The Stablecoin Saga Continued

In The Stablecoin Saga I discussed the first of Datafinnovation's two series on (meta)stablecoins, about the mystery of where the backing for coins like USDT is. Now, below the fold, it is time to look at their second series, mostly about tracing the flows of stablecoins using data from their blockchains.

The Stablecoin Saga

Starting in August, Datafinnovation has posted two series of posts about (meta)stablecoins, the first about Tether's reserves and the second about tracing flows of stablecoins. Below the fold, primarily for my own understanding, I try to summarize the first. I plan to return to the second in a subsequent post.

No Actual People Were Harmed In The Making Of This Market

FTX Token

The modus operandi of the crypto-bros in responding to criticism and calls for regulation is to talk about "innovation" and gaslighting about hypothetical future benefits, to deflect attention from the actual current costs of their favorite technology (see also autonomous vehicles). Below the fold I point out an egregious example of the genre.

Matt Levine's "The Crypto Story": Part 2

The first part of my discussion of Matt Levine's The Crypto Story covered the first two of its four chapters:

1. Ledgers, Bitcoin, Blockchain, in which he lays out the basics of Bitcoin's technology.
2. What Does It Mean?, in which he discusses generalizations of Bitcoin, such as Ethereum.
3. The Crypto Financial System, in which he discusses financial technologies such as exchanges, stablecoins and DeFi.
4. Trust, Money, Community, in which he discusses the social and societal impacts.

Below the fold, I go on to look at the last two chapters. They are shorter than the first two, and my expertise is less in these areas, so there is less to write.

Matt Levine's "The Crypto Story": Part 1

Even if you're not a Bloomberg subscriber you can read Matt Levine's The Crypto Story with a free registration, or here, and I urge you to do so. It is long, about 40K words, but well worth the effort. It is remarkably good - lucid, comprehensive, balanced, accurate. It even has footnotes expanding on the details where he is oversimplifying for clarity of exposition.

Levine's magnum opus is in four parts:

1. Ledgers, Bitcoin, Blockchain, in which he lays out the basics of Bitcoin's technology.
2. What Does It Mean?, in which he discusses generalizations of Bitcoin, such as Ethereum.
3. The Crypto Financial System, in which he discusses financial technologies such as exchanges, stablecoins and DeFi.
4. Trust, Money, Community, in which he discusses the social and societal impacts.

This post is not a substitute for reading the real thing. Below the fold, some commentary on fragments of the first two parts. The second two parts will have to wait for a subsequent post, because even commenting on such a massive post gets way long. Block quotes without links are from Levine's article.

Greater Fool Supply-Chain Crisis

Source

Louis Ashworth's The unbearable stability of bitcoin points to a mystery:

Bitcoin’s doing fine, thanks for asking.

Amid a shaky few months for markets, the world’s favourite cryptocurrency has been remarkably stable, trading in the narrowest range since late 2020
...
As might be expected, that lack of movement has coincided with a downturn in activity on most exchanges other than market leader Binance, which has cut fees to drum up more business and now hosts about a fifth of all volume
...
Stability looks good, at least relative to what’s happening elsewhere. But thinning volumes in a market that has no utility beyond store of value, where the actions of its few active daily participants are being determined by technical resistance and support levels, is not a symptom of robust health.

Below the fold I look into this persistent failure to proceed moon-wards

Non-Fungible Token Bubble Lasted 10 Months

Although the first Non-Fungible Token was minted in 2014, it wasn't until Cryptokitties bought the Ethereum blockchain to its knees in December 2017 that NFTs attracted attention. But then they were swiftly hailed as the revolutionary technology that would usher in Web 3, the Holy Grail of VCs, speculators and the major content industries because it would be a completely financialized Web. Approaching 5 years later, it is time to ask "how's it going?"

Below the fold I look at the details, but the TL;DR is "not so great"; NFTs as the basis for a financialized Web have six main problems:

1. Technical: the technology doesn't actually do what people think it does.
2. Legal: there is no legal basis for the "rights" NFTs claim to represent.
3. Regulatory: much of the business of creating and selling NFTs appears to violate securities law.
4. Marketing: the ordinary consumers who would pay for a financialized Web absolutely hate the idea.
5. Financial: like cryptocurrencies, the fundamental attraction of NFTs is "number go up". And much of the trading in NTFs was Making Sure "Number Go Up". But, alas "number go down", at least partly because of problem #4.
6. Criminal: vulnerabilities in the NFT ecosystem provide a bonanza for thieves.