Level up your open finance game 5x a week. Subscribe to the Bankless program below.

Subscribe now

Dear Bankless Nation,

Why does Ethereum exist?

To slay Moloch. 👹

David explains what that means in today’s piece.

- RSA

🙏Sponsor: Zerion – Invest in DeFi from one place. 🚀 (I use this app daily - RSA)

We just released a new ALPHA LEAK on Uniswap’s UNI Token

📺 Watch ALPHA LEAK: Uniswap's UNI Token—$1,200 Airdropped, Farming begins

THURSDAY THOUGHT

Author: David Hoffman, Bankless Nation Founding Father & The Etherean at POV-Crypto

The energy around DeFi tokens and yield farming has dominated the news cycle in Ethereum and crypto. During these eras of growth and development (it’s spring-time in Ethereum!), the content and narratives have focused on token speculation, alpha-leaking, and profit-maximization.

This phase of the crypto-cycle is always the phase that draws the most controversy. This is supposed to be world-changing technology, yet instead profit-maximalists are infiltrating and corrupting our communities in search of a quick buck.

They’ll get upset when BTC breaks ATHs and dominates news cycles and illiquid ERC20s pump 1,000x and makes overnight millionaires.

But this is just a new phase of wealth distribution mechanisms.

While many individuals will loudly condemn the promotion of such activities (especially those who own alternative assets that don’t have upside exposure to these activities), I take the opposite stance.

This bull phase of the bull-boom-crash-bear cycle is where a lot of value is generated. Unless we want this wealth concentrated into the hands of a few, we need to educate and inform about how these cycles work, and the technology that underpins them. It would be an absolute shame if DeFi was built, and then we gatekept the innovations for DeFi whales alone. If we want the value that is created to be distributed, we need to responsibly promote and educate the signal that is being relayed.

The last few months in DeFi have produced new assets with paradigm-breaking fundamentals. If we don’t advertise and promote the things coming out of DeFi, then they will be reserved for those that are already wealthy (and might ultimately come to fail as a result).

Every new cycle, the promise of life-changing wealth brings in hoards of new market participants, which ultimately adds to the fervor and ultimately creates further capital appreciation, generates more noise and news, which adds new market participants, and repeat.

As the music stops and market participants grow pessimistic, people leave. Markets contract, energy leaves, and those that stick around are left to clean up the mess. As with the cycles before us, those that remain behind are your new bear market friends. Long-lasting relationships, new anti-fragile products, and real value are created in bear markets. Value is created in the bear markets and expressed in the bull.

I’m a child of the last bull phase.

I entered the space in ~July of 2017, just 5 months before the peak of the 2017 market. Not early enough to be able to access sufficient upside in capital appreciation, but fortunately I am an idealist, an optimist, a sci-fi dreamer, and this allowed me to see the underlying currents that Ethereum had created, regardless of the fact that 99% of all ICOs were scammy cash grabs. Every cycle, Ethereum expresses itself differently, but those that stick around are the ones that come in via the bull market and gain access the signal through the noise of mooning tokens and ‘promising projects’.

Banking the unbanked…retaking control of our money…the life of a sovereign individual. These were the narratives that dominated the previous bull market, and will likely dominate this one too. Because they’re real. They will dominate every bull market because they are truth.

But we can go deeper. Ethereum can do those things, but there is something much more powerful that it can do…. that it is doing now!

What is the one single goal of Ethereum, above all others?

To slay Moloch 🔪

Moloch: Bane of Humanity

If you were around during the 2018-19 bear market, the story of Moloch was memed into the Ethereum narrative by Ameen Soleimani, creator of MolochDAO. Moloch is the god of human coordination failure, and the post Meditations on Moloch from the Slate Star Codex blog was the topic of conversation for weeks, if not months, during the long brutal bear market. While things were boring and slow, the story of Moloch and how Ethereum fits into the story was a fun mental exercise and community conversation.

Human Coordination Failure

The Moloch blog post goes through a few thought experiments that illustrate the power of Moloch… the answer to the question “why can’t we have nice things”… why countries can’t coordinate to solve climate change, or why we can’t save the oceans or forests, or Great Barrier Reef.

The essence of moloch is described this way:

Imagine the possibility of a dictatorless dystopia, one that every single citizen including the leadership hates but which nevertheless endures unconquered. It’s easy enough to imagine such a state. Imagine a country with two rules: first, every person must spend eight hours a day giving themselves strong electric shocks. Second, if anyone fails to follow a rule (including this one), or speaks out against it, or fails to enforce it, all citizens must unite to kill that person. Suppose these rules were well-enough established by tradition that everyone expected them to be enforced.
So you shock yourself for eight hours a day, because you know if you don’t everyone else will kill you, because if they don’t, everyone else will kill them, and so on. Every single citizen hates the system, but for lack of a good coordination mechanism it endures. From a god’s-eye-view, we can optimize the system to “everyone agrees to stop doing this at once”, but no one within the system is able to effect the transition without great risk to themselves.

Here are some examples of coordination failure in the Moloch post:

The Prisoners Dilemma

…as played by two very dumb libertarians who keep ending up on defect-defect. There’s a much better outcome available if they could figure out the coordination, but coordination is hard. From a god’s-eye-view, we can agree that cooperate-cooperate is a better outcome than defect-defect, but neither prisoner within the system can make it happen.

Fish-Farming Example

As a thought experiment, let’s consider aquaculture (fish farming) in a lake. Imagine a lake with a thousand identical fish farms owned by a thousand competing companies. Each fish farm earns a profit of $1000/month. For a while, all is well.
But each fish farm produces waste, which fouls the water in the lake. Let’s say each fish farm produces enough pollution to lower productivity in the lake by $1/month.
A thousand fish farms produce enough waste to lower productivity by $1000/month, meaning none of the fish farms are making any money. Capitalism to the rescue: someone invents a complex filtering system that removes waste products. It costs $300/month to operate. All fish farms voluntarily install it, the pollution ends, and the fish farms are now making a profit of $700/month – still a respectable sum.
But one farmer (let’s call him Steve) gets tired of spending the money to operate his filter. Now one fish farm worth of waste is polluting the lake, lowering productivity by $1. Steve earns $999 profit, and everyone else earns $699 profit.
Everyone else sees Steve is much more profitable than they are, because he’s not spending the maintenance costs on his filter. They disconnect their filters too.
Once four hundred people disconnect their filters, Steve is earning $600/month – less than he would be if he and everyone else had kept their filters on! And the poor virtuous filter users are only making $300. Steve goes around to everyone, saying “Wait! We all need to make a voluntary pact to use filters! Otherwise, everyone’s productivity goes down.”
Everyone agrees with him, and they all sign the Filter Pact, except one person who is sort of a jerk. Let’s call him Mike. Now everyone is back using filters again, except Mike. Mike earns $999/month, and everyone else earns $699/month. Slowly, people start thinking they too should be getting big bucks like Mike, and disconnect their filter for $300 extra profit…
A self-interested person never has any incentive to use a filter. A self-interested person has some incentive to sign a pact to make everyone use a filter, but in many cases has a stronger incentive to wait for everyone else to sign such a pact but opt out himself. This can lead to an undesirable equilibrium in which no one will sign such a pact.

3. Capitalism

Imagine a capitalist in a cutthroat industry. He employs workers in a sweatshop to sew garments, which he sells at minimal profit. Maybe he would like to pay his workers more, or give them nicer working conditions. But he can’t, because that would raise the price of his products and he would be outcompeted by his cheaper rivals and go bankrupt. Maybe many of his rivals are nice people who would like to pay their workers more, but unless they have some kind of ironclad guarantee that none of them are going to defect by undercutting their prices they can’t do it.
Like the rats, who gradually lose all values except sheer competition, so companies in an economic environment of sufficiently intense competition are forced to abandon all values except optimizing-for-profit or else be outcompeted by companies that optimized for profit better and so can sell the same service at a lower price.
(I’m not really sure how widely people appreciate the value of analogizing capitalism to evolution. Fit companies – defined as those that make the customer want to buy from them – survive, expand, and inspire future efforts, and unfit companies – defined as those no one wants to buy from – go bankrupt and die out along with their company DNA. The reasons Nature is red and tooth and claw are the same reasons the market is ruthless and exploitative)
From a god’s-eye-view, we can contrive a friendly industry where every company pays its workers a living wage. From within the system, there’s no way to enact it.

Cancer

The human body is supposed to be made up of cells living harmoniously and pooling their resources for the greater good of the organism. If a cell defects from this equilibrium by investing its resources into copying itself, it and its descendants will flourish, eventually outcompeting all the other cells and taking over the body – at which point it dies. Or the situation may repeat, with certain cancer cells defecting against the rest of the tumor, thus slowing down its growth and causing the tumor to stagnate.
From a god’s-eye-view, the best solution is all cells cooperating so that they don’t all die. From within the system, cancerous cells will proliferate and outcompete the other—so that only the existence of the immune system keeps the natural incentive to turn cancerous in check.

Meditations On Moloch - Off-Topic - Open Carnage

In short, Moloch is represented by the extremely unfortunate reality that, the more humans successfully coordinate with each other, the stronger the incentive there is to defect and become a profit-maximalist.

We are all slaves to Moloch. His evil flows in our blood; his vices are our DNA. We are all rationally incentivized actors, and therefore ultimately we must follow his lead.

Moloch compels us.

Are there any that can resist him?

Coordination Layer

Over time, humans have found a way to generate coordination mechanisms in an attempt to thwart Moloch’s power. The story of the human species is finding better and better tools to coordinate with each other; to uphold the collective social contract. This is largely the story that is told in A Bankless Nation. Religion, states, the internet, money, crypto. These are the tools, with many others, that humans have created to help keep people cohered together and prevent defection. These things incentive coordination, which are the mechanisms that humanity needs the most.

What happens when we generate technology that enables defection prevention? What happens when we reduce the difficulty of maintaining coordination and collective goal-oriented behavior?

What happens if we solve global human coordination failure?

Ethereum is a smart-contract blockchain protocol, with its own native coordination mechanism (ETH). The smart-contracts on Ethereum are each their own coordination mechanism. They each have their own goal, and if humans coordinate around each application if they like the goal that is being striven for. Good coordination mechanisms are deep in the Protocol Sink Thesis, while bad ones are supplanted and replaced.

Unstoppable code, immutable transactions, and unprintable money is the ultimate coordination toolkit that humans have never had before. “Bitcoin is for Enemies!” is a chant frequently heard from of Bitcoiners, who praise Bitcoin for being money that even enemies can use. You can distrust everything about your enemy, but when they send you BTC you cryptographic assurance it’s the real thing. Because of Bitcoins, two enemies are given a common platform to coordinate themselves into being allies.

Ethereum takes this superpower and generalizes it. You no longer need to coordinate with another human. Rather, you coordinate with trustless smart-contracts. Finding, discovering, and building systems that enable unstoppable human coordination is SO INSANELY BULLISH FOR HUMANITY, that even the most grandiose sci-fi authors CAN’T DREAM of the future we’re about to build with this technology.

As discussed in the Protocol Sink Thesis, Ethereum is a protocol for protocols. Previous instances of large scale human coordination (religion, nation-states, shared stories) were lucky artifacts of the entropy of the universe—they were one-off successes.

Ethereum is different. Ethereum is a platform for the production of coordination mechanisms. Ethereum is a coordination mechanism factory.

Input: humans, attention, energy, and capital
Output: coordination mechanisms (with some loss along the way).

Ethereum means the world is about to become a lot more coordinated.

Galaxy Simulations Offer a New Solution to the Fermi Paradox | Quanta Magazine

The Fermi Paradox

The Fermi paradox is the apparent contradiction between the lack of evidence for extraterrestrial civilizations and the predicted high estimates for their probability, as produced by models like the Drake equation.

Drake equation: How the alien formula works, what its variables mean - Business Insider

The Fermi Paradox states that even pessimistic models of the frequently of life-suitable planets should have produced some aliens by now but for some reason, we can’t find any—that’s the paradox.

Out of the Fermi Paradox comes the Great Filter Theory. The Great Filter Theory is the idea that that at some point along the march from single-cellular organisms to inter-galactic space-fairing species, something breaks down. It’s simple deductive reason from the fact that:

We can see kinda far into space
We still don’t see any life

Therefore, there must be this shared filter that prevents life from growing large enough systems to be able to become detectable from our region of the galaxy.

Is Moloch the great filter?

It seems clear that large-scale coordination is what we needs the most right now.

Global warming is banging at the gate. The most wealthy country in the world has been reduced to a global laughing stock due to its inability to coordinate. Social media is turning into dis-coordination and chaos-ensuing machines, polarizing humanity into hostile factions rather than cohered bodies. Facebook caused a genocide.

Maybe global human coordination isn’t the great filter, but it is definitely some sort of filter. Whether or not humanity can coordinate its way into solving problems will determine whether or not the human race is fit to live.

Can Ethereum Slay Moloch?

Ethereum is David. Moloch is Goliath.

Moloch has reigned supreme over the land since genesis. While older technologies like institutional religion and nation-state organization has reduced Moloch’s power, he is still alive and well, and those solutions have come with their own human sacrifices.

Ethereum is a neutral piece of technology. Nefarious actors can use it for bad just as altruistic actors can use it for good. But most every individual who lives, past present and future, wants to do good for the world. Very few people actively wake up with the intent to do evil and harm. Humans are good—it’s Moloch that corrupts us. We don’t have a strong enough citadel to keep him out… yet.

If there is ever going to be something that slays Moloch, it will something like Ethereum. But Ethereum can’t do it alone. Ethereum is just a body; it needs tools! Armor, weapons, training. This is our job.

The constant experiments in asset issuance (starting with the ICO) is Ethereum going through its training, learning how to best equip itself against coordination failure (SushiSwaps Sin of Betrayal). Bear markets are where we integrate that knowledge in order to craft the next tier of equipment to prepare for the next level.

The cycle is our level up.

I’m glad the readers of Bankless have been able to participate in DeFi-fun-times the last few months. I’m glad you’ve been able to profit too, either from responsible, low-risk asset investing or degen-leveraged-yield-farming. You are providing the Ethereum meta-consciousness with the data it needs to level up. Thank you for sharpening its sword.

Your Responsibility

Now that you know the story of Moloch, it is your responsibility to pass this information along. The best thing about the Meditations on Moloch blog is that it is something that everyone can resonate with. More importantly, it’s important that you become an ambassador to the effort of trying to slay Moloch. Liberal, conservative, democratic, republic, it doesn’t matter. Defeating Moloch is the most politically neutral thing you can do that is also objectively good for humanity.

Ethereum has many use-cases. It can solve a lot of problems. But if you had to answer the question, “what is the ONE problem that Ethereum is trying to solve”, there is no better answer than “human coordination”.

GitHub - MolochVentures/moloch: 👹 Moloch whose mind is pure machinery! Moloch whose blood is running money!

The Role of the Bull Market

I started this piece discussing the specific role that the bull market plays with the 4-season cycles of crypto: Bull, cool-off, bear, warm-up — Summer, Fall, Winter, Spring. Right now, we’re in Spring. Over the next months and years, many people will come into this space in search of yield, profit, and appreciation. They come for the money, and the good ones stay for the tech.

As you meet these people, tell them about Moloch. Tell them about his powers. Tell them Moloch is the reason we can’t have nice things!

Then, tell them how Ethereum is the coordination layer for humanity. Tell them how smart contracts are robots that can’t defect. Tell them how humans invent new ways to overcome Moloch’s temptations, and how Ethereum is a new paradigm for the mass-production of these tools.

The way that we get Ethereum to level up faster is by embedding the story of Moloch into every profit-maxi’s head. They come for the money, but they stay for the revolution.

That revolution will be the revolution where humanity builds a coordination machine, in order to remove ourselves from the shadow of Moloch.

Ethereum, the Moloch-Slayer. 🔪

Subscribe to Bankless. $12 per mo. Includes archive access, Inner Circle & Badge.

Subscribe now

🙏Thanks to our sponsor

Zerion

Zerion is the easiest way to manage your DeFi portfolio. Explore market trends, invest in 170+ tokens, view returns across wallets and see your full transaction history on one sleek interface. They’re also fully bankless, which means they don’t own your private keys and can’t ever access your funds. I use this app daily! Start exploring DeFi with Zerion on web, iOS or Android. 🔥

- RSA

P.S. Don’t forget to get check out Zerion’s new Uniswap integration. 🦄

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. I’ll always disclose when this is the case.

Bankless

Ethereum: Slayer of Moloch 🔪