tag:blogger.com,1999:blog-4503292949532760618.post7901378740500361829..comments2024-03-28T13:39:27.601-07:00Comments on DSHR's Blog: Microeconomics Of CryptocurrenciesDavid.http://www.blogger.com/profile/14498131502038331594noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4503292949532760618.post-14099022926288500042022-09-16T07:59:09.520-07:002022-09-16T07:59:09.520-07:00Joachim Klement's Another tail wagging the dog...Joachim Klement's <a href="https://klementoninvesting.substack.com/p/another-tail-wagging-the-dog" rel="nofollow"><i>Another tail wagging the dog</i></a> explains why the touted diversification provided by cryptocurrencies is illusory:<br /><br />"Unfortunately, there is a significant link between cryptocurrency markets and traditional asset markets even if all the money invested in cryptocurrencies stays within that market. The reason for this link is the existence of stablecoins.<br />...<br />What happens if additional stablecoins are issued is that the issuer needs to buy these traditional safe assets. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4106815" rel="nofollow">Sang Rae Kim has calculated</a> that for every $300m increase in the issuance of stablecoins, the demand for Commercial Paper increases by 10.7%, leading to a 20bps decline in Commercial Paper yields and a 15bps decline in Treasury yields."<br /><br />So if people switch from BTC to UST it reduces interest rates, a sell sign for equities and buy sign for bonds - a self-reinforcing mechanism. And vice versa.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-66817645486323669192022-06-22T17:21:52.927-07:002022-06-22T17:21:52.927-07:00Amy Castor's The tale of a whale who took Sole...Amy Castor's <a href="https://amycastor.com/2022/06/20/the-tale-of-a-whale-who-took-solends-money/#post-10248" rel="nofollow"><i>The tale of a whale who took Solend’s money</i></a> is a detailed look at how one whale took a notional 36% haircut to get $108M out of Solana's SOL token:<br /><br />"In the case of Solend, <a href="https://solend.fi/dashboard?wallet=3oSE9CtGMQeAdtkm2U3ENhEpkFMfvrckJMA8QwVsuRbE" rel="nofollow">a whale</a> took out a large margin position. They parked 5.7 million SOL (currently worth $170 million) onto the platform to withdraw $108 million in USDC and USDT. The whale then vanished, and would not pay down the loan or respond to tweets from Solend’s pseudonymous founder Rooter. [<a href="https://twitter.com/0xrooter/status/1537108015836385280" rel="nofollow">Tweet</a>]<br /><br />This is one of the reasons we’ve seen such a proliferation of stablecoins in 2021 — they are used in DeFi lending. Retailers (the public) buy stablecoins and stake them on DeFi platforms hoping to earn higher interest than they can from traditional banks. The market cap of USDC was 4 billion in early 2021. Today, it is 56 billion.<br /><br />The whale’s position represented 95% of all Solana deposits on Solend and 88% of all USDC the platform had lent out. If Solana dropped to $22.30, the whale risked partial liquidation — about $21 million worth of SOL — even though they didn’t seem to care. And the retail stakers risked losing their USDC."<br /><br />Note that the whale lost a notional three times the liquidation they risked. This tells you that the whales are desperate to get their money out before the contagion spreads, as David Gerard and Amy Castor document in <a href="https://davidgerard.co.uk/blockchain/2022/06/22/crypto-collapse-latest-the-contagion-spreads/" rel="nofollow"><i>Crypto collapse latest: the contagion spreads</i></a>:<br /><br />"Fear spreads by contagion. There have <a href="https://davidgerard.co.uk/blockchain/2018/01/04/why-you-cant-cash-out-pt-3-bitcoin-is-not-a-ponzi-scheme-it-just-works-like-one/" rel="nofollow">never been enough dollars to cash out the paper wealth in crypto</a>. So the whales — the largest crypto holders — are swinging their weight around to try to cash out before you can."David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-10329098240521644392022-06-18T09:30:54.427-07:002022-06-18T09:30:54.427-07:00Amy Castor and David Gerard celebrate the end of ...<a href="https://amycastor.com/2022/06/18/bitcoin-fell-below-20000-and-why-it-has-further-to-go/" rel="nofollow">Amy Castor</a> and <a href="https://davidgerard.co.uk/blockchain/2022/06/18/bitcoin-drops-below-20000-ether-cracks-1000-what-this-means/" rel="nofollow">David Gerard</a> celebrate the end of the current bubble, with BTC below $20K and below the high of the previous bubble, and ETH below $1K.<br /><br />We should expect to see the hash rates start to drop. I'm told the break-even for BTC mining with the latest Bitmain chips is around $17K, and even before today's drop <a href="https://cryptoslate.com/ethereum-mining-no-longer-profitable-for-many-miners-as-energy-prices-and-eth-dip-cause-perfect-storm/" rel="nofollow">mining ETH with an Nvidia 2090</a> wasn't profitable on the East Coast. Let alone that if the long-delayed Merge really happens in September all their <a href="https://www.bloomberg.com/news/articles/2022-06-16/ethereum-mining-tweak-renders-some-crypto-tech-worthless?srnd=premium" rel="nofollow">GPUs will be rendered obsolete</a>. They will have to be sold into a <a href="https://arstechnica.com/gadgets/2022/06/as-cryptocurrency-tumbles-prices-for-new-and-used-gpus-continue-to-fall/" rel="nofollow">collapsing market for used and even new GPUs</a>.David.https://www.blogger.com/profile/14498131502038331594noreply@blogger.comtag:blogger.com,1999:blog-4503292949532760618.post-22724563204246525832022-06-16T11:58:46.956-07:002022-06-16T11:58:46.956-07:00Great article. But there are many more holes to e...Great article. But there are many more holes to explore... Some comments:<br /><br />* There is a "67% attack" in which the attacker can impose any change to the protocol to every other user, hodler, exchange, miner, and "node", by freezing their coins until they switch to the attacker's hard-forked chain.<br /><br />* While there is a correlation between fee and delay when the BTC network is congested, a stable "fee market" -- a practically computable function from desired delay to needed fee -- cannot exist. Such a "fee estimator" would require knowing which fees will be paid in the next 10 minutse by other users, who will be running fee estimators too. So it is somewhat like asking for an algorithm that will output a number that is more than twice the number it will output. Note that if 4 million txs arrive at the same time, many of them will take days to confirm -- even if they all pay 1 million USD of fee.<br /><br />* Conversely, theory and history show that it is impossible to predict how long it will take for a transaction to be confirmed, given its fee. In particular, it is impossible to predict how long a backlog will last. We have seen transactions delayed by as much as 6 weeks.<br /><br />* Moreover, it is impossible for the network to be permanently congested. Theory and history show that the incoming traffic T will grow until it is a bit below the capacity C, say 90%. Then random fluctuations in T and C will cause backlogs of random duration and size, separated by periods when the mempool is empty and the network is not congested. During these periods, there will be no "fee market" either, because any fee above the bare minimum will give confirmation in the next block.<br /><br />* A 51% majority can raise the fees any way they like. One possibility is a demurrage tax -- an extra fee that depends on the age of the UTXO, say 5% per year, compounded on a block basis. For hodlers, that would be equivalent to a fixed 5% inflation per year. For miners, it would mean a fixed revenue of 5% of all existing coins per year, forever, independent of halvings. (Except that it would be distributed even more unevenly than the block reward. For example if Satoshi moved his 1 M BTC, the lucky miner who confirmed that tx would take more than 600'000 of those coins. How would the other miners react?Anonymoushttps://www.blogger.com/profile/17509515072375468253noreply@blogger.com