Matthew C. Pollard's Recent LinkedIn Posts

I recommend watching today's House Financial Services Committee on Cryptocurrency (link below). Questions and comments specifically from Bill Foster and Sean Casten are excellent and raise difficult issues (e.g. LEIs for wallets, matters of price discovery, and positioning of a CBDC among the wild-cat instruments of USDC/USDT). The quality of discourse is heads-and-shoulders above the last time congress quizzed Facebook on Libra.

Atomic swaps on tokenized USD, tokenized JPY, tokenized EUR is where this is going. (No XRP tokens are necessary to achieve this, thank you very much Ripple). The main innovation with cryptocurrencies is in the perfectly recorded, efficient, cheap and fast settlement system. And paired with atomic swaps, no counter-party settlement risk. Perfect tracking of flows are of interest to governments, quick cheap settlement of interest to everyone else (no more correspondent bank hops and 3 business day wires for international payments). What's need for this to be realized is 1. tokenize fiats (no tether, and eventually by governments), 2. a common ledger for atomic swaps to occur. Even ethereum fails at that, ERC20 tokens can't be atomic swapped for ETH. Once we have that, we arrive at the era of algorithmic banking.

Ken Griffin won a copy of the US constitution at a Sotheby's auction against ConstitutionDAO, which raised $47m via Ethereum transactions from 17,437 wallets. These contributions will now be refunded. At current gas prices of $53 in ETH for a simple ETH transaction (and more for erc20s), DAO members will have spent around $1.85m in network fees to participate. The median contribution of $206 will see half of their participation lost in network fees. Clearly, the elephant in the room, Ethereum is too expensive to use and by at least three orders of magnitude so. ETH2.0 seems unlikely to materially reduce usage fees, and it has been delayed to end-of-2022. Layer-2 solutions beg the question why use ETH at all. Solana, the third largest blockchain in valuation and activity after BTC and ETH, has simple transactions costing 0.000005 sol. At current prices, that's 1/10th of a cent. Confirmation times are measured in hundreds of milliseconds, not minutes. It has a rapidly developing ecosystem and it uses a modern popular language, Rust, for contracts. It doesn't have glaring MEV problems that ETH has for on-chain trading. Speed, cost and scale are the Achilles heel for crypto to become more than just a speculative game. On these measures, ETH has largely failed, and Solana currently provides the best option forward.

Last Look in spot FX needs to end. #nolook

I think I accidentally caused Alexander Gerko to melt down today. He's new to public social media. I commented that his article comparing last-look spot FX liquidity to US equities was peculiar and problematic. He responded simply with libelous comments about a certain market making team he competes with. (see in comments section) Now he's paranoid I'm a twitter profile (@marketfairness) who made similar, more directed, points. Here's the thread https://lnkd.in/gCMSSbX. I'm not @marketfairness but thanks for the thoughts. The point stands that I and marketfairness made, and this is hardly contentious really : US equities, with firm liquidity and market maker obligations, is not at all comparable to spot-FX with last-look. That's stating it politely.

Symbolic (of global zero-interest-rate-policies) #Bitcoin #JPM

High-frequency theft (hft...) in Ethereum: Listen for newly made wallets on the protocol, brute-force check if the private key is weak ("12345", poorly implemented RNG) with a list of pre-generated candidates, as quickly as possible, and, if so, empty the wallet as soon as the private key is cracked or when funds are transferred to it and the key is already cracked. Turns out this is now a highly-competitive activity, with a researcher testing it out with $1 deposits on new wallets with weak keys: several bots try to empty the wallet within milliseconds of each other. As seen earlier with the FOMO3D attack, bit-robbers are incredibly sophisticated now.

Below, an instagram influencer on why some Millennials are buying dead companies' stock (GME, NOK, BB...) : they're saying fu to capitalism by literally throwing money away. I can't think of a more disturbing and ironic way of turning socialist than by a generation giving their money to HFTs, existing share owners (baby-boomers) and hedge fund managers by driving up stock prices to senseless levels. Its like the reversed plot of Atlas Shrugged. Millennials: perhaps you should buy bitcoin instead of stocks if you want to protest via trading.

Ethereum has a fee problem: interacting with virtually any smart contract costs you ~$150-300 in gas fees. The reasons are multiple, the largest being gas-fee bidding wars to arbitrage (or front run) automated-market-making platforms like Uniswap. Before a block is finalized, one can see all other pending transactions, and, by bidding higher gas, prioritize your transaction ordering. If your txs are interacting with DeFi platforms, this gives rise to many adversial games, in an all-pay, dollar-auction setup. EIP-1559 is a proposed radical change aimed at solving high gas fees. Astonishingly, it implements a form of financial transaction tax. Instead of currently sending all fees to miners (who do all the work of keeping the network running), a portion of the fees will be given back to all ETH holders, a form of socialized gain via reducing the ETH supply. This does very little to reduce the high demand for blockspace, from arb-bots, or increase its supply. And it's political: tax high-tx users and miners and redistribute the gains to all (but mainly passive holders). The biggest ETH mining pools (e.g. Spark Pool) are very much against the proposal and they're loudly complaining, correctly, that EIP1559 is crypto-socialism.

https://lnkd.in/efu7Egk. Well worth reading the full Tech Quarter. Innovation during this boom has mostly been in how to run marketing campaigns.

Here are the fields per user contained in the June-21 LinkedIn breach, affecting 92% of users. The dataset is being sold on RaidForums (a marketplace for illicit data).

Grayscale's Bitcoin Trust is trading at -24% discount to NAV this morning. This is bad news if you're doing the crowded GBTC 'arbitrage' trade: there's no in-kind redemption mechanism for the trust, only a creation mechanism at six-month delay. This means you can't arbitrage discounts to NAV (unless you're DCG), and there's a huge pipeline of funds trying to arbitrage a historical premium. Its probably bad news too if you have deposits with crypto-lenders engaging in the GBTC premium trade, as candidly discussed below. (I'm unaffiliated with the link.) While the article singles out BlockFi, any crypto lender offering long-duration, high rates on BTC/ETH is likely engaging in the same risky trade; a trade that works until it doesn't. #grayscale

How to pay for the pandemic and stimulus programs: {tax, inflate, austerity, default, financially repress, grow}. Going forth, expect countries to use one or several of these strategies. WW2 debt in the US and UK was slowly paid for by a combination of nominal GDP growth exceeding borrowing costs, high taxation on capital gains and income and periods of high inflation. The economic liberty we've become familiar with since the 1980s will likely fade back into a combination of higher taxes, higher-than-expected inflation, forms of capital control and mechanisms to maintain low nominal interest rates. The Economist on the hard choices we face:

Evidently, the most lucrative and best thing for bright young minds to work on is monetizing Elon Musk tweets about Dogecoin. The invisible hand works in mysterious ways.

Nothing quite sums up the last 12 months as this gem of postmodern art. https://lnkd.in/eRGDgAz

End of an era...

[In preparation for a no-deal Brexit...] "The Economist is stockpiling around 30 tonnes of the paper on which the covers of our British edition are printed, which comes from the Netherlands. "

RenTech Medallion on Bitcoin trading (via SEC ADV-form risk disclosures) https://lnkd.in/eB7rHzH