From a teachers perspective, the past 12 hours were an excellent teaching moment for why crypto is special. And FWIW, my ultimate conclusion to my students was that everything worked as it was supposed to, and blockchain actually demonstrated why it is useful. The credibly neutral networks did nothing despite the scale of the theft and the bearer assets remain stolen. The parts of the ecosystem that are more centralized played their part and intervened. And of course, everything was shockingly transparent in real time. Having a hierarchy of neutrality and censorship-resistance, where base layers and assets are cypherpunk, but higher level networks and assets are not, is optimal. Those who seek maximum protection can have it, at the risk of nobody coming to their rescue when something goes wrong. Those who want greater safety and convenience can have it too, at the risk of being abused by those meant to protect them down the line. Importantly, individual choice and market forces decide which part of the hierarchy anyone lives on - not regulations or monopolists.

Congrats to Zcash for reaching the 10-year mark. It remains one of the coolest projects in crypto and among the very few to not only withstand the test of time, but also improve materially. But to enjoy continued success, I think Zcash should move to eliminate all ex-protocol allocations (aka Dev Taxes) and to even consider getting rid of the coins already in the dev fund, either by burning them or by returning them to the protocol for future inflationary rewards. I don't make this call lightly or to be provocative. I want Zcash to succeed, and the main challenge I see going forward is politics. If you believe in crypto, then you believe in two things: the power of incentives, and the importance of having them come from a decentralized protocol, as opposed to a political process. It matters little if the political process is democratic. Nor does it matter if the stewards of it have the best intentions. The process always turns toxic, because someone somewhere has the right to exercise power over someone else, and that someone else will feel cheated. Good projects getting ruined by bad politics is a pattern we've seen too often in crypto. The price appreciation over the past year and the resulting increase in the value of the fund only make the politics worse. I understand the desire to use the funds to keep improving the protocol, but I think Zcash has matured to the point of being able to do this externally. Many individuals and organizations have benefited from the recent price appreciation. If we take their commitment in good faith, then Zcash will have plenty of funding. Lastly, a lot of people seem to have a viscerally negative reaction to my suggestion of going the extra step of disposing of existing funds (as opposed to just letting future taxes sunset, as is the current plan). This sort of reaction only proves my point. Anyone who has a strong opinion on the funds being there will also have a strong opinion on how they should be spent, and that's the problem.

I'm resharing this article from a year ago since many people seem to think "tokenized deposits" solve internal bank liquidity/reconciliation issues.

On tokenized deposits, a confession: there is a utility that I had not previously considered and am now convinced is legit: free marketing. Take the below announcement from SoFi on their "tokenized deposit" that is FDIC insured, pays a whopping 4.4% interest, and is instantly convertible to their stablecoin. What's not to love? The Suit Simps are very excited by it. The problem? There's literally nothing the token part adds that can't be offered by a vanilla bank account. Accounts are FDIC insured. Accounts pay yield. Accounts are convertible to anything and everything. Meanwhile, because it's a deposit and not a stablecoin, it is only available to KYC'ed bank customers, and the only thing they can do with it is send the deposit to clients of the same bank, while the bank retains the right to refuse such a transfer or debank the customer outright. No liquidity, fungibility, atomicity, or composability. Just like a bank account. I realized my error in judgement just recently when I was told by a friend who had spoken to a Senior Person at a Very Big Bank that is all about tokenized deposits. The banker was asked what the point of all of this was. His response: "it's the cheapest marketing we've ever had"

There's another world in which all of the once high flying crypto companies that raised gazillions of dollars at absurd valuations in 2021 and are now shutting down, raising soul-crushing down rounds or selling for a fraction of their previous valuation, didn't. And because they didn't raise too much, they also didn't hire too many people, didn't try too many things, didn't blow millions on pointless conference sponsorships and side parties, and didn't have a high burn during the bear market. Most of all, they'd have a lower cost structure and could stick around a bit longer, especially now that things are getting interesting. This is obviously not the world we live in, and I'm not necessarily blaming anyone, though I have consistently advised companies and projects to only raise what they need, not what they can (and nobody listened). But what's happening to companies like Fireblocks only validates my thesis that in crypto, how much money you raise is negatively correlated with success. The fact that the money has been there in the first place reflects one of the great ironies of this industry: in the short term, the incentives are always bad.

The other flaw in the tokenized deposit thesis is that it takes more work for a bank to integrate with an external system than it does to upgrade an internal one. Doing so also faces greater regulatory scrutiny, for obvious reasons. And all this for what? To provide the same service as updating internal systems to what every neobank already offers?

Friendly reminder that American banks made over $700 billion in net-interest income last year, more than the Mag 7 made in net income. That's the money they extracted from ordinary Americans - savers and borrowers - to give to their shareholders, a direct consequence of their beloved deposit monopoly. There was never an economic, academic, historic, or moral argument for banning stablecoin yield - even the direct payment that Genius banned outright. It was always protectionism. They got most of what they wanted but are still complaining. The hubris is astounding.

An important explanation of where “consortium databases” are superior to public blockchains. Despite my normal skepticism, I have to admit consortium networks are more likely to win in some countries espousing certain values. Might have to rename it to Guangzhou however.

Don raises an important issue which I would like to address: Of all the things I worry about in life, an unregulated database with a button becoming "the primary settlement layer for traditional finance" is not one of them.

Sad to hear about the passing of Perry Mehrling. His simple paper "The Inherent Hierarchy of Money" was foundational to my understanding of how money and banking actually work, and how to think about the potential impact of Bitcoin, stablecoins, CBDCs, and DeFi. Tomorrow's lecture on Payment Systems will have several concepts pulled right out of his thinking. In my experience, much of the skepticism from various corners of academia or policy about crypto stems from a lack of education on how money and banking actually work. The one silver lining from his untimely death is to bring more attention to his ideas.