Level up your open finance game 5x per week. You’re on the free version of the program so you’re missing the best level ups. Become a paying subscriber & get the full program below.
Dear Crypto Natives,
Things are moving faster now. We’re in the new normal.
The trends birthed in the 2010s? Populism, money printing, digitization, wealth gaps, state surveillance, cryptocurrency. They just hit the accelerator.
So did the trend toward central bank digital currency.
If you’re the U.S. government and your primary economic rival rolls out a central bank digital currency you have to respond with your own. Superpower A get nukes so Superpower B get nukes. That’s the way the game theory pans out.
And make no mistake: fiat currency is an economic weapon. Do you know why the greenback was originally created? To help Lincoln win the war against the South.
But even though China’s new central bank digital currency means a U.S. FedCoin is inevitable at some point, the Fed could afford to wait—that’s a perk of being the central bank behind the world’s reserve money.
Some wanted the U.S. to move faster. Then last year Zuckerberg goes in front of Congress and says—“hey guys if you don’t compete with China’s new coin then Facebook will”.
Gas on the fire. Yet still not enough for the Fed to move on a digital currency.
Things have changed since Zuckerberg’s Congressional hearing.
In the corona-era the Fed will do whatever it takes to rescue the economy. Unlimited money. Nothing is out of the question—even buying equity ETFs.
But what will it take? What do central banks do after interest rates hit zero and after they buy up their nations stock market?
The next weapons upgrade for central bankers is the ability to go negative on interest rates. Deeply negative maybe. Negative rates means your bank savings account isn’t delivering positive return or even a zero returns—it’s delivering a negative returns.
It costs you to keep money in the bank. So you have to spend it or it’s gone.
This is the ultimate spending stimulant to some central bankers. Liquidity is forced.
Imagine having to pick the savings account that loses you the least per year.
So what prevents central bankers from doing this today?
Physical cash does.
Lincoln’s Greenback has to go.
In order to upgrade their economic weaponry central bankers need to eliminate physical cash and replace it with digital cash.
Not politically tenable? Neither was UBI. Hard to see the Fed doing this?Nothing is out of the question, remember?
Maybe all it would take is a narrative campaign that physical cash is a coronavirus transmission vector. “Digital cash saves lives.”
So let’s assume central banks kill cash, they convert to digital currencies, some of them give citizens direct access to Federal bank accounts and some of them keep commercial banks and big tech companies as a go-between.
Does this mean blockchains win?
They don’t need a public blockchain for this first step.
Each economic power will want a separate money network—their own separate version of FedWire. Because none will trust the other to control the settlement network for something as important as their sovereign currency. The power over SWIFT is the power to sanction and control.
But what happens when they want to trade? What happens when they want to settle transactions in a neutral network? To interoperate? To do global finance?
For that they need a network that isn’t controlled by nation state, that cannot be censored. A credibly neutral settlement layer. A money network of money networks.
That’s why I think central bank digital currencies will end up as sidechains for the public asset blockchain—sidechains to Ethereum.
Because Ethereum is the only poly-asset settlement network that doesn’t require the trust of a competing nation-state. It’s the only network they can all use without giving up their sovereignty.
It’s the common denominator.
It’s the internet of money.
FedCoin on Ethereum
No, a FedCoin on Ethereum wouldn’t be trustless. Issuance, whitelisting, identity, surveillance—all could be controlled by nation-states through ERC20-style programming logic. FedCoin would not serve as a non-sovereign cryptocurrency.
By deploying to Ethereum FedCoins make the bankless money system stronger.
Central bank digital currencies are inevitable yes. But wouldn’t it be wonderfully ironic if these tools of control became a main factor in strengthening the open crypto money system?
Be careful of adopting digital communication it might lead to Arab Spring.
Be careful of adopting digital money it might lead to a bankless revolution.
Scan this section and dig into anything interesting
ETH slightly lower to $133 from $138 last Monday
BTC down a hair to $6,475 from $6,568 last Monday
DAI stability fee steady at .5% with savings rate steady 0%
(Mint) “real” gold NFTs from DGX gold tokens (cool idea)
(Borrow) Bitcoin and get DAI at Ledn—2% DAI bonus 🇨🇦(have not tried)
(Pay) Deposit and Withdraw using ETH Today
(Invest) in Sets using cTokens (earning interest while investing)
New Synthetix’s release tomorrow (new snyths for Oil & S&P Global1200)
UMA priceless oracles (like an optimistic rollup for Oracles)
WHAT I’M DOING & WHAT YOU’RE DOING
Check out a few cool things I’m capturing right now in crypto
Make time to complete this assignment before next week
Extra Credit Learning
Some recent tweets…
Execute any good market opportunities you saw
Complete weekly assignment: convert DAI to private ZKDai
Listen to episode 5 on Bankless Podcast
🙏Thanks to our sponsor: Aave Protocol
Aave protocol is a decentralized, open-source, and non-custodial money market protocol to earn interest on deposits and borrow assets. It also features access to Flash Loans, an innovative DeFi building block for developers to build self liquidations, collateral swaps, and more! Check it out here.
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.