Dear Crypto Natives,
Not your keys not your coin.
If you don’t have access to the private keys of your cryptocurrency then you don’t really own them. The ETH you own in your Coinbase account or on BlockFi is really an ETH-IOU. It’s backed by trust. It’s not fully bankless.
I’m not against using crypto banks by the way. I use them all the time. But if crypto ends up dominated by a small set of powerful crypto banks that we have to trust—well, what’s really changed?
If we do use crypto banks ideally we have a way to verify that they have our money.
That’s why I like the idea of Proof of Keys Day—a day when crypto holders simultaneously withdraw their crypto from the crypto banks to prove that the banks really have their money. A socially coordinated run on the bank every January 3rd. A bank system audit by mass fund withdrawal.
An aside—it’s interesting to consider the equivalent in traditional finance. What would happen in a Proof of Cash Day in traditional banking if we mass withdrew dollars? Pure chaos! Banks operate on a fractional reserve basis so they’re only required to hold 10 percent of their liability obligations in cash (yes, your savings account is a bank liability). And most of these dollars are digital not physical and these digital dollars are held in special accounts with the Federal Reserve that only certain banks can access (not consumers!). So the cash can’t be withdrawn because most of it doesn’t exist and the part that does exist isn’t available for regular people.
Not to worry though. The banking system is highly efficient as long as people trust it!
Back to crypto. Is a bank run through proof of keys really the best we can do? No! People like Nic Carter advocate proof of solvency. That crypto banks voluntarily report and cryptographically prove their reserves on a regular basis. So far, the market has not demanded this of the banks and neither have regulators, thus there’s been near zero uptake. Banks will be banks.
But we can do better than banks now.
Money protocols like Maker, Uniswap, and Compound have proof of solvency built into their systems. Anyone, anywhere in the world can audit them at anytime with the click of a button.
You want to know how much collateral backs DAI? One click & you have the answer.
Don’t trust Etherscan? Try another site. Or run a node and do the query yourself.
You can see how much DAI Compound holds. You can audit the liquidity pools of an entire exchange on demand. No CPAs, legal system, or government required.
A Bitcoin node can assay a Bitcoin. But an Ethereum node can assay a banking system.
Do you see how powerful this is? How much does it cost to audit the traditional banking sector—the lawyers, accountants, reporting across Every. Single. Bank.
An Ethereum node can audit the open finance banking system for $30 a month.
This means anyone can do it.
So I’m saying proof of keys is good. But open finance is better. Because it’s not just one day a year.
Every day is proof of keys for DeFi.
- RSA
Price of ETH and BTC up—is that the smell of bullishness in the air? Everyone predicting a flat or slightly up year for crypto. I predict a 10x year for leveling up.
MARKET MONDAY:
Scan this section and dig into anything interesting
Market numbers
- ETH up a smidge to $143 from $132 last Monday
- BTC down a bit to $7731 from $7,302 last Monday
- DAI stability fee stays 4% with savings rate 4% (vote may move it to 6% & 6%)
Market opportunities
- (Lend) Add ETH to Uniswap pool in a click w/ losing ETH (liquidation risk tho)
- (Lend) Add DAI liquidity directly via pools.fyi (last year DAI pool did 23%)
- (Pay) Pay contractors without a bank using RemRoll (have not tried)
- (Trade) GodsUnchained cards on TokenTrove
- (Buy) Coffee vouchers on Uniswap using Cafe tokens (cool experiment!)
- (Earn) Trustlines tokens through airdrop right here (Ethereum PoS Sidechain)
- (Lend) wBTC on Fulcrum for 4.7% (you can buy WBTC on DEX.ag)
- (Lend) Still can’t beat BlockFi ETH and BTC rates at 4.10% & 6.20%
- (Give) To GitCoin grants & have your donation matched (give to Bankless!)
- (Earn) 10% on DAI at crypto.com (get $50 MCO w/ bankless code)
(they’re releasing a non-custodial wallet soon too)
New stuff
- Social trading by Set (like eToro) coming soon
- Can now buy crypto via Visa credit card using Binance if in the EU
What’s hot
- Uniswap great 5,000% in liquidity last year!
- 3m ETH locked in DeFi for the first time last week 🔥
- BTC up 9,000,000% over the last 10 years
- 500x gas improvement using LoopRing DEX (high potential tech here)
- 76 million DAI w/ 20 million supplied to Compound
Money reads
Lots of great reads this week—people busy writing during the holidays it seems!
A resource for crypto articles called Nakamoto popped up w/ some good stuff:
Credible Neutrality (incredible article 🔥🔥🔥) - Vitalik Buterin
Values of Bitcoin article - Jameson Lopp
Beginners guide to DeFi (liked it! one thought) - Linda Xie
Great year in Review (but why not just admit ETH is money?) - Nick Tomaino
A year in crypto (lots of data!) - Santiment
Year end take on DEXes (decent growth!) - Will Warren of 0x
Good reddit post on what 2020 may bring for ETH - DCInvestor
Solid take on the last decade of Crypto - Brian Armstrong of Coinbase
Good perspective on the battle for interest in DeFi - Varun Deshpande
Overview of how exchanges are becoming more like banks - Deribit Research
WHAT I’M DOING
Check out a few opportunities I’m capturing right now with my crypto money
Used the newest version of DEX.ag exchange aggregator. Before I trade on decentralized exchanges like Uniswap or Kyber, I check here. Savings on trades often exceed 1%. Note that exchange aggregators exist for centralized exchanges too—SFox and Tagomi are two such examples.
Became a liquidity provider on the Uniswap MKR/ETH pair courtesy of Nodar. He actually created the liquidity himself then gifted it to my RSA.eth address using DeFiZap. This drew my attention to that Uniswap liquidity pool Zaps can now be gifted to Ethereum addresses. Magic!
Explored Tax software that auto imports DeFi transactions. There’s not much at the moment (just manual Eth wallet imports), but several tax software groups reached out to me about working hard to bring DeFi tax functionality to market—starting with protocols like Compound and Uniswap. I bet we’ll see a good start in Q1 and by the end of the year automated DeFi tax features will become standard.
Submitted a GitCoin grant to help expand Bankless media. Gitcoin is running its fourth CLR matching program, so grant donations will be partially matched based on popularity. This time $75k is allocated to education and media. If you’re a writer or educator in this crypto space—apply for a grant!
What’s the coolest thing you did last week in crypto? Here’s what you’ve been up to:
- analyzed on-chain data to analyze $LINK's utility - @chainlinkgod
- Tried my first @DeFi_Zap Leveraged Liquidity Pool Zap! - @cryptoparent
- Participated in proof of keys - @glandsats
- Ordered my @monolith_web3 card - @zharjac
- I read my Bankless program - @Danny56222620 🔥
- Looked at what a @SablierHQ integration with @ethBounties might look like. - @sim_pop
👉See more in thread from last week.
WEEKLY ASSIGNMENT:
Make time to complete this assignment before next week
Lock away some ETH (5 minutes). Lock is a simple protocol that allows you to lock up assets like ETH, DAI, or a token for a period of time. During that period, no one can move the asset—it’s locked. Once the period expires the assets can be released to your own address or to someone else’s address.
Note: This project is early and I’ve not fully reviewed the audits for this protocol. Do not lock up large sums with this protocol. Test amounts only!
Why lock assets? There are many use cases for simple asset lockups. Perhaps you want to solidify your holding ability—lock up some ETH for 6 months. You could give someone a time-locked birthday gift—the DAI is given but only released on her birthday. I’ve personally used time-locks like these for investing—invest some DAI in a token project but the tokens stays locked for 12 months. Here’s a list of other ideas.
Today we’ll setup a simple lock on some ETH. (You’d need MetaMask)
- Go to app.lock.finance
- Select an asset to lock (e.g. ETH or DAI)—just a test amount
- Set amount and number of days (beneficiary can be blank)
- Click “Lock Asset”
Congrats! Your asset is locked for the number of days you specified.
Extra Credit Learning
- (Beginner) VIDEO: Great video to understand China’s digital currency
- (Intermediate) State of network metrics 2019 (this an underrated metric)
- (Intermediate) Intro to tax loss harvesting on crypto by Kraken
- (Intermediate) Excellent Eth2 2020 expectation article 🔥
- (Advanced) Efficient market hypothesis for Bitcoiners
- (Advanced) How to stay anonymous using Tornado cash (don’t dox yourself!)
MAIN TAKES:
Read my takes but draw your own conclusions
- DeFi—this Binance plan for 2020 is what you’re up against. The crypto banks are well coordinated, well organized, and incentive aligned. I particularly worry about their ability to out-stake self-staking options in proof-of-stake networks and effectively centralize these networks. Delegated proof-of-stake networks with onchain governance are particularly susceptible to this.
- The $160b gift cards market is an interesting tokenization use case. Gift cards are the original stablecoins after all. And gray markets are already using them in conjuncture with crypto for use cases like remittances. While gift card tokens do bypass the regulatory pain of security tokens, issuing them in open networks like Ethereum may cause FinCen to view issuers as money services businesses subjecting them to the pain of AML/KYC compliance. Hard to navigate this challenge in the short-run.
- Moloch resurrected the narrative of the DAO in 2019 and accomplished a lot in 400 lines of code. I hope we see 1,000 DAOs in 2020. Aragon says we’re almost there but most on its list are still tiny experiments. I mean 1,000 DAOs with Moloch-sized impact.
MINI TAKES:
- The problem with using FinTech platforms like RobinHood for crypto is that you don’t really own the crypto—just a crypto IOU that you can’t even cash in
- Zoom out and look at the previous yearly lows for BTC and for ETH—will we go below 3,360 BTC and 100 ETH in 2020? Well, we’ve hit higher lows each year except 2015 so 2020 would need to be a year like that.
- A good report on the performance of bank bets—BNB, SNX, NXM, MKR vs crypto money assets like ETH and BTC
TWEET-A-QUESTION
Tweet me your question—I reply to one per week
Question from Twitter:
Isn’t ETH just a commodity?
RSA Response:
This question is most often expressed as a statement, as in ETH is just a commodity so it will never accrue monetary premium. You know my thoughts on ETH’s monetary premium, but I want to also clear something up.
ETH is not a commodity. It’s never been a commodity. Here’s how I put it recently:
This is of course another reason I’ve never liked the “ETH is oil” analogy. If we’re using that analogy, blockspace is the oil. ETH just happens to be the currency set by the protocol for purchasing the oil.
ETH is currency that pays for Ethereum blocks.
Not a commodity. A money that pays for a commodity. Or course, as its used as trustless economic bandwidth and as a reserve asset within the crypto economy, its money use increases beyond just a money for blocks.
- RSA
Some recent tweets…
Actions
- Execute any good market opportunities you saw
- Complete weekly assignment: Lock up some ETH using Lock protocol