a DeX.
Also, although DeFi is a place where you can easily lose all your money to mistakes, scams, and bugs (not to mention changes in asset values), DeFi is rapidly developing state-of-the-art security. Only the paranoid survive on the blockchain which means that the systems that do survive are robust. Balaji Srinivasan recently tweeted that Bitcoin is the most powerful algorithm in the world and few algorithms have been as battle-tested as Bitcoin. In a similar way, DeFi will be secure or die and security in a blockchain world will be more secure than anywhere else.
Combining security with accessibility is what’s hard. It’s telling that Coinbase is one of the most successful firms in the crypto space despite performing services which are in some tension with the philosophical foundations of crypto. Satoshi Nakamoto would probably be a little disappointed to learn that people were depositing their Bitcoins in a bank! I can understand the impulse, however. It’s almost magical how you can move money on a blockchain without input or permission from any authority. But when you click the button and your money disappears it’s terrifying as you pray for the invisible hand of the miners to restore your money in another account. Elrond’s soon to be released Maiar app, a wallet that interacts with the Elrond blockchain using only a phone number, will be an interesting test of whether a blockchain platform can duplicate the ease of use of something like PayPal or Zelle.
The other interesting development in the space are zero knowledge proofs. Zero knowledge proofs let someone prove that they know a piece of information or the results of a computation without revealing the information. ZK proofs started in the academic literature but research in their uses and applications has exploded as computer scientists like Silvio Micali start blockchains and blockchains like ZCash hire computer scientists who advance the scientific literature (to give just one example). Truly anonymous digital cash is one application but more generally zero knowledge proofs let people buy and sell information in a way which has always been difficult and seemed impossible (how can you sell a piece of information without showing it to someone first but then having seen the information why would they buy it?).
Bottom line is that crypto is still waiting for the killer app which will make it 21st century infrastructure but there has been tremendous scientific progress in blockchains since the ur-date, 1/3/2009. Modern platforms like Elrond are faster, more robust, and more powerful than past platforms and the potential is there for transformative growth.
Among his other achievements, he is the Chairman and co-founder of Moderna. Here is the audio and video and transcript. Here is part of the summary:
He joined Tyler to discuss which aspect of entrepreneurship is hardest to teach, his predictions on the future of gene editing and CRISPR technology, why the pharmaceutical field can’t be winner takes all, why “basic research” is a poor term, the secret to Boston’s culture of innovation, the potential of plant biotech, why Montreal is (still) a special place to him, how his classical pianist mother influenced his musical tastes, his discussion-based approach to ethical dilemmas, how thinking future-backward shapes his approach to business and philanthropy, the blessing and curse of Lebanese optimism, the importance of creating a culture where people can say things that are wrong, what we can all learn by being an American by choice, and more.
Here is one excerpt:
I should point out, Tyler, what these people don’t yet realize is that mRNA, in addition to being unique in that it’s really the first broadly applied code molecule, information molecule that is used as a medicine and with all the advantages that come with information — digital versus analog — or where you actually have to do everything bespoke, the way drugs usually work.
The other major advantage that it has is that it is something that is actually taking advantage of nature. There was a lot of know-how we had going into this around how the process could be done. In fact, let me tell you the parallel that we used.
We have a program in cancer vaccines. You might say, “What does a cancer vaccine have to do with coronavirus?” The answer is the way we work with cancer vaccines is that we take a patient’s tumor, sequence it, obtain the information around all the different mutations in that tumor, then design de novo — completely nonexistent before — a set of peptides that contain those mutations, make the mRNA for them, and stick them into a lipid nanoparticle, and give it back to that patient in a matter of weeks.
That has been an ongoing — for a couple of years — clinical trial that we’re doing. Well, guess what? For every one of those patients, we’re doing what we did for the virus, over and over and over again. We get DNA sequence. We convert it into the antigenic part. We make it into an RNA. We put it in a particle. In an interesting way, we had interesting precedents that allowed us to move pretty quickly.
And at the close:
Imagine if all of us were also born imagining a better future for ourselves. Well, we should be, but we’ve got to work to get that. An immigrant who comes here understands that they’ve got to work to get that. They have to adapt. The problem is, if you’re born here, you may not actually think that you’ve got to work to get that. You might think you’re born into it.
This will be a funny thing to say, and I apologize to anybody that I offend. If we were all Americans by choice, we’d have a better America because Americans by choice, of which I’m one, actually have a stronger commitment to whatever it takes to make America be the place I chose to be, versus not thinking about that as a core responsibility.
Definitely recommended, he is working to save many many lives, and with great success.
The Indian government has a proposal, called the “One Nation, One Subscription” plan, to buy bulk subscriptions of the world’s most important scientific journals and provide them free to everyone in India. Given the porousness of the internet, and the widespread availability of VPN services, general worldwide access is likely to result. Sci-Hub, based in Russia, already offers open access to many scientific publications.
But why stop there? Rather than just reproducing published articles, the publication process could be opened up altogether.
And the key part:
The biggest problem for an open-access regime is how to ensure good refereeing, which if done correctly raises the quality of academic papers. Under the current system, editors decide which papers get refereed, and they choose the identities of the referees. Those same referees are underpaid and underincentivized, and often do a poor or indifferent job.
Many of the original papers on mRNA vaccines, for example, were rejected numerous times by academic journals, hardly a ringing endorsement of the status quo. More generally, since publication is currently a yes/no decision, the refereeing system creates incentives to avoid criticism and play it safe, rather than to strike out with bold new ideas and risk rejection.
Under my alternative vision, research scientists would be told to publish one-third less and devote the extra time to volunteer refereeing of what they consider to be the most important online postings. That refereeing, which would not be anonymous, would be considered as a significant part of their research contribution for tenure and promotion. Professional associations, foundations and universities could set up prizes for the top referees, who might be able to get tenure just by being great at adding value to other people’s work. If the lack of anonymity bothers you, keep in mind that book reviews are already a key determinant for tenure in many fields, such as the humanities, and they are not typically anonymous.
Freer entry yes, open access yes, but also more refereeing.
As many of you will expect, I am fine with their decision. Furthermore I think they made it at exactly the right moment.
Questions for those who think that Twitter made the wrong decision:
1. Can you state your margin? That is, what would Trump have to do for you to think that Twitter should suspend his account?
2. Robert Nozick called for an archipelago of polities, each autonomously setting their own rules. Isn’t Twitter’s action quite consistent with this vision? Is the optimal libertarian equilibrium really one that adds centralized government regulation of tech platform speech codes? If so, does that induce you to reject libertarian doctrines more generally?
3. If you favor regulation to avoid this deplatforming, which many are calling for, is the optimal libertarian equilibrium really one that adds centralized government regulation of tech platform speech codes? Where else do you think technology companies should be more regulated when it comes to speech issues?
4. Do you think that the US is the only government that should regulate the speech codes of technology companies or are you in favor of the evolution that would actually occur, i.e. dozens of different countries regulating platform speech in heterogeneous fashion? If you don’t favor the latter, shouldn’t you be stridently on the side of tech platform independence here? Do you think that the modal government has more or less Millian liberal tendencies than say Jack Dorsey or Mark Zuckerberg?
Questions for those who think that Twitter made the right decision:
5. Why not ban the CCP or Ayatollah Khomenei or many of the other odious and even genocidal characters who populate Twitter today? This tweet still stands: https://twitter.com/khamenei_ir/status/1263551872872386562. (My view would be to ban the violence-promoting Ayatollahs and leave the CCP, albeit with labeling that it is state propaganda.)
6. This summer, Slate and many other media organizations condoned violence in explicit terms. Murders are in fact up a great deal this year. Given that incitement to violence is manifestly acceptable to Twitter in many cases, can you articulate the relevant standard in more detail?
Comments section reform is coming to MR. Yes, we will replace you. Soon (but not today). Habermasian freedom shall reign and the sun will shine ever so brightly!
That is the title of a new paper by Isaiah Hull, Or Sattath, Eleni Diamanti, and Goran Wendin. Much of it I did not understand, but maybe you will. Here is one excerpt:
Our overview of quantum money starts with a full description of the original scheme, which was introduced circa 1969, but only published later in Wiesner (1983). We will see that it achieves what is called “information-theoretic security,” which means that an attacker with unbounded classical and quantum resources will not be able to counterfeit a unit of the money. Since this original scheme was proposed, the term “quantum money” has come to refer to a broad variety of different payment instruments, including credit cards, bills, and coins, all of which use of quantum physical phenomena to achieve security.The real promise of quantum money is that it offers the possibility of combining the beneficial features of both physical cash and digital payments, which is not possible without the use of the higher standard of security quantum money offers.In particular, a form of currency called “public-key” quantum money would allow individuals to verify the authenticity of bills and coins publicly and without the need to communicate with a trusted third party. This is not possible with any classical form of digital of money, including cryptocurrencies, which at least require communication with a distributed ledger. Thus, quantum money could restore the privacy and anonymity associated with physical money transactions, while maintaining the convenience of digital payment instruments.
Makes those crypto people look like David Laidler! See also this Behera and Sattath paper.