Thursday, November 30, 2023

There Is No Planet B: Part 1

Anything Elon Musk says must be treated skeptically. This is particularly true of anything involving timescales (see Tesla robotaxis). And it is even more true of Musk's plans for visiting and eventually colonizing Mars.

Below the fold in part 1 of this two-part post, I apply some arithmetic just to the logistics of Musk's plans for Mars. Part 2 isn't specific to Musk's plans; I discuss two attempts to list the set of "knowns" about Mars exploration, for which the science is fairly clear but the engineering and the economics don't exist, and the much larger set of "known unknowns", critical aspects requiring robust solutions for which the science, let alone the engineering, doesn't exist:

Tuesday, November 28, 2023

Decentralized Finance Isn't

A major theme of this blog since 2014's Economies of Scale in Peer-to-Peer Networks has been that decentralized systems aren't, because economic forces overwhelm the technologies of decentralization. Last year I noted that this rule applied to Decentralized Finance (DeFi) in Shadow Banking 2.0 based on Prof. Hilary Allen's DeFi: Shadow Banking 2.0? which she summarizes thus:
TL;DR: DeFi is neither decentralized, nor very good finance, so regulators should have no qualms about clamping down on it to protect the stability of our financial system and broader economy.
And also DeFi risks and the decentralisation illusion by Sirio Aramonte, Wenqian Huang and Andreas Schrimpf of the Bank for International Settlements who write:
While the main vision of DeFi’s proponents is intermediation without centralised entities, we argue that some form of centralisation is inevitable. As such, there is a “decentralisation illusion”. First and foremost, centralised governance is needed to take strategic and operational decisions. In addition, some features in DeFi, notably the consensus mechanism, favour a concentration of power.
Below the fold I look at new evidence that the process of centralizing DeFi is essentially complete.

Tuesday, November 21, 2023

Desperately Seeking Retail

The SEC has a long history of refusing to approve spot Bitcoin ETFs, on the reasonable basis that the Bitcoin market was heavily manipulated. Crypto-skeptics like Bitfinex'ed and Davd Gerard have been pointing out obvious instances of manipulation for many years, and there is a considerable academic literature demonstrating manipulation, such as Crypto Wash Trading by Lin William Cong et al, which demonstrates:
abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume.
Unfortunately, despite knowing about the manipulation, the CFTC approved Bitcoin futures ETFs. Among the requests that the SEC refused was one from Grayscale Bitcoin Trust. Grayscale sued the SEC and, back in August, the panel of judges ruled in their favor:
The court's panel of judges said Grayscale showed that its proposed bitcoin ETF is "materially similar" to the approved bitcoin futures ETFs. That's because the underlying assets— bitcoin and bitcoin futures - are "closely correlated," and because the surveillance sharing agreements with the CME are "identical and should have the same likelihood of detecting fraudulent or manipulative conduct in the market for bitcoin."

With that in mind, the court ruled that the SEC was "arbitrary and capricious" to reject the filing because it "never explained why Grayscale owning bitcoins rather than bitcoin futures affects the CME’s ability to detect fraud."
The prospect of the SEC approving this ETF and others from, for example, BlackRock and Fidelity led to something of a buying frenzy in Bitcoin as shown in the "price" chart, and in headlines such as Bitcoin ETF Exuberance Drives Four-Week ‘Nothing for Sale’ Rally:
Bitcoin is climbing for a fourth consecutive week, with the digital token’s price lingering just below an 18-month high of $38,000, as more investors bet that US exchange-traded funds that hold the largest cryptocurrency are on the verge of winning regulatory approval.
Below the fold I look into where this euphoria came from, and why it might be misplaced

Thursday, November 16, 2023

NDSA Sustainability Excellence Award

Yesterday, at the DigiPres conference, Vicky Reich and I were awarded a "Sustainability Excellence Award" by the National Digital Stewardship Alliance. This is a tribute to the sustained hard work of the entire LOCKSS team over more than a quarter-century.

Below the fold are the citation and our response.

Tuesday, November 14, 2023

Alameda's On-Ramp

Tether has been one of the major mysteries of the cryptosphere for a long time. It has never been audited, and has been described as being "practically quilted out of red flags". Matt Levine says "I feel like eventually Tether is going to be an incredibly interesting story, but I still don’t know what it is." He was commenting on Emily Nicolle's Bankman-Fried Trial Renews Conjecture About Alameda’s $40 Billion Tether Stablecoin Pile by Emily Nicolle. It includes a lot of interesting information, starting with this:
Alameda was Tether’s largest non-exchange customer between 2020 and 2022, with blockchain data showing it received almost $40 billion in transfers of its stablecoin USDT directly from the company — equal to roughly 20% of all USDT tokens ever issued.
Below the fold, I discuss the questions Nicolle raises, and go on to ask one she doesn't

Thursday, November 9, 2023

Robotaxi Economics

The New York Times team of Tripp Mickle, Cade Metz and Yiwen Lu have been covering San Francisco's experiment with robotaxis from Waymo and Cruise for some time. Their latest report is G.M.’s Cruise Moved Fast in the Driverless Race. It Got Ugly., and it is a doozy. Leaving aside the serious safety issues that finally forced the DMV to stop Cruise operating, their history of interference with first responders, and the traffic congestion they exacerbate, the really devastating part of the article is the economics. Below the fold, I lay out the numbers.

Tuesday, November 7, 2023

My Old Car

This post celebrates my weird old car's 30thbirthday. It is a Mazda RX-7 dated November 1993, carrying the California license RX7 DSHR. I bought it new and in the almost 30 years since have driven it for nearly 140K miles. Unusually for an RX-7 this old, it is almost completely stock and has never been on a track.

Below the fold, I recount an RX-7 saga spanning thirty-eight years and well over a quarter-million miles.

Thursday, November 2, 2023

Limited Liability

Regulation works by assigning liability for actions to specific actors. The whole idea of decentralization is that by diffusing responsibility among a large number of participants the system could evade regulation. Each participant would bear such a small part of the responsibility for the system's actions that enforcing liability for the actions to each of them would be infeasible. The problem with this is that, for economic reasons, the Gini coefficients of cryptocurrencies are extremely large. It is true that most of the participants have only a small part of the responsibility, but there are always some who have a large share and are thus worth enforcing liability against.

In Piercing The Veil I discussed a Commodity Futures Trading Commission enforcement action in which the bZeroX exchange converted itself into a DAO:
By transferring control to a DAO, bZeroX’s founders touted to bZeroX community members the operations would be enforcement-proof—allowing the Ooki DAO to violate the CEA and CFTC regulations with impunity, as alleged in the federal court action. The order finds the DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the CEA and CFTC regulations.
Below the fold I discuss a post in which Matt Levine reports on a more recent lawsuit making the same argument.