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Dear Crypto Natives,
Not your keys not your coin.
If you don’t have access to the private keys of your cryptocurrency then you don’t really own them. The ETH you own in your Coinbase account or on BlockFi is really an ETH-IOU. It’s backed by trust. It’s not fully bankless.
I’m not against using crypto banks by the way. I use them all the time. But if crypto ends up dominated by a small set of powerful crypto banks that we have to trust—well, what’s really changed?
If we do use crypto banks ideally we have a way to verify that they have our money.
That’s why I like the idea of Proof of Keys Day—a day when crypto holders simultaneously withdraw their crypto from the crypto banks to prove that the banks really have their money. A socially coordinated run on the bank every January 3rd. A bank system audit by mass fund withdrawal.
An aside—it’s interesting to consider the equivalent in traditional finance. What would happen in a Proof of Cash Day in traditional banking if we mass withdrew dollars? Pure chaos! Banks operate on a fractional reserve basis so they’re only required to hold 10 percent of their liability obligations in cash (yes, your savings account is a bank liability). And most of these dollars are digital not physical and these digital dollars are held in special accounts with the Federal Reserve that only certain banks can access (not consumers!). So the cash can’t be withdrawn because most of it doesn’t exist and the part that does exist isn’t available for regular people.
Not to worry though. The banking system is highly efficient as long as people trust it!
Back to crypto. Is a bank run through proof of keys really the best we can do? No! People like Nic Carter advocate proof of solvency. That crypto banks voluntarily report and cryptographically prove their reserves on a regular basis. So far, the market has not demanded this of the banks and neither have regulators, thus there’s been near zero uptake. Banks will be banks.
But we can do better than banks now.
Money protocols like Maker, Uniswap, and Compound have proof of solvency built into their systems. Anyone, anywhere in the world can audit them at anytime with the click of a button.
You want to know how much collateral backs DAI? One click & you have the answer.
Don’t trust Etherscan? Try another site. Or run a node and do the query yourself.
You can see how much DAI Compound holds. You can audit the liquidity pools of an entire exchange on demand. No CPAs, legal system, or government required.
A Bitcoin node can assay a Bitcoin. But an Ethereum node can assay a banking system.
Do you see how powerful this is? How much does it cost to audit the traditional banking sector—the lawyers, accountants, reporting across Every. Single. Bank.
An Ethereum node can audit the open finance banking system for $30 a month.
This means anyone can do it.
So I’m saying proof of keys is good. But open finance is better. Because it’s not just one day a year.
Every day is proof of keys for DeFi.
- RSA
Price of ETH and BTC up—is that the smell of bullishness in the air? Everyone predicting a flat or slightly up year for crypto. I predict a 10x year for leveling up.
MARKET MONDAY:
Scan this section and dig into anything interesting
Market numbers
ETH up a smidge to $143 from $132 last Monday
BTC down a bit to $7731 from $7,302 last Monday
DAI stability fee stays 4% with savings rate 4% (vote may move it to 6% & 6%)
Market opportunities
(Lend) Add ETH to Uniswap pool in a click w/ losing ETH (liquidation risk tho)
(Lend) Add DAI liquidity directly via pools.fyi (last year DAI pool did 23%)
(Pay) Pay contractors without a bank using RemRoll (have not tried)
(Buy) Coffee vouchers on Uniswap using Cafe tokens (cool experiment!)
(Earn) Trustlines tokens through airdrop right here (Ethereum PoS Sidechain)
(Lend) wBTC on Fulcrum for 4.7% (you can buy WBTC on DEX.ag)
(Lend) Still can’t beat BlockFi ETH and BTC rates at 4.10% & 6.20%
(Give) To GitCoin grants & have your donation matched (give to Bankless!)
(Earn) 10% on DAI at crypto.com (get $50 MCO w/ banklesscode)
(they’re releasing a non-custodial wallet soon too)
New stuff
What’s hot
500x gas improvement using LoopRing DEX (high potential tech here)
76 million DAI w/ 20 million supplied to Compound
Money reads
Lots of great reads this week—people busy writing during the holidays it seems!
A resource for crypto articles called Nakamoto popped up w/ some good stuff:
Credible Neutrality (incredible article 🔥🔥🔥) - Vitalik Buterin
Values of Bitcoin article - Jameson Lopp
Beginners guide to DeFi (liked it! one thought) - Linda Xie
Great year in Review (but why notjust admit ETH is money?) - Nick Tomaino
A year in crypto (lots of data!) - Santiment
Year end take on DEXes (decent growth!) - Will Warren of 0x
Good reddit post on what 2020 may bring for ETH - DCInvestor
Solid take on the last decade of Crypto - Brian Armstrong of Coinbase
Good perspective on the battle for interest in DeFi - Varun Deshpande
Overview of how exchanges are becoming more like banks - Deribit Research
WHAT I’M DOING
Check out a few opportunities I’m capturing right now with my crypto money
WEEKLY ASSIGNMENT:
Make time to complete this assignment before next week
Extra Credit Learning
MAIN & MINI TAKES:
Read my takes but draw your own conclusions
TWEET-A-QUESTION
Tweet me your question—I reply to one per week
Question from Twitter:
Isn’t ETH just a commodity?
RSA Response:
- RSA
Some recent tweets…
Actions
Execute any good market opportunities you saw
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Let’s onboard 1 billion people to open finance…
If you believe in what we’re doing don’t keep it to yourself—share Bankless with as many people as possible.
Post. Tweet. Tell. That’s how we take back our money system.
If you believe in what we’re doing don’t keep it to yourself—share Bankless with as many people as possible.
Post. Tweet. Tell. That’s how we take back our money system.
How do you identify?
👉Send Bankless a tip for today’s issue (rsa.eth)
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.
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