Long Reads Sunday #84

The halving debate, CBDCs, macro, and adversarial thinking in DeFi

Feb 24, 2020

Happy Sunday from the Hudson Valley,

It’s nearly 50 and sunny here, which is wonderful for February and also means it will probably dump snow this week. 🤷‍♂️

Arvind Narayanan @random_walker

My favorite thing about being a blockchain researcher is getting to learn the workings of many different industries so that I can explain to people in those industries why blockchain is probably not the answer to their problems.

This week was much of the same - halving debates; CBDC developments; weird price quirks; the specter of impending macro doom - but with a twist. The attacks last weekend on bZx have brought a new adversarial thinking to DeFi that could be enormously beneficial in the long term. Let’s dive in!

LRS | 5 Themes That Defined The Week

Theme 5: Prices and Power

We had just gotten real settled in to this idea of $10k bitcoin when all of a sudden, in 5 minutes, the price crashed more than 5%.

Things are nudging back up over the weekend, and truth by told, people weren’t particularly freaked out about the dip. If anything, they were simply interested to see what others thought caused it.

Mati Greenspan @MatiGreenspan

Ok tweeps!! What caused the dump?! (Single tweet answers only. No links. Gifs also accepted.)

Theme 5: The Halving

I joked a few months ago that the default conversation every day between now and the halving will be whether the halving is priced in. This week didn’t disappoint on that front.

We’ve got bets happening:

Joe Weisenthal @TheStalwart

Just got into a fight with @sethginns about whether the bitcoin halving is priced in. And I’m more convinced than ever that I’m right. (It’s priced in)

More commentary on the Efficient Markets Hypothesis from the ever excellent Allen Farrington

Allen Farrington @allenf32

so I think the efficient markets hypothesis is kinda silly. in short: value is subjective, uncertainty is not risk, economic complexity resists equilibria, markets aggregate prices, not information, and, markets tend to leverage efficiency. in long:

medium.comThe Complex Markets HypothesisIn which I hypothesise that markets are subjective, uncertain, complex, stochastic, adaptive, fractal, reflexive … just not efficient.

A deep dive report from Kraken

Kraken Exchange @krakenfx

🐙 *NEW* WHAT DOES THE #HALVING MEAN FOR #BITCOIN? $BTC prices may be volatile, but they might be cyclical. Past halvings have sparked 2-year uptrends, but it remains to be seen if history will repeat. Our free intelligence report explains: blog.kraken.com/post/3971/krak… #Halving2020N

And one of the more interesting things I’ve seen (you know I love narrative discussions) recently - a discussion of the emergent categories of FUD leading into this halving.

PlanB @100trillionUSD

2020 #bitcoin halving will not be an easy ride: - US/Mnuchin: draconian anti-btc laws - Craig Wright: legal & patent FUD - Hacks: like 2016 halving (DAO,Bitfinex) - MtGox & PlusToken selling narrative - Miner death spiral & futures FUD - Forks Risk vs S2F:

medium.comEfficient Market Hypothesis and Bitcoin Stock-to-Flow ModelIntroduction

Theme 3: Central Bank Digital Currency developments

Libra continues to shape the way the governments of the world are engaging with the digital currency space. This week, perhaps the most notable development in this domain was that Sweden was testing an e-krona, specifically calling out competition from private monies as a motivation.

Speaking of private monies, JPMorgan put out a report this weekend about the entire crypto space, but with an emphasis on stablecoins. Alex Kruger captures the shift in sentiment admirably

Alex Krüger @krugermacro

Jamie Dimon in 2017: Bitcoin is a fraud. Jamie Dimon in 2020: Crypto assets have a place in investors’ portfolios only as a hedge against a loss of confidence in both the domestic currency and the payments system. How is that for a change in perception.

bloomberg.comBloomberg - Are you a robot?

Lastly, in the newly-launched CoinDesk op-ed pages, Nic Carter argues that while some policymakers are looking nervously at cryptos and CBDCs as threatening the USD’s role as the world’s reserve currency, they haven’t much to worry about.

CoinDesk @coindesk

Opinion: U.S. policymakers are worried that CBDCs and crypto will harm the dollar's reserve status. But maybe they have it backwards, writes CoinDesk columnist @nic__carter.

coindesk.comPolicymakers Shouldn’t Fear Digital Money: So Far It’s Maintaining the Dollar’s Status - CoinDeskU.S. policymakers are worried CBDCs and crypto will harm the dollar’s reserve status. But maybe they have it backwards, writes CoinDesk columnist Nic Carter.

Theme 2: Macro and Corona

As has been the case for weeks and sadly will likely be the case for a long while to come, the inescapable background noise for everything in our little part of the economic world is a macro backdrop still trying to figure out the true implications of the Coronavirus.

The best thread of the week (or longer) connecting the dots between the economic underpinnings that already had bitcoiners nervous and this new shock to the system comes from Ikigai’s Hans Hauge

Hans HODL @hansthered

Welcome to the Fourth Turning. At this time, we have entered the "crisis stage" as defined by the generational shift currently in progress. Boomers are retiring, handing the reins to Gen-X, and Millennials are entering their wage-earning years. Let's look at some data.

Delphi’s Kevin Kelly and Real Vision’s Raoul Pal both took to threads to paint the macro picture, with Raoul repeating his mantra of “Bonds. Dollars. Gold. Bitcoin”

Kevin Kelly, CFA @Kevin_Kelly_II

It seems we're approaching a real inflection point in the "Everything Rally" that's characterized much of last year and change in financial markets. And the stakes couldn't be higher... Hashing out a few thoughts below⬇️

Raoul Pal @RaoulGMI

The Global Wrecking Ball - A thread.

Caitlin Long calls out worrisome indicators as it relates to the pension system…

Caitlin Long 🔑 @CaitlinLong_

30-yr US Treasury hitting a record low yield is equally (1) not surprising & (2) terrifying due to implications for #pension obligations. Having worked w/ companies to hedge this very risk for so long, it's scary to see--v few thought it wld ever happen...

marketwatch.com30-year Treasury bond yield breaks to all-time low as coronavirus fears lift havensU.S. Treasury yields extend their weeklong slump on Friday as investors worry that the economic impact of COVID-19 would not be contained to China.

Which, based on the response to this tweet of mine, is something that many are thinking about:

Nathaniel Whittemore @nlw

Anyone else's parents retired and you're fucking terrified because well-meaning, just-dealing-with-what-they've-seen-for-40-years financial advisors are predicating their plan on sustained growth that you don't think is possible? Or...is that just me?

Speaking of which, in one of the absolutely best threads of the week, think tank director Oren Cass looks at how to reconcile economic statistics that suggest that workers are making slow, steady progress with the feeling that people are fali

Oren Cass @oren_cass

Thread (1/16). How is that our economic statistics suggest workers have been making slow but steady progress in recent decades, while popular perception is that their family finances are coming under increasingly untenable pressure? I've been working on this, here's my answer:

One thing to watch for this week is, as Coronavirus comes to Europe and traditional markets get more and more spooked, will we see the mainstream perpetuation of the BTC-as-Safe-Haven narrative?

Theme 1: Adversarial Thinking Comes to DeFi

We discussed the first bZx attack last week, but then on Monday, a second attack happened, provoking even more reaction. For MyCrypto’s Taylor Monahan, it was at least partially about the team specifically involved:

Taylor Monahan @tayvano_

Stop giving teams, products & platforms the benefit of the doubt. bZx's repeatedly fucked up. Repeatedly. At least *6* times. How the hell were they able to lose another $650k?! I give zero fucks about writing bad code. All code has bugs. What comes next is what matters.

Taylor Monahan @tayvano_

@intocryptoast No. It doesn't work like that. Culture is very hard to change. If it's not happening during testing, it won't in production. You can fix bugs, but not the attitudes towards the bugs. Fixing bugs doesn't fix future bugs, only past ones. AS EXEMPLIFIED BY BZXs REPEATED ACTIONS 😫

Taylor also wrote a great debrief in the excellent “Our Network” newsletter.

Larry Cermack from The Block predicted “exploitation season” for DeFi - which I think perfectly sums up the new normal we might see.

Larry Cermak @lawmaster

It’s DeFi exploitation season. The first exploit showed a lot of people that something like that is even possible. Now it’s go time

The project that saw the highest uptick in adversarial thinking - i.e. thinking ahead to what attackers might try to exploit - was Maker. This makes sense, as it is the most essential and interconnected project in the space. The conversation quickly honed in on a proposed delay in governance so that if an attacker were able to take over the network, there would be time to respond before something catastrophic happened.