Tuesday, July 25, 2023


Technology markets, and others that share their strong economies of scale, naturally tend to evolve into oligopolies, if not outright monopolies. Brian Arthur described the mechanism in 1994's Increasing Returns and Path Dependence in the Economy. This tendency has been supercharged ever since Richard Posner and George Stigler of the Chicago School got the Reagan administration to hamstring anti-trust enforcement. We see the result in technology and many other markets, dominated by a few giant companies devoted, in Cory Doctorow's memorable coinage, to enshittification:
Here is how platforms die: first, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die.
This process applies more broadly than just to platforms, except the part about dying. Below the fold I discuss a recent development that provides an opportunity for you to take action to push back against it.

Tuesday, July 18, 2023

NY Fed: Metastablecoins

Stablecoin circulation
Last May, in the wake of the Terra/Luna crash, I wrote Metastablecoins, describing how coins like USDT intended to be stabilized via arbitrage were always at risk of the market over-running the arbitrageurs firepower, and More Metastablecoins, quoting from Bryce Elder's report on Barclay's analysis of "asset-backed" coins such as USDT that, while they claim to be fully reserved, do not offer immediate unrestricted liquidity:
We think that willingness to absorb losses, even though USDT is fully collateralized and has an overnight liquidity buffer that exceeds most prime funds, suggests the token might be prone pre-emptive runs. Holders with immediate liquidity demands have an incentive (or first-mover advantage) to rush to sell in the secondary market before the supply of tokens from other liquidity-seekers picks up. The fear that USDT might not be able to maintain the peg may drive runs regardless of its actual capacity to support redemptions based on the liquidity of its collateral.
Now Kenechukwu Anadu et al of the NY Federal Reserve have a deep dive into the events of May 2022 entitled Runs on Stablecoins. Below the fold I have some comments.

Tuesday, July 4, 2023

Blog on vacation

I have a stack of books that I set aside for summer reading, so this blog is on vacation for two weeks so I can at least reduce the height of the stack.