Will DeFi Kill Banks?

[fdsa]

I am too lazy to describe everything in detail (and noone would read a large post anyway), so I will sum up in short:

 

- DeFi sucks and has no value or use. No, it will not kill banks.

- NFT sucks and has no use except money laundering

- infinite supply cryptos such as Ethereum suck and have little to no value, and little to no use

- only limited supply cryptos such as Bitcoin not suck (but still have little to no use)

 

[fdsa]

... if you have 1 whole Bitcoin you are in "one of a ten thousand" elite club, maybe even "one of a thousand", but not "one of 21 million" as commonly thought.

Edited October 7, 2021 by fdsa

[mjnaus]

21 minutes ago, fdsa said:

I am too lazy to describe everything in detail (and noone would read a large post anyway), so I will sum up in short:

 

- DeFi sucks and has no value or use. No, it will not kill banks.

- NFT sucks and has no use except money laundering

- infinite supply cryptos such as Ethereum suck and have little to no value, and little to no use

- only limited supply cryptos such as Bitcoin not suck (but still have little to no use)

 

Well said ser, well said. And don't forget: "lazy" just means "efficient". 

[lkn]

DELETED

Edited October 7, 2021 by lkn

[HenryfromMalaysia]

Totally agree with the rubbish NFT which is introducing so many new ICO based on NFT.

Got one new ICO called Rinnegan listed today. Based on Naruto etc blah blah blah.

 

Who is crazy enough to buy these sh*t.

And it is these sh*t that will drag the whole crypto market down when NFT fails

[Sametboy2019]

Seems Moneygram thinks crypto has some value

[mjnaus]

28 minutes ago, HenryfromMalaysia said:

Totally agree with the rubbish NFT which is introducing so many new ICO based on NFT.

Got one new ICO called Rinnegan listed today. Based on Naruto etc blah blah blah.

 

Who is crazy enough to buy these sh*t.

And it is these sh*t that will drag the whole crypto market down when NFT fails

I am sure any rational person would agree that the NFT market appears to be a bit frothy at the moment. Having said that, that shouldn't automatically mean the entire NFT market should be dismissed and regarded as useless, a scam, etc. Back in 2017, ICO's were giving off the same impression: super frothy and top signal after top signal. Indeed, many of those ICO's were complete garbage. Yet, some still remain to this day and have turned into actual projects that serve a market and have value (BAT springs to mind). We can even extrapolate this to the .com bubble of the late 90's; super frothy at the time. Yet, if we look back at what the ideas, concepts and businesses that were part of the bubble, a good amount of them are still around today (Amazon anyone? Ebay? Coupons.com?). Even companies that did end up going bust, might not seem that crazy today. Take pets.com for example. This one was kinda the poster-child for the tech bubble. Yet, a company that provide e-commerce for pet food does not seem that ridiculous today. 

 

Just because speculation drives up prices, does not mean that the underlying concepts, assets, businesses, etc don't have any value. The same holds true for NFT's. While some prices appear ridiculous today, the concept of NFT's is one that will proof its value over the coming years, I am sure of this. Wether this will be digital art, in-game purchases, financial products, or something completely different remains to be seen. 

[lkn]

10 hours ago, The Cipher said:

I'll explain this one. Although it could also be Googled as well.
 

What determines the real-time stock price in any public market (tradfi or crypto) is bid-ask pressure. Prices are marked based on the moving bid-ask equilibrium on exchanges during open-trading periods, which for crypto is 24/7 (hey, an innovation in action!). Essentially the market price is given by the price of the most recent transaction. So the floating value of your asset is always marked to that price.

 

But what would happen if a ton of people wanted to sell at once? Well, the massive number of orders on one side of the trade would need to find counterparties on the other side to fill them, creating a buyer's market and pushing down prices to find a willing buyer. So realized returns for market participants would (a) differ from each other; and (b) deviate from the previous equilibrium price. If there were no willing buyers at all, the asset value would drop to zero.

 

This is how all financial markets function. It is not a quirk of crypto. For instance if every shareholder of AAPL wanted to liquidate at the same time, they would encounter an identical problem. In public markets where nobody wants to sell a stock and folks want to buy (think positive earning surprise), prices quickly gap up.

 

To hammer the point home, do you own real estate? If so, did real estate in <your home city here> appreciate since the start of the pandemic? How did everyone end up with more nominal value than they put in? Now what would happen if everyone tried to realize those values at the same time by putting their houses up for sale?

 

So hopefully that clears this issue up.

---

Bonus note: The peculiarities of the crypto market result in price movements that happen a lot faster than most other asset classes. Reasons for this include coins off exchanges; illiquidity; availability and use of callable leverage; leverage rehypothecation; and herding behavior resulting in market participants that tend to cluster on one side of a trade depending on fear/greed consensus.

I appreciate your comment and humoring me in explaining where value is coming from.

 

But I interpret your explanation as “because there is demand, the price will go up”.

 

Demand for real estate and stocks is not based on this This is (one) definition of a bubble, i.e. someone buying an asset, not for its intrinsic value, but because they think they can sell it later at a higher value.

 

Stocks and real estate do go through such bubbles, but that is not how it normally works.

 

You mention Apple: They had profit of $142.4 billions over the last 12 months. This means that for each share you own in Apple, you are technically earning $5.11, although they only paid $0.88 in dividend, but they also use some of the profit to buy back shares, which increase your earnings per share (which should increase share price, it is basically a way to avoid the dividend tax), and they are on a trajectory to increase dividend further (it has been steadily growing over the last decade).

 

Based on these numbers, we can make a quite qualified argument for an upper and lower price of the share. There is uncertainty about the future, and that is why you will see some volatility, e.g. right now, it seems there is a looming real estate crisis in China, this could affect people’s ability to buy new iPhones and other Apple products and services, therefore there is a risk that future profit will be lower, but there is also historic data showing that Apple fares quite well through a crisis, although investor sentiment in the past has always been negative about Apple, which for a long time traded at a price to earnings of about 15. That means, the entire value of the company was only valued at 15 times their yearly earnings, which was bonkers.

 

Anyway, for value creation with stocks: If it turns out Apple sells less iPhones in China over the next 12 months, and thereby decrease their total earnings, there has been no value creation (for the company) and the stock should go down in price. If on the other hand, Apple increase their earnings with 8% over the next 12 months, then that means more profit for the shareholders, and stock should go up in price. So value is very much coupled to how much profit the company is making.

 

Put in much simpler terms: If you start a business, and I pay you $10,000 to own half of that business (half the shares), and two years later, your business has yearly earnings of $20,000, do you think I can sell my shares for more than $10,000? That is because your business did something to create value, be it sell noodles or provide software solutions to companies. If on the other hand, two years later, you are still running the business at a loss, do you think I can get anywhere near $10,000 for my shares?

 

Going back to Apple, they are earning $5.11 per share, and their shares are currently trading at $142. That is a yield of 3-4%. Is that reasonable? Maybe that is on the low side, so it probably is a little overvalued, but this is likely because people think that in a year, Apple will make closer to $8 per share, making the yield (jn a year) closer to 5-6%, and of course because we have the zero-interest policy, a yield of 3-4% which might increase to 5-6% (based on initial investment), looks more attractive than depositing money in the bank at a zero or even negative yield. One can argue that zero-interest is pumping up the stock market, and I wouldn’t disagree, but as long as we don’t expect significant interest hikes in the near future, it is still rational for money managers to put money in stocks, even at their current valuations, because it is better than the alternative, and the risk is still reasonable low based on the fundamentals (there’s a few stocks I would warn against though, e.g. TSLA in my opinion is hugely overvalued).

 

- - -

 

You also mention real estate: This is different mechanisms of course, and here, value is not being created per se.

 

But there are a couple of things that makes prices go up. Everybody needs a place to live, so there is a lower floor for demand. Furthermore, more and more jobs/activity are in the cities, so over the last many decades, we have seen migration from rural areas and into cities. This increase demand on real estate in cities but decrease demand in rural areas. So in that way, it is a zero sum game, but of course, we also have population growth, so that adds to the demand, and square meter per person is increasing, e.g. long ago, we lived 3 generations under the same roof, but as many (but not all!) get richer, they don’t want to share their residence with their parents, and when they get even richer, they want a vacation home.

 

So those are some of the reasons that a lot of real estate has gone up in price.

 

During the COVID-19 lockdowns, a lot of people also wanted to spend more of their monthly budget on real estate, because they wanted to improve their quality of life. So that again, contributed to price increases.

 

 

But you are correct, that if everyone wanted to liquidate, prices would drop to zero. But this doesn’t make sense, because where would people then live?

 

Though if people revisit their COVID-19 decision of spending more on real estate, and go back to pre-COVID-19 living standards, all the paper value created during COVID-19 will disappear.

 

- - -

 

So to boil it all down: If everybody sold their real estate, they would have no place to live. If everybody sold their stocks, profitable companies would be free, e.g. I could be the owner of Apple and keep the entire profit for myself.

 

But based on what you write, I think you do understand these simple mechanisms, and that it crypto coins are a zero sum game, and price will only go up, if demand increase, it will only remain stable, if current demand levels continue, and if demand decrease, the price will decrease.

 

If you do agree here, the next logical question is then: Why is there demand? Why will there continue to be demand?

 

My hypothesis is regulatory arbitrage (minority of demand), people who wants to get rich quick (majority), and downright fake demand created by wash trades and unbacked stable coins¹.

 

If there is another reason for the demand, then we are back to: What problem is being solved?

 

I.e. if we go back to the business you start, where I put in $10,000 to buy half the shares. Your business will only be profitable (and increase in value) if you actually solve a problem for customers. It can be as simple as feeding hungry tourists, or it can be doing complex logistics software that optimizes the yield on transportation. But the company needs to solve a problem for people, to have profit, and it needs to grow its profit, for its share price to go up.

 

¹ There are about $130 billion worth of stable coins issued by companies where majority of them are unregulated and refuse to submit to any audits.

[fdsa]

3 hours ago, mjnaus said:

Just because speculation drives up prices, does not mean that the underlying concepts, assets, businesses, etc don't have any value. The same holds true for NFT's. While some prices appear ridiculous today, the concept of NFT's is one that will proof its value over the coming years, I am sure of this. Wether this will be digital art, in-game purchases, financial products, or something completely different remains to be seen. 

I don't understand how NFT could prevent me from doing Right Click -> "Save As ..." on any picture I like. Or youtube-dl on any video or mp3 I like.

We have proof of ownership for 13 years already, in the original blockchain and every single other cryptocurrency. Why we need those thousands of automatically generated images of apes with different faces and hats called "new unique NFT collection"?

[mjnaus]

1 minute ago, fdsa said:

I don't understand how NFT could prevent me from doing Right Click -> "Save As ..." on any picture I like. Or youtube-dl on any video or mp3 I like.

We have proof of ownership for 13 years already, in the original blockchain and every single other cryptocurrency. Why we need those thousands of automatically generated images of apes with different faces and hats called "new unique NFT collection"?

True. Nothing stops you from “right click, save”. Much in the same way nothing stops you from taking a picture of the Mona Lisa or any other famous piece of art. It’s not quite the same as having verifiable ownership of something though. I got to admit I don’t fully understand the current NFT silliness either (I do like certain pieces of generative art though, and the concept behind it).

 

Not quite sure what you mean by the second part of your post though? Most NFT minting and trading takes place on Ethereum which has had smart contracts templates for NFT’s for quite a while now. I am not aware of any NFT specific blockchains out there? Then again, I might be missing something… as I said, not too interested in the whole NFT spectacle.

[lkn]

35 minutes ago, mjnaus said:

I am not aware of any NFT specific blockchains out there?

Hic et nunc runs on the Tezos Blockchain because the minting fees are so high on Etherium. Not NFT-specific, but it does invite the question: What does verifiable ownership even mean?

 

I can download a photo from Instagram and then sell “ownership” on multiple blockchains. What did people actually buy?

 

Best case, they bought a falsified receipt.

 

And this does actually happen, and unlike in the real world, there is no legal recourse. E.g. if I sell you a fake title deed to a house, and it turns out, I didn’t own the house, you can file criminal charges¹. But that is “meatspace” (NFT doesn’t even apply to physical things, even though that is where most ownership conflicts happen, and if you look at past cases about digital ownership right cases, this is often things like a newspaper using a photo without paying the photographer: How exactly will NFT solve that? newspaper can still use the photo as they please).

 

 

¹ This is of course hypothetical, as property rights are registered centrally by the government, so in Thailand, you have to visit the Land Office to transfer your property rights, but in many European countries, you can actually transfer your property right via your national digital identity, I did for the last condo I sold about 8 years ago, all without having to use a blockchain.

Edited October 7, 2021 by lkn

[mjnaus]

3 hours ago, lkn said:

I can download a photo from Instagram and then sell “ownership” on multiple blockchains. What did people actually buy?

Fortunately, the use cases for NFT’s, even with regards to art, go way beyond “basic” images. One use of NFT’s I am interested in is generative art. This is where art is generated by an algorithm, on chain. So both the algorithms and the generated artwork are both on-chain. Scarcity is built into the algo and a randomness component is included, ensuring each piece is truly unique. Since the algo itself is a smart contract, the uniqueness is verifiable. The interesting part here is that the artist programs the algorithm, and the algorithm creates the pieces. Most look like complete garbage, but there are a handful of artists out there that build algos that turn out amazing art work. 

Edited October 7, 2021 by mjnaus

[The Cipher]

6 hours ago, lkn said:

Demand for real estate and stocks is not based on this This is (one) definition of a bubble, i.e. someone buying an asset, not for its intrinsic value, but because they think they can sell it later at a higher value.

Rest assured, I'm familiar with valuation methods consistent with finance theory.

 

Here are some quick thoughts re: crypto valuation.

• Most crypto protocols have valuation parallels with traditional assets. You gotta actually make an effort to understand the differentiating value propositions for different cryptoassets to understand which are applicable.
• For instance Bitcoin isn't very 'useful' but claims its value proposition as a fixed-supply source of digital gold. You may or may not agree with that demand driver, but gold has traded on a similar proposition for thousands of years. At the time of writing an ounce of gold costs $1,760/oz, a price detached from the real world 'usefulness' of gold. I could expound but it would get too long. Just think of it as something something longstanding cultural norm and established track record with known correlations allow for a pool of buyers/sellers where each feels relatively sure that said pool will remain over time.
• Some crypto protocols, like AAVE actually do generate cash flow and can be valued by traditional DCF techniques and valuation multiple techniques.
• Other 'useful' cryptos, like Ethereum need to be spent in order to perform transactions and activities on the network (gas fees), or are are often locked (removed from supply) in order to perform a function. When a network sees an explosion in use like Ethereum has this year, demand for tokens spikes as more users need to access the network and need to bid for Eth to do so. 
• Have said this elsewhere, but a lot of crypto protocols can be thought of as akin to venture capital portfolio companies that trade in real time from seed through to maturity (or death), rather than buried in the private closed-end fund structure of traditional venture capital. Hopefully someone understands the profundity of this. It's one of the cleverer things I've written lately. This explains why you see so many famous VC firms (and VC firms in general) as major operators in the space now.
• Speculation in the space, as well as leverage, pushes up a lot of assets to very high multiples when compared to more mature companies. The resulting high volatility makes the a dream for certain types of traders. This partly explains why you see so many famous Hedge Funds in the space now.
• Some investors are making intelligent bets on growth based on research, but others are just aping around and a few tokens have valuations are nonsensical (no, this doesn't mean they all are).

That concludes my thoughts on valuation methodologies for crypto and its related valuation quirks. I won't be covering the second part of your post, ie 'what problem does crypto solve and why would anyone want it?'.

 

Nothing against you, but I've done that way too many times on here and nobody ever responds to what I actually write on that topic (although collectively the responses to those posts make for an interesting case study on behavioral finance biases, but I digress).

[mjnaus]

1 hour ago, The Cipher said:

Rest assured, I'm familiar with valuation methods consistent with finance theory.

 

Here are some quick thoughts re: crypto valuation.

• Most crypto protocols have valuation parallels with traditional assets. You gotta actually make an effort to understand the differentiating value propositions for different cryptoassets to understand which are applicable.
• For instance Bitcoin isn't very 'useful' but claims its value proposition as a fixed-supply source of digital gold. You may or may not agree with that demand driver, but gold has traded on a similar proposition for thousands of years. At the time of writing an ounce of gold costs $1,760/oz, a price detached from the real world 'usefulness' of gold. I could expound but it would get too long. Just think of it as something something longstanding cultural norm and established track record with known correlations allow for a pool of buyers/sellers where each feels relatively sure that said pool will remain over time.
• Some crypto protocols, like AAVE actually do generate cash flow and can be valued by traditional DCF techniques and valuation multiple techniques.
• Other 'useful' cryptos, like Ethereum need to be spent in order to perform transactions and activities on the network (gas fees), or are are often locked (removed from supply) in order to perform a function. When a network sees an explosion in use like Ethereum has this year, demand for tokens spikes as more users need to access the network and need to bid for Eth to do so. 
• Have said this elsewhere, but a lot of crypto protocols can be thought of as akin to venture capital portfolio companies that trade in real time from seed through to maturity (or death), rather than buried in the private closed-end fund structure of traditional venture capital. Hopefully someone understands the profundity of this. It's one of the cleverer things I've written lately. This explains why you see so many famous VC firms (and VC firms in general) as major operators in the space now.
• Speculation in the space, as well as leverage, pushes up a lot of assets to very high multiples when compared to more mature companies. The resulting high volatility makes the a dream for certain types of traders. This partly explains why you see so many famous Hedge Funds in the space now.
• Some investors are making intelligent bets on growth based on research, but others are just aping around and a few tokens have valuations are nonsensical (no, this doesn't mean they all are).

That concludes my thoughts on valuation methodologies for crypto and its related valuation quirks. I won't be covering the second part of your post, ie 'what problem does crypto solve and why would anyone want it?'.

 

Nothing against you, but I've done that way too many times on here and nobody ever responds to what I actually write on that topic (although collectively the responses to those posts make for an interesting case study on behavioral finance biases, but I digress).

Very well articulated! Most probably will fall on deaf ears with the fanatic anti-crypto crowd, but I appreciate this writeup nonetheless. Hope you don’t mind me recycling some of this content?

 

I could be mistaken, but weren’t you the one proposing a meetup in another thread a few months back? If so, and if you’re still in Thailand beginning next year, we should get together for beer/coffee. 

Edited October 7, 2021 by mjnaus

[The Cipher]

51 minutes ago, mjnaus said:

Most probably will fall on deaf ears with the fanatic anti-crypto crowd, but I appreciate this writeup nonetheless. Hope you don’t mind me recycling some of this content?

I don't expect to convince anyone. Explaining things in writing helps me make sure I actually understand what I'm talking about by forcing my brain to think through the topic lol.

 

You're free to reuse any of the content if you think it's helpful, but I make no representations on quality or correctness. I'm not a crypto expert and there's a toooon of stuff I don't understand lol. I mostly learn by hanging out on relevant Discords and reading Tweets and Substacks written by people more informed than I am.

 

1 hour ago, mjnaus said:

I could be mistaken, but weren’t you the one proposing a meetup in another thread a few months back? If so, and if you’re still in Thailand beginning next year, we should get together for beer/coffee. 

Yeah this was me! In Vancouver now, but tentatively expect to be back around the holiday period. Will be located in Bangkok. Would be happy to meet up with you individually or even as an 'AseanNow Crypto Bulls N' Bears' group more generally. The latter would probably make for a funny as hell evening.

[lkn]

15 hours ago, The Cipher said:

Rest assured, I'm familiar with valuation methods consistent with finance theory.

 

Here are some quick thoughts re: crypto valuation.

• Most crypto protocols have valuation parallels with traditional assets. You gotta actually make an effort to understand the differentiating value propositions for different cryptoassets to understand which are applicable.
• For instance Bitcoin isn't very 'useful' but claims its value proposition as a fixed-supply source of digital gold. You may or may not agree with that demand driver, but gold has traded on a similar proposition for thousands of years. At the time of writing an ounce of gold costs $1,760/oz, a price detached from the real world 'usefulness' of gold. I could expound but it would get too long. Just think of it as something something longstanding cultural norm and established track record with known correlations allow for a pool of buyers/sellers where each feels relatively sure that said pool will remain over time.
• Some crypto protocols, like AAVE actually do generate cash flow and can be valued by traditional DCF techniques and valuation multiple techniques.
• Other 'useful' cryptos, like Ethereum need to be spent in order to perform transactions and activities on the network (gas fees), or are are often locked (removed from supply) in order to perform a function. When a network sees an explosion in use like Ethereum has this year, demand for tokens spikes as more users need to access the network and need to bid for Eth to do so. 
• Have said this elsewhere, but a lot of crypto protocols can be thought of as akin to venture capital portfolio companies that trade in real time from seed through to maturity (or death), rather than buried in the private closed-end fund structure of traditional venture capital. Hopefully someone understands the profundity of this. It's one of the cleverer things I've written lately. This explains why you see so many famous VC firms (and VC firms in general) as major operators in the space now.
• Speculation in the space, as well as leverage, pushes up a lot of assets to very high multiples when compared to more mature companies. The resulting high volatility makes the a dream for certain types of traders. This partly explains why you see so many famous Hedge Funds in the space now.
• Some investors are making intelligent bets on growth based on research, but others are just aping around and a few tokens have valuations are nonsensical (no, this doesn't mean they all are).

That concludes my thoughts on valuation methodologies for crypto and its related valuation quirks. I won't be covering the second part of your post, ie 'what problem does crypto solve and why would anyone want it?'.

 

Nothing against you, but I've done that way too many times on here and nobody ever responds to what I actually write on that topic (although collectively the responses to those posts make for an interesting case study on behavioral finance biases, but I digress).

> Here are some quick thoughts re: crypto valuation.
 

Valuation, and value creation are two different things.
 

For example, I may have a car that I want to sell you, we can agree on a model to valuate this car, and it is certainly not worthless, but if you buy this car, and sell it again in a year, no value has been created from you holding the car.
 

My question has been very simple: How is value *created* (in the crypto/blockchain space)?
 

But maybe instead you can give me a simple yes or no: Is bitcoin a zero sum game?
 

> For instance Bitcoin isn't very 'useful' but claims its value proposition as a fixed-supply source of digital gold. You may or may not agree with that demand driver, but gold has traded on a similar proposition for thousands of years. At the time of writing an ounce of gold costs $1,760/oz, a price detached from the real world 'usefulness' of gold.
 

Gold does have some fundamentals. The all-in sustaining cost of mining gold is $1,048/oz (2021'Q2).
 

People are willing to pay 3 times that for jewelry made out of gold, so there is a little profit for the jeweler and there is a little profit for the mining company (value creation).

 

It is true that a lot of gold is bought as a hedge against inflation, but if that demand disappeared, I don’t think price of gold would go down much, because the profit from mining gold is within reason, and there is demand for jewelry and electronics.
 

Also, looking at inflation adjusted price of gold, there have been bubbles, but the trend seems to be downward since leaving the gold standard, which is rational, if gold is useless (but it is not entirely useless, as said, it is used in both electronics and jewelry).
 

And as for bitcoin as digital gold; you are right. I may not agree with this proposition, as it’s effectively just numbers in a spreadsheet, of which there are multiple forks (quadrupling the supply), but I digress.
 

But if we do go by this proposition, I am surprised that you would not use the all-in price of mining bitcoins as an indicator of where the price of a bitcoin should be.
 

But of course, this is a bit of a moving target, because if the price gets too low, miners will go offline, making it cheaper to mine coins, and if the profit gets too high, more miners should go online (if we have an efficient market), which just makes it more expensive to mine coins. And then you have to add in the transfer fees, which are also variable, and could offset a low bitcoin price.

 

> Some crypto protocols, like AAVE actually do generate cash flow and can be valued by traditional DCF techniques and valuation multiple techniques.
 

But they are not generating U.S. dollars, so I don’t see how you can value them in U.S. dollars.
 

For example, I have my AmpCoin, and if you buy 100 of these coins, and then transfer them to me, I will give you 15 additional AmpCoins each year the coins are in my possession. How much in U.S. dollars is that worth to you?
 

> Other 'useful' cryptos, like Ethereum need to be spent in order to perform transactions and activities on the network (gas fees), or are are often locked (removed from supply) in order to perform a function. When a network sees an explosion in use like Ethereum has this year, demand for tokens spikes as more users need to access the network and need to bid for Eth to do so. 
 

This I can sort of agree with. However, price of ETH should not depend on “how many wants to do transactions on the chain”, it should depend on “how much value is created by doing transactions on the chain”.
 

For example, let’s say this forum adopts blockchain technology, so if you want to react to my post, you have to do a transaction on the blockchain, so that we have verifiable proof that you were the one reacting to my post.
 

If it turns out, that gas fees for this is $10, will you pay it? No, you will just not react to my post, because it is too expensive.
 

I realize that this is not what we are currently seeing, e.g. people are paying hundreds of dollars worth of ETH to effectively store the checksum of a JPEG on the chain. Many do this because they think that they can “sell” it to someone else for more than what they paid in minting fees. Is this rational?
 

> Have said this elsewhere, but a lot of crypto protocols can be thought of as akin to venture capital portfolio companies that trade in real time from seed through to maturity (or death), rather than buried in the private closed-end fund structure of traditional venture capital. Hopefully someone understands the profundity of this. It's one of the cleverer things I've written lately. This explains why you see so many famous VC firms (and VC firms in general) as major operators in the space now.
 

Do you mean like an ICO? I understand why people will initially buy a coin from an ICO, because, as you say, it is basically an investment in a startup. But if that startup does not produce anything of value, the coin becomes worthless, right?
 

So again, value creation has nothing to do with blockchain or coins, it could just as well have been a kickstarter project.
 

You can argue that blockchain creates value in that it allows crowdfunding without having to go through something like kickstarter, and thereby avoid the 5% fee, but kickstarter will argue that those 5% is providing a platform to communicate with your backers, exposure, and maybe some security for the backers (I think majority of ICOs just made the founders rich without producing anything for the backers, where kickstarter has a pretty high success rate).

 

Blockchain proponents often bring up “we can remove the middleman and thereby make things cheaper” as an argument in favor of a decentralized system, but then when you bring up the extreme risk in this space, the answer is “a third party can just do escrow (via a smart contract on the chain)”, but this is just re-inventing the existing system, because anyone doing escrow in crypto space would want a fee for their services, especially if they also have to act as oracle to verify if goals have been met by the counter-party.

 

> Speculation in the space, as well as leverage, pushes up a lot of assets to very high multiples when compared to more mature companies. The resulting high volatility makes the a dream for certain types of traders. This partly explains why you see so many famous Hedge Funds in the space now.
 

Yes, speculation can give you crazy returns. But if no value is actually being created, it is at best a zero sum game, and you just move a lot of money from one group of people to another.
 

Is that good for society?
 

> Some investors are making intelligent bets on growth based on research, but others are just aping around and a few tokens have valuations are nonsensical (no, this doesn't mean they all are).
 

I would be curious to learn what projects you think have value.
 

> That concludes my thoughts on valuation methodologies for crypto and its related valuation quirks. I won't be covering the second part of your post, ie 'what problem does crypto solve and why would anyone want it?'.
 

No worries, I appreciate the time you take to engage in civil and informed discussion.
 

[HenryfromMalaysia]

Agree on lkn about no much use of crypto on real life yet at this moment. Until I see crypto being use in my daily life then I will stick to bitcoin / ethereum only cause likely when I do see crypto in my daily life, the price will go up a lot.

So do have some position in crypto if it does becomes something.

 

I said this before but will say it again, whether you are pro or anti crypto, 

just open coinbase account and earn USD32 in all sort of coins and then convert it to bitcoin or ethereum. 
Coinbase fee is expensive but the conversion is relatively good.
And if you open another account for your other half, that is another free USD32

 

[mjnaus]

1 hour ago, lkn said:

But they are not generating U.S. dollars, so I don’t see how you can value them in U.S. dollars.

As long as there are liquid markets where the underlying tokens are traded for fiat US or US based stables, of course those tokens can be valued in USD. 

 

Your statement would be akin to stating that a Dutch public company, generating revenue only in EUR and not trading on any USD based stock exchange can not be valued in USD terms. That doesn't make much sense. 

 

And to stick with @The Cipher's original example of AAVE, if you're an LP on the protocol in one of the USD stable coin pools, you would be generating fees denominated in USD.

 

Here's some interesting stats on AAVE from our pals at Token Terminal: https://www.tokenterminal.com/terminal/projects/aave

[lkn]

24 minutes ago, mjnaus said:

Your statement would be akin to stating that a Dutch public company, generating revenue only in EUR and not trading on any USD based stock exchange can not be valued in USD terms. That doesn't make much sense. 

No, because we have an exchange rate based on import/export of the European union, and we are trading a money generating asset.

 

It is closer to a government issuing state bonds in their own currency, that they print themselves (without any backing), and expect to sell them for USD. You are throwing good money after bad, it doesn’t matter that the issuer will give you more worthless currency as compensation for your risk.

 

Although even in this high risk scenario, at least there is a chance that the money earned from selling government bonds will go into helping the local economy and create growth (e.g. invest in education for the population that makes their labour worth more, which then brings in higher taxes, etc.).

Edited October 8, 2021 by lkn

[mjnaus]

4 hours ago, lkn said:

No, because we have an exchange rate based on import/export of the European union, and we are trading a money generating asset.

There is an exchange rate between USD/EUR simply because there’s demand for it. Wether or not that demand is entirely driven by imports/exports (which of course it isn’t) is irrelevant. All that matters is that there a liquid market facilitating the trade in currency pairs, just as there is between Aave tokens and USD. And as I mentioned, Aave generates fees denominated in USD directly as well, rendering the entire point moot. 

[mjnaus]

19 hours ago, The Cipher said:

Yeah this was me! In Vancouver now, but tentatively expect to be back around the holiday period. Will be located in Bangkok. Would be happy to meet up with you individually or even as an 'AseanNow Crypto Bulls N' Bears' group more generally. The latter would probably make for a funny as hell evening.

I'm game! Let's connect early next year and see if we can organize something.

[The Cipher]

7 hours ago, lkn said:

I would be curious to learn what projects you think have value.

This question, and pretty much all of the 'value creation' category of questions, can be answered with a fundamental understanding of Ethereum. It's like asking the value creation prop of the internet. You can also read about Axie Infinity, an online game built on Ethereum with millions of players.

 

7 hours ago, lkn said:

But they are not generating U.S. dollars, so I don’t see how you can value them in U.S. dollars.
 

For example, I have my AmpCoin, and if you buy 100 of these coins, and then transfer them to me, I will give you 15 additional AmpCoins each year the coins are in my possession. How much in U.S. dollars is that worth to you?

It's worth whatever the spot exchange rate is at the time I want to convert, or the time I want to mark to USD. If I wanted to get precise, it'd be worth whatever my realized exchange rate would be, which would include the actual rate I'd get plus trans costs.

 

7 hours ago, lkn said:

If it turns out, that gas fees for this is $10, will you pay it? No, you will just not react to my post, because it is too expensive.

Steps are underway to fix high gas on Ethereum. Update EIP 1559 rolled out this year and has been very successful so far. Fee issues are known and will come down in time. They haven't stopped the growth of the network so far anyway. In fact, one of the reasons gas is expensive on Ethereum relative to some other chains is because the network is actually seeing volume use.

 

7 hours ago, lkn said:

Do you mean like an ICO? I understand why people will initially buy a coin from an ICO, because, as you say, it is basically an investment in a startup.

No, that's not what I mean. I'd have to explain the venture capital model and how their traditional funds work in order to explain this point and there isn't time for that. Basically, crypto protocols are publicly floated at an earlier stage than are most companies. So the markets for many of those are inherently more speculative, risky, and built on future projections. Venture Capitalists are used to playing in this space, but the floating valuations are a new wrinkle.

 

It would be like if AirBnB had gone public after successfully proving their business model in a handful of properties in just one city.

 

7 hours ago, lkn said:

Is that good for society?

I don't know. Maybe, maybe not. Depends on how the space develops as it matures.

[lkn]

On 10/8/2021 at 5:48 PM, The Cipher said:

This question, and pretty much all of the 'value creation' category of questions, can be answered with a fundamental understanding of Ethereum. It's like asking the value creation prop of the internet. You can also read about Axie Infinity, an online game built on Ethereum with millions of players.

 

When the internet was introduced, people didn’t buy IPv4 addresses, leaned back, and waited for these to increase in price, because there are only about 3.7M non-reserved addresses.

 

The internet is a tool that can enable services that weren’t possible before the internet, but when Google introduced Maps, it didn’t make data packets on the internet or IPv4 addresses more expensive. Nobody bought virtual tokens in anticipation of selling these at a profit, once GMail was launched, because any monetary value that Google creates by introducing a service, goes to Google’s shareholders, not people who bought IPv4 addresses…

 

And once the internet became popular, it only got cheaper to use. When we started to realize that 3.7M addresses weren’t enough, we invented NAT and IPv6 to solve that problem, rather than increase the price of an address to $55,000.

 

You are correct that Etherium *can* be used to create a value adding business on top of it, but this is just a gimmick, as technically, something like Axie Infinity can just as easily be done without Etherium (and it would use less resources).

 

Many games already have market places, and based on the recent Facebook outage, entire countries seems to be running on top of Facebook. Citizens of these countries don’t have to buy volatile Facebook tokens to participate in the Facebook marketplace, nor is Facebook using any blockchain to enable sellers and merchants to connect with each other.

 

One thing blockchain does enable is that it is censorship resilient, but this has a high price. But why would any legal business need to be censorship resilient? And if they do not need it, why would they pay for it? There are some businesses that *do* need to be censorship resilient, but majority of people do not interact with these, so it’s a niche.

 

Also remember, blockchain is almost as old as the iPhone, so it’s not exactly because we are in the early stages. And the successful businesses are really just the offshore and unregulated exchanges and yield farms, which benefit from the censorship resiliency, but where a lot of money has also been lost by regular people, so value is not created, it is just moved from the losers to the winners (although on paper, a lot of people are winners).

 

Though let me ask you, say I agree with you that Etherium does create value because of Axie Infinity, do you then agree that bitcoin is worthless?

 

On 10/8/2021 at 5:48 PM, The Cipher said:

It's worth whatever the spot exchange rate is at the time I want to convert

If you follow our discussion, I am asking how value is created (by buying a token, and then later selling it for a profit), you tell me we can assign a value to interest paying assets/tokens, I say this can only be done in the same currency, but we want to assign a USD value to the asset/coin, and now you tell me that the USD value is set by the market.

 

I mean no offense, but your answers come across as shallow. E.g. demand is creating the value, the market is assigning the price. Yes, that is superficially how it works, but why is there demand? How does the market determine a fair price? These things can be answered for regular assets, they don’t have good answers for most crypto coins.

 

I wonder if you agree that speculation is driving majority of the demand, and majority of activity on the Etherium blockchain is pump and dumps of the probably more than ten thousand alt coins?

 

But I don’t think we are getting much further in this thread, as said earlier, I appreciate your contribution, and the opportunity to express my views without being met by condescending responses (not mentioning names), like you, I do also find that articulating my view is a good way to make sure I actually understand what I am talking about, think things through, etc., and if I am ever in Bangkok, I am game for a meetup.

 

One last remark, you have avoided answering my direct question about whether or not you think it is a zero-sum game. Take a simple coin like bitcoin and consider this carefully. If you do agree that it is a zero-sum game then consider the mining rewards, every 10th minute, 6.25 new coins are given to a miner, who did not pay for these coins. How does that affect the game? It actually makes it a negative-sum game.

 

As long as there isn’t a massive sell off, the price can hold. But Tesla bought bitcoins for more than a billion, MicroStrategy is closer to 3 billion, bitcoin minors in North America has not been selling any bitcoins this year and is sitting on more than a billion (and has corresponding liabilities), the Mt.Gox estate is sitting on 11 billion worth of bitcoins, all this money is just parked on some entity’s balance sheet, it’s hard to believe that sooner or later, these entities won’t sell out of their bitcoins, I mean, what are they waiting for? The collapse of the U.S. dollar?

 

Edited October 9, 2021 by lkn

[lkn]

Regarding El Salvador, from a piece in NYT:

 

Quote

Nearly a month after the introduction of bitcoin, it remains unclear where the dollar funds and the bitcoin held by the government, or reflected in Chivo Wallets, are, or what they are worth. […] Mr. Bukele has treated the bitcoin policy as a state secret. He has classified all information related to Chivo Wallet, which was created with taxpayer funds, but is run as a private enterprise by undisclosed individuals.

[…]

What Bukele is doing is not bitcoin, but a centralized, state-run banking system

Remember my hypothesis that this is just a way for Bukele to either get a cut of remittence dollars and/or issue unbacked virtual dollars?

 

There is also a post in r/CryptoCurrency from an El Salvadorian who gives his impression from being on the ground, he mentions there have been two protests, and a third is scheduled for the 17th of October.

[The Cipher]

2 hours ago, lkn said:

Though let me ask you, say I agree with you that Etherium does create value because of Axie Infinity, do you then agree that bitcoin is worthless?

No. Like I said before, the value propositions for different tokens and projects aren't uniform. Bitcoin's value is based on something different than is Eth's. Bitcoin's claim is

 

something I explained in a previous post. Market participants are actively determining the consensus value of a Bitcoin transaction at all times.

 

That consensus might be different from your own views, which would lead you to not transact or even to short (or proxy short) the asset. The prior sentences can be generalized to apply to all assets of any kind.

 

4 hours ago, lkn said:

If you follow our discussion, I am asking how value is created (by buying a token, and then later selling it for a profit), you tell me we can assign a value to interest paying assets/tokens, I say this can only be done in the same currency, but we want to assign a USD value to the asset/coin, and now you tell me that the USD value is set by the market.

 

I mean no offense, but your answers come across as shallow. E.g. demand is creating the value, the market is assigning the price. Yes, that is superficially how it works, but why is there demand? How does the market determine a fair price? These things can be answered for regular assets, they don’t have good answers for most crypto coins.

No. I explained this in the past few posts. If you're curious you can go back and re-read those, because these paragraphs show an incomplete understanding of what I wrote previously and I don't really want to expound.

 

4 hours ago, lkn said:

 

As long as there isn’t a massive sell off, the price can hold. But Tesla bought bitcoins for more than a billion, MicroStrategy is closer to 3 billion, bitcoin minors in North America has not been selling any bitcoins this year and is sitting on more than a billion (and has corresponding liabilities), the Mt.Gox estate is sitting on 11 billion worth of bitcoins, all this money is just parked on some entity’s balance sheet, it’s hard to believe that sooner or later, these entities won’t sell out of their bitcoins, I mean, what are they waiting for? The collapse of the U.S. dollar?

I actually disagree here. The more institutional money that flows into Bitcoin, the less likely we are to see a massive selloff, in my opinion. Moreover large holders actually have a disincentive to send prices sharply downwards under most conditions.

 

At some theoretical future point, large-cap coin volatility should drop off a lot when some threshold level of institutional adoption is reached, and when protocols mature and regulation is stable. That will be the beginning of the maturation phase of the crypto market, but it's still some years away, I believe.

 

4 hours ago, lkn said:

One last remark, you have avoided answering my direct question about whether or not you think it is a zero-sum game. Take a simple coin like bitcoin and consider this carefully. If you do agree that it is a zero-sum game then consider the mining rewards, every 10th minute, 6.25 new coins are given to a miner, who did not pay for these coins. How does that affect the game? It actually makes it a negative-sum game.

No. I do not believe that crypto in general is a zero-sum game any more than I believe any other asset class in general is. You're anchored to the premise that all tokens are inherently useless and therefore valueless. Because you're anchored to that point as your north star and keystone premise, it's affecting your ability to understand perspectives that come with different foundational premises (for instance, that value creation is possible and that something meaningful is being built underneath the noise).

 

However, there are a lot of scams in the crypto space. Those would be more zero-sum.

 

5 hours ago, lkn said:

I wonder if you agree that speculation is driving majority of the demand, and majority of activity on the Etherium blockchain is pump and dumps of the probably more than ten thousand alt coins?

Yes. I believe that speculation drives demand in a lot of the space, and that this is amplified by leverage. I don't know that this is necessarily a bad thing, but we will see.

 

5 hours ago, lkn said:

But I don’t think we are getting much further in this thread, as said earlier, I appreciate your contribution, and the opportunity to express my views without being met by condescending responses (not mentioning names), like you, I do also find that articulating my view is a good way to make sure I actually understand what I am talking about, think things through, etc., and if I am ever in Bangkok, I am game for a meetup.

No problem. I get a kick out of humoring you guys on AseanNow (thereby humoring myself lol).

 

I've said this before but will reiterate. Although I pipe up to defend the asset class, most retirees would be best served by giving crypto a miss. The nature of that market makes it a poor fit for most retiree portfolios. It's high vol and speculative, extremely fast moving, and the high-value forums and methods of communication are geared in general towards younger generations.

 

And yes, would be happy to put faces to names. I'm sure we'll be able to arrange something that's fun for all!

[ThailandRyan]

Looks like Sri Lanka has jumped on board. They are drafting a digital currency policy and looking for Crypto investors. I am amused that the few who keep kicking the crypto currencies out the door not only on this form but elsewhere seem to have missed that this has taken hold, and even though it is not an asset class for some it is for many.

 

Additionally, 

Federal Reserve chair Jerome Powell also announced Thursday that there are no plans to ban cryptocurrency in the US, and prices soared 10 percent.

 

Meanwhile, in El Salvador, the country has made its first forays into Bitcoin 

mining using power generated by a volcano, according to a video released by state-owned geothermal electric company, LaGeo SA de CV.

The first Bitcoin mining rigs have been installed in an energy factory there, where weeks ago, President Nayib Bukele made the cryptocurrency legal tender.

Edited October 10, 2021 by ThailandRyan

[fdsa]

On 10/7/2021 at 7:18 PM, mjnaus said:

Not quite sure what you mean by the second part of your post though? Most NFT minting and trading takes place on Ethereum which has had smart contracts templates for NFT’s for quite a while now. I am not aware of any NFT specific blockchains out there? Then again, I might be missing something… as I said, not too interested in the whole NFT spectacle.

 

On 10/7/2021 at 7:11 PM, fdsa said:

We have proof of ownership for 13 years already, in the original blockchain and every single other cryptocurrency.

- I mean that you could calculate a checksum of any digital item and add it as a raw hex data to a transaction to the same (your) address on Bitcoin or every single other blockchain.

Then the ownership could be checked in such way: if you are the first one with this checksum on a blockchain and you haven't sent a transaction with this checksum to anybody else. If you send a transaction to the different address it means you've transferred the ownership.

 

P.S. I didn't read how NFT works so it could be even a more simple solution, still my approach is simple enough and could be implemented in a 13 years old cryptocurrency.

Edited October 10, 2021 by fdsa

[fdsa]

On 10/7/2021 at 1:14 PM, fdsa said:

... if you have 1 whole Bitcoin you are in "one of a ten thousand" elite club, maybe even "one of a thousand", but not "one of 21 million" as commonly thought.

well, I was wrong: here are the details: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

- there are 812841 addresses holding more than 1 BTC. Many people have Bitcoins spread over several addresses so we could safely divide that amount by two (or even by ten), so its 100-500k persons.

 

The club is not as elite as I thought, but still.

 

... P.S. there are approx 20 millions of dollar millionaires in the world.

 

Edited October 10, 2021 by fdsa

[fdsa]

On 10/8/2021 at 1:05 AM, mjnaus said:

I could be mistaken, but weren’t you the one proposing a meetup in another thread a few months back? If so, and if you’re still in Thailand beginning next year, we should get together for beer/coffee. 

soooo do I understand correctly that there is going to be some gathering of persons who do posess some digital gizmos which are worth lots of bucks but which are not treated as money or securities thus a loss or theft of these gizmos would not be investigated, and these persons have no rights compared to locals thus their police reports would simply be ignored?  ????

 

https://lenta-ru.translate.goog/brief/2021/07/19/prison/?_x_tr_sl=ru&_x_tr_tl=en&_x_tr_hl=th&_x_tr_pto=ajax,elem

 

"According to him, having received the access keys from the prisoner, the attackers expelled the victim without fear of consequences. “Even if he went to the police, no one would deal with the issue of the theft of cryptocurrency, which is in the gray zone, especially when the victim has no connections,” the source explained to Lenta.ru."

 

stay safe, wash your hands and keep a distance.

 

Edited October 10, 2021 by fdsa

[The Cipher]

45 minutes ago, fdsa said:

soooo do I understand correctly that there is going to be some gathering of persons who do posess some digital gizmos which are worth lots of bucks but which are not treated as money or securities thus a loss or theft of these gizmos would not be investigated, and these persons have no rights compared to locals thus their police reports would simply be ignored?  ????

Dw bro. We're all gonna sell out to cash before the meetup. Or at least, that's what I would do if I still had any coins.

 

But unfortunately I lost my crypto wallet in a boating accident this past summer and now it's gone. ????‍♂️