Crypto Is Not An Asset Class

Category Errors in Cryptocurrency

A couple of weeks ago, my friend Hart Lambur observed that crypto might become a flight to quality asset…

A couple of weeks ago, my friend Hart Lambur observed that crypto might become a flight to quality asset…

Crypto should be a flight to quality asset, was my immediate thought. But it is unlikely to trade like that anytime soon.

This statement needs to be qualified pretty substantially. When I say crypto here, I’m talking about well-established, stress-tested, audited cryptographically secured assets with pre-determined rates of inflation that are highly unlikely to change. Basically I am talking about bitcoin.

Bitcoin might hold 50% of the overall cryptocurrency market cap but it is still only one of thousands of cryptocurrencies out there, ranging from meme-coins to downright scams. What about these other tokens and coins? I would scarcely classify any of them as flight to quality-grade.

So here is the problem: we tend to talk about crypto as an asset class. But it’s not. Rather, it comprises several asset classes.

Now it should be acknowledged that talking about crypto as an asset class at all was nearly unfathomable just 5 or 6 years ago. Then, bitcoin was largely the only coin in town and it was often viewed more as a technology tool than an investment. But crypto has grown up fast and it is time for the way we talk about it to mature too.

When we talk about crypto as a singular asset class we do the industry around it a disservice and we confuse those investors, entrepreneurs, and institutions looking to get involved.

It is because we classify crypto as a singular asset class that bitcoin is unlikely to be viewed as a flight to quality asset anytime soon. It gets bundled in there with every ICO, utility token, scam, and experiment that has been run in the space.

This singular classification also impacts how bitcoin (and other cryptocurrencies) gets valued. Often investors attempt to apply the same priors and heuristics whether they are talking about bitcoin, petrocoin, or filecoin because they are all “crypto”. This would be akin to applying the same fundamental analysis to gold markets, sanctioned Venezuelan debt markets, and the pre-IPO valuation of Dropbox circa 2008. Not recommended.

It’s time we got more specific in our classifications — or perhaps stopped referring to crypto as an asset class at all. After all, crypto is just the medium by which the asset is created and delivered. We don’t refer to foreign exchange as “SWIFT assets” or blue chip stocks as “DTCC assets”.

It strikes me that saying “crypto assets” is a bit like the Law of the Horse. The Law of the Horse is a phrase that gained prominence in the 1990’s to make a point about cyberlaw:

“The best way to learn the law applicable to specialized endeavors is to study general rules. Lots of cases deal with sales of horses; others deal with people kicked by horses; still more deal with the licensing and racing of horses, or with the care veterinarians give to horses, or with prizes at horse shows. Any effort to collect these strands into a course on ‘The Law of the Horse’ is doomed to be shallow and to miss unifying principles.”

Perhaps the best way to classify crypto assets is to study general asset classification. Does this cryptocurrency function as digital gold? Does it function as a fundraising mechanism for a startup (VC), institution (debt or equity), or state actor (currency printing or government bond)? Is it more like scrip, a form of private money issued for use within a close system? Or is it a whole new paradigm that needs its own classification? Maybe it is just a free open source software project to which you have donated?

At the very least, this kind of specificity might help me save some breath every time I tell someone I work in cryptocurrency. “No, no. Not the crypto of scams and pyramid schemes.”

Crypto should be a flight to quality asset, was my immediate thought. But it is unlikely to trade like that anytime soon.

This statement needs to be qualified pretty substantially. When I say crypto here, I’m talking about well-established, stress-tested, audited cryptographically secured assets with pre-determined rates of inflation that are highly unlikely to change. Basically I am talking about bitcoin.

Bitcoin might hold 50% of the overall cryptocurrency market cap but it is still only one of thousands of cryptocurrencies out there, ranging from meme-coins to downright scams. What about these other tokens and coins? I would scarcely classify any of them as flight to quality-grade.

So here is the problem: we tend to talk about crypto as an asset class. But it’s not. Rather, it comprises several asset classes.

Now it should be acknowledged that talking about crypto as an asset class at all was nearly unfathomable just 5 or 6 years ago. Then, bitcoin was largely the only coin in town and it was often viewed more as a technology tool than an investment. But crypto has grown up fast and it is time for the way we talk about it to mature too.

When we talk about crypto as a singular asset class we do the industry around it a disservice and we confuse those investors, entrepreneurs, and institutions looking to get involved.

It is because we classify crypto as a singular asset class that bitcoin is unlikely to be viewed as a flight to quality asset anytime soon. It gets bundled in there with every ICO, utility token, scam, and experiment that has been run in the space.

This singular classification also impacts how bitcoin (and other cryptocurrencies) gets valued. Often investors attempt to apply the same priors and heuristics whether they are talking about bitcoin, petrocoin, or filecoin because they are all “crypto”. This would be akin to applying the same fundamental analysis to gold markets, sanctioned Venezuelan debt markets, and the pre-IPO valuation of Dropbox circa 2008. Not recommended.

It’s time we got more specific in our classifications — or perhaps stopped referring to crypto as an asset class at all. After all, crypto is just the medium by which the asset is created and delivered. We don’t refer to foreign exchange as “SWIFT assets” or blue chip stocks as “DTCC assets”.

It strikes me that saying “crypto assets” is a bit like the Law of the Horse. The Law of the Horse is a phrase that gained prominence in the 1990’s to make a point about cyberlaw:

“The best way to learn the law applicable to specialized endeavors is to study general rules. Lots of cases deal with sales of horses; others deal with people kicked by horses; still more deal with the licensing and racing of horses, or with the care veterinarians give to horses, or with prizes at horse shows. Any effort to collect these strands into a course on ‘The Law of the Horse’ is doomed to be shallow and to miss unifying principles.”

Perhaps the best way to classify crypto assets is to study general asset classification. Does this cryptocurrency function as digital gold? Does it function as a fundraising mechanism for a startup (VC), institution (debt or equity), or state actor (currency printing or government bond)? Is it more like scrip, a form of private money issued for use within a close system? Or is it a whole new paradigm that needs its own classification? Maybe it is just a free open source software project to which you have donated?

At the very least, this kind of specificity might help me save some breath every time I tell someone I work in cryptocurrency. “No, no. Not the crypto of scams and pyramid schemes.”

Trust Issues

What’s In a Blockchain?

Many of the technologies that capture our imagination do so long before they exist. Humans were fantasizing about space travel for millennia before man had the means to set foot on the moon. I grew up watching spy films in which wristwatches facilitated video calls. I don’t even need to get started on the role of robots and artificial intelligence in our collective imagination.

Flying cars anyone?

I would wager, however, that prior to a few years ago there were not all that many people who were daydreaming about peer-to-peer digital cash. With the exception of a small band of privacy activists, cypherpunks, and Neal Stephenson fans, it wasn’t a widely discussed idea. Since the inception of bitcoin, though, the idea has captured the public imagination in a way that precious few inventions are able to achieve.

One thing is for sure: the popularity of the technology in discourse is not due to the deep and widespread impact it has had on our lives. Cryptocurrencies have yet to find meaningful product-market fit. Decentralized applications languish with more developers building them than users engaging. This isn’t to say it will never happen. I am optimistic. But our collective imagination has gotten out over its skis.

Why, then? What is it about blockchain technology that so excites us? We would never talk about any other type of database technology this way, surely.

I think the hype, and the ensuing confusion about what a blockchain is good for, comes down to one thing: trust issues.

Brilliantly, but also confusingly, blockchain technology has been branded as “trustless”. Blockchains are “trust machines”. They “solve trust issues”. It is this idea that captures our hearts and minds. We don’t want to have to trust anyone. We don’t want to have to trust our counterparty to deliver on a trade.We don’t want to have to trust intermediaries to be reliable or not misuse our data. We don’t want to have to trust our banks, our governments, our boyfriends, our children. Wouldn’t it be nice, we think, if there was a neat solution that rendered all of these interactions and relationships as transparent and verifiable as a simple math problem.

The way blockchain technology gets talked about, this is what it purports to offer. This is why people want to apply it in so many ways and to so many areas (most of which don’t make sense). We want blockchains to prove that our market salad is actually certified organic and locally sourced. We want blockchains to create verifiable records of whether the dog-walker took Fido out. We want blockchains to ensure we don’t have to rely on a third party to send remittances home to our families.

Blockchains alone can’t solve these problems, though. A blockchain is not a meat grinder that takes complex interactions in one end and produces clean, legible, and verifiable computer code one the other. Indeed, to say blockchain technology “solves trust issues” is to overstate.

Trust is like energy. It cannot be created or destroyed. It can only be changed from one form to another.

Blockchains reorganize trust and change its form. They deconstruct the trust relationships that comprise our economic and social lives and rebuild them differently, but with no less trust involved. Even in the simplest use case that we have for the technology, sending funds without reliance on a third party or bank, we are still trusting the network. The code must be running and executing as promised. A sufficient number of participants in the network (miners) must be behaving honestly for it to work.

One of my deepest fears about this technology that has taken over our imaginations is that the “trustless” branding of blockchains works a little too well. I shudder to think what happens should we all be lulled into a false sense of security only to later learn that the system has not reduced the amount of trust we need to offer up, but only obfuscated it.

Trends and Timescales

Thinking About Industry Trends

The Importance of Industry

There are three core elements that determine your career success: how you perform, how your company performs within its industry, and how the industry itself performs.

These three trajectories (you, your company, and your industry) interact heavily with each other. How you perform, naturally, will affect how well your company does, especially if your company is small or you hold a key position within it. Your performance and to a larger extent your company’s performance will also affect the industry you work in. The level of impact again depends on many variables like size and positioning.

Your performance and your company’s performance matter but, of the three, industry matters most. This is akin to Marc Andreessen’s assertion that the only thing that matters for a startup is the market. To adapt his phrasing:

  • When a great individual/company meets a shrinking industry, the industry wins
  • When a mediocre individual/company meets a growing industry, the industry wins
  • When a great individual/company meets a growing industry, something special happens

Even if you are succeeding by your own local metrics, if your industry is contracting you will only get so far. Conversely, if you are at a company or in an industry that is exploding you can go far even on mediocre performance.

You see this all the time with startups and emerging industries. We mostly notice the upside that comes with riding the upward trajectory of an emerging space. It’s even reflected in some of the adages that echo through the all-hands meetings and recruiting calls of Silicon Valley. “If you are offered a seat on a rocket ship, you don’t ask what seat. You just get on.” The idea is that it doesn’t matter how mid-tier you are. If the industry grows 100x you are destined to gain.

This, of course, cuts both ways when something goes awry on the rocket ride you were promised. It’s a situation many (though not all!) in my own industry (cryptocurrency) are experiencing at the moment. The deluge of funding into the space has slowed. Companies are making cuts. Mainstream media hype has turned into pronouncements that bitcoin is dead. Even for the people who are outperforming their own standards and for companies that are shipping products as promised the turn in the trajectory of the industry has had an undeniable effect.

The Secular and the Cyclical

This whole narrative sounds pretty bleak but here’s the problem with it: this narrative assumes that these trajectories are secular in nature rather than cyclical. A secular trend is one that persists over the long term regardless of shorter term phenomena. The digitization (and monetization) of information that happened with the advent of the internet was a secular trend. A cyclical change, meanwhile, plays out over a shorter time frame and will not materially alter the longer term secular trend. The macroeconomy operates cyclically, going through periods of expansion and contraction usually lasting 5–10 years.

Psychologically, we don’t tend to think in terms of cyclical trends. Whatever we are experiencing in a given moment feels like it’s going to last forever.Besides, differentiating secular and cyclical trends is a tricky business. Take the example of the financial crisis. The 2008 downturn was preceded by a period of massive growth in the financial services industry. It might have seemed reasonable upon superficial glance to think the downturn might be temporary and that Wall Street would again have its day in the sun. However, a spate of regulation, a shift in culture around risk on Wall Street, and the increased role of quantitative strategies make it look increasingly likely (to me) that the change is secular.

Contrast this to the dot-com bubble of the early 2000s. In 2001, given the experimental nature of both the technology and business models being created, it may have felt safe to assume that the decline and fall of this new sector would persist. In reality, the bubble popping was merely a negative cycle within a secular uptrend.

I have experienced a few small, cyclical waves over the last 5 years in the cryptocurrency industry. Every time the tide of interest and funding has gone out, I have heard the cries of the papers proclaiming that the trend is secular this time around (“bitcoin is dead”, remember?). But each time another wave of enthusiasm has come around, carrying the longer term trend to greater heights. If you can ride down-cycles within a trend of secular growth in an industry, you are generally positioned to succeed.

I can’t say with any certainty whether the trends we are experiencing in my industry (or in markets as a whole) are here to stay or should be viewed on a smaller timeframe (and I’ll leave my thoughts for another post). However, I do know that it is a mistake to overlook the importance of broader industry trends or to ignore the significance of timescale in making predictions.

Cryptocurrency: The Canary in the Coal Mine

What Crypto Can Tell Us About Macro Markets in 2019

Over the last quarter, the market has rejected risk assets across the board in a sudden reversal of the year’s trend. The S&P 500 erased its 9% gain over a matter of weeks in October. The Nasdaq index retraced from an 18% gain to end the year down 5%.

But no market has felt more pain recently than that of cryptocurrencies. The aggregate market cap of cryptocurrencies, which topped out at $830 billion last January, has since crumbled to $130 billion. Much of this unwind has occurred only in the last two months, with the crypto market as a whole getting marked down over 40% quarter-to-date.

The cryptocurrency market is admittedly miniscule relative to other asset classes. Cryptocurrency (no matter how big the drawdown) is unlikely to have any impact on broader markets any time soon. Bitcoin has demonstrated no substantial correlation to any other asset, whether equities or gold. Nonetheless, what has been happening with this nascent asset class over the last year may reveal some important macro trends.

Two years ago, at the end of 2016, the cryptocurrency market stood at $15 billion in value. Trading volumes across all cryptocurrencies hovered in the double-digit millions. What led to the asymptotic spike in prices over the course of 2017? While it may be possible to point to certain headlines and technology developments as catalysts, most would probably dismiss the phenomenon as a speculative bubble. They may not be wrong in this characterization, but they may also miss the macro context in which all of this occurred.

We have seen many search for yield trades play out over the last 8 years. With central banks around the world pumping liquidity into the economy, traditionally risky assets have seen their premiums sucked out of them.Emerging markets stocks, bonds, and currencies have benefited from this trend. High beta equities, most notably in the tech sector, have boomed with the FAANG stocks leading the way. This trend has also driven money further out along the risk spectrum into alternative asset classes, ranging from art to cars to venture capital.

With rates like these, who needs hedges? Image from Pimco’s 2016 Negative Interest Rate Report.

The cryptocurrency boom of 2017 may have been the illogical conclusion of this global search for yield. It certainly followed this trend, starting as money poured into the relatively lower beta cryptocurrencies (like bitcoin and ethereum). Over time capital found its way into brand new assets as well, the products of initial coin offerings (ICOs) into which investors dumped an estimated $20 billion in the last year and a half, often with little in the way of investor rights or protections. Talk about “risk on”…

But the story has changed since then. If you bought bitcoin at the peak last December and sold today you would be realizing an 80+% loss. Many of bitcoin’s brethren, including many ICOs, have performed far worse with some cryptocurrencies getting marked down 95+% this year. The last major legs lower of this correction in October and November have coincided with the broader market sell off.

Perhaps cryptocurrency, the last mover on the way up, is the leading indicator of a broader market fall. If the cryptocurrency boom of 2017 was partly the result of the longest expansionary period the economy has seen in a century, perhaps the bursting crypto bubble of 2018 is the canary in the coal mine that the search for yield has run its course.

The recent downturn across asset classes has been blamed on a global growth slowdown, rising interest rates, and continued political uncertainty. Whether this plays out in 2019 remains to be seen, but if it does, it will manifest first as capital leaves what it perceives to be the riskiest assets.

Free Company

The Decentralized Future of Work

I wrote last week about my experience working as a freelance consultant in the nascent industry around cryptocurrencies. It has not been lost on me that the independent nature of my efforts in this industry have, in many ways, reflected the focus on the individual that is inherent to bitcoin and its related technologies.

Many of the most influential people in cryptocurrency have made their contributions as individuals or as loosely affiliated groups. Bitcoin core developers, Ethereum contributors, angel investors, many prominent researchers, and Satoshi himself are all examples of individuals acting in place of any established, corporate efforts.

Decentralized systems lend themselves to this model of work. They enable payment and asymmetric upside for contributors that were previously impossible in other open source software efforts. The ethos and ideological underpinnings of these systems means that their development and their governance are most resilient when managed by a diverse group of independent actors as opposed to a single organization.

Aspects of this idea have been covered by others, notably Nick Tomaino’s The Slow Death of the Firm.

As I have found for myself, however, there are some aspects of the firm (and of central structure) that can be beneficial even to those who desire and choose to act as independent parties. In particular, leverage is missing. It is hard to act as a force multiplier when working alone and leveraged exposure to upside is hard to come by.

I outline below an idea for how the efforts of freelancers and individual contributors within the cryptocurrency ecosystem might be better structured and therefore leveraged — to the benefit of those contributors, to the benefit of projects, and to the benefit of the cryptocurrency ecosystem as a whole. Right now this is just an idea looking for feedback… and I would love to hear yours.

The Medieval period witnessed a breakdown of hierarchical systems. The centralized empires of the preceding centuries devolved into a sprawl of kingdoms, competing for territory, resources, hearts, and minds. These communities often had abundant financial resources, but manpower was hard to come by. In particular, seasoned military veterans were few and far between. Those soldiers who had seen previous action banded together into what became known as Free Companies. Free Companies were groups of experienced soldiers that worked for hire on behalf of communities, purveyors of services amidst the decentralized chaos of the Middle Ages.


Teams aiming to ship cryptographic protocols are facing the problem of attracting top talent to work with them.

Meanwhile, many of the individuals working in the space would prefer to work broadly across the ecosystem. Additionally, these individuals often struggle to have upside correlated to the work they do with these projects.

The overall ecosystem is losing out because there are opportunities for collaboration and synergies across projects that are not being taken advantage of, as problems today are often solved behind the closed doors of individual projects’ headquarters.

There is an opportunity to bring together top multidisciplinary talent in a way that is in service of multiple protocol projects. There is also a way to reward this talent with stake in those projects.

From Centralized Systems to Decentralized Networks

Blockchain protocols are bringing about a shift in the way we interact and transact. These protocols replace centralized, trusted parties with decentralized, open networks of participants. The manner in which these protocols are being developed aims to reflect the technologies themselves: decentralized, open, and transformative.

Open source software projects are nothing new. They have thrived and created many of the systems that have come to shape society. As opposed to the mighty, preordained cathedrals of proprietary technology, open source projects have evolved in the fashion of bazaars with their own sense of order emerging out of chaos.

Blockchain protocols now represent the most well-funded open source projects in history. Over $6 billion has flowed into new protocol projects in 2017 alone. This is not to mention the astronomic appreciation of cryptocurrencies and tokens in the same period.

While many have lauded these projects’ abilities to fundraise, fundraising represents only the beginning. These projects, over the coming years, will face the far bigger and more important problem of shipping. To bring products and protocols to market, these projects will need teams of talent across an array of disciplines.

The Problem

Decentralized development has not yet found an effective framework. In particular it has not yet found a good way to match protocol projects’ demand for talent with those best positioned to ship. This is inefficient for the overall ecosystem, the projects themselves, and the individuals who contribute to these projects.

The Ecosystem

Broadly, the industry today is comprised of investors, project teams, and service providers.

Investors are concerned with seeing the projects they have backed ship the promised protocols and products. In order to do so, projects will need talented technical, product, partnership, legal, and marketing teams.

By and large, each project today is developing a team within its own silo. This is necessary for effective coordination and for achieving economies of scale. However, it can also run contrary to the promise of decentralization at the heart of many of these projects. After all, decentralized open source projects should draw from a broad base of contributors.

Each project developing within its own silo creates conditions for efficient roadmap development and management, but this comes at the expense of learnings and synergies that could be had across projects. Many of the challenges faced by any given protocol team reflect those faced by all the others. By seeking to solve these within their own walls, the opportunity to learn from each other and iterate gets lost. This is particularly ironic given the open ethos these projects aim to adopt.

There is a broad array of service providers that work with one or multiple protocols.

Single-protocol service providers are often oriented around the development of either the core protocol or around the development of infrastructure and products built around or on top of that protocol. These groups are important for the decentralization of development, but continue with the same siloed approach of the individual protocol teams.

Multi-protocol service providers (advisors, academics, law firms, PR agencies, trade organizations) do some of the most important work across the ecosystem, but their approach is less than ideal for the multidisciplinary world of blockchain technologies, where questions of law, security, product, cryptography, and governance intertwine and speak to each other.

There are major synergies to be gained for the whole ecosystem by creating a team that works broadly across protocols and their problems. Most importantly, this model and the talent behind it will help projects meet that critical goal of shipping the decentralized protocols that they have promised.

Protocol Projects

Protocol projects now find themselves in a strong financial position, with funding ready to deploy towards innovation. This innovation spans:

Protocol development

  • Research on mechanism design
  • Experimentation with scaling solutions
  • Implementations of STARKs



  • Work on virtual machines, compilers/transpilers, functional programming in smart contracts, high level languages
  • Designing accessible IDEs
  • Drafting solid documentation
  • Defining best practices
  • Developer education (boot camps, MOOCs, hackathons)



  • Wallets (hard and soft; protocol-specific and multi-asset)
  • Exchanges (in particular, the usability of decentralized exchanges)
  • Decentralized application interfaces
  • Browsers for tokens and dApps

Ecosystem development

  • Partnerships with incumbents
  • Bringing scaled payments solutions to decentralized marketplaces (e.g. Craigslist)
  • Issuing assets on blockchain platforms (e.g. ticketing secondary market)
  • Making the remittance use case a reality
  • Partnerships with other protocol projects (E.g. Ethereum integration with Cosmos; Zcash collaboration with Quorum)
  • Educating entrepreneurs and incubating projects



  • Defining where cryptographic tokens lie within the legal frameworks of various jurisdictions
  • Clarifying compliant distribution of cryptographic tokens
  • Developing avenues for issuing legally-compliant cryptographically tokenized securities (and other asset classes)
  • Creating standards for organizational structures and strong governance
  • Advocacy and policy work



  • Developer relations
  • Communicating the vision of cryptographic systems, blockchain technology, cryptocurrency to the public at large
  • Communicating the visions of specific projects and protocols clearly, accurately, and accessibly
  • These goals are shared across most protocol projects. These projects individually have the financial capability to execute on these initiatives.

These projects, however, face two critical challenges.

The first is the search for talent. Relative to present demand, there are few who would be considered experts or veterans of the space. This is certain to change with time, as individuals and incumbents see opportunity and pivot their paths to meet the demand. But the moat of understanding is large, particularly due to the multidisciplinary nature of blockchain technology, and it is early days.

The second challenge is the problem of how to balance efficient coordination with an ethos of decentralization. The culture of open source pervades these protocol projects. As such, the shape of teams necessarily looks different from historical, centralized, corporate structures. Concentrating too much power in the hands of a single figure or entity is often dissonant with the vision of the projects.

This question of how to achieve effective coordination and economies of scale in open, decentralized development remains open.

The Contributors

A major problem facing protocol projects is recruiting.

Working for or on just a single protocol is often suboptimal for the individuals best positioned to do so. Many of the most skilled, seasoned veterans of the industry believe strongly in the tenets of open source and would prefer to work on multiple projects. As outlined above, this is also suboptimal for the overall ecosystem. There are many synergies in the work being done across protocol initiatives, but the fractured system of competing fiefdoms that has emerged does not allow those synergies to be leveraged. This results in mass replication of work across projects (ironically, not dissimilar to the replicated work of miners in a proof of work system).

No one is more familiar with this replication of work than those individuals who work for service providers: law firms, security auditors, consulting practices, PR firms, and even executive coaches. These individuals and entities who work broadly across the space are some of the most critical contributors. Their birds’ eye view lends them a perspective and an ability to learn and iterate from project to project. However, these individuals often do not reap what they sow across the ecosystem, as their privileged positions do not always give them direct stake in the upside of the projects upon which they work (and in the case of lawyers can even preclude them from directly investing).

In fact, this problem of stake exists even for core developers on a given protocol project. Core developers, unless given grants of the cryptocurrency or tokens of the protocols they work on, do not have exposure to the projects to which they contribute (aside from their own capital that they put at risk in these assets).


So the state of the ecosystem is the following:

  • There is little learning happening between siloed project teams despite opportunities for synergies and collaboration
  • Protocol projects are the most financially well endowed open source projects in history
  • Protocol projects are struggling to recruit due to overall low supply of talent, and what little supply there is being locked up in individual projects or as service providers
  • Primary option for talented contributors who wish to work broadly across the space is contracting, but this is difficult to scale
  • It is challenging for key contributors to fully participate in the upside of what they are delivering (without putting their own capital at risk)
  • Projects need to ship and to do this they need to source contributors
  • Contributors want to work in an open, decentralized, and collaborative manner


The Solution

Free Company

The path forward is to create a system that can match this pent up supply of talent with the rampant demand from the projects. An entity or entities that will bring together top talent with top projects in the space, allowing contributors to work broadly across the ecosystem and allowing projects to gain from the spirit of open source. The solution is a Free Company that can be contracted to work on projects collaboratively across the space.

The idea of a Free Company is more than consultancy or services. It is about shipping, whether in the form of code, products, partnerships, educational initiatives, contracts, or content.

A Free Company would be about building, not signaling. A trend has emerged in the space for press releases to precede actual products. This is wrong and is a large contributor to major misunderstandings of the promises of cryptographic protocols.

A Free Company would focus on areas where there are synergies to be found, or opportunities to collaborate between projects.

A Free Company can fill a gap in the market right now, bringing talent together with promising protocol projects. It would be both multi-protocol and multidisciplinary, something no other service provider can currently claim.

A Free Company would also meet the most relevant demand in the market today (and what will remain the most relevant demand in the market for years to come). Service providers have emerged that service the earliest stage of projects (in the fundraising round), but have yet to emerge in force in service of these projects shipping.

Today, projects are solving the problem of shipping internally, in their respective silos. Few (if any) service providers work across protocol development, product, UX, community, marketing, ecosystem development, developer relations, and developer experience.

A Free Company could fill the gap of acting as a service provider across these various areas.

Finally, a Free Company would allow contributors to work in the manner they want: broadly, without non-competes, collaborating across projects and disciplines.

A Free Company can also provide upside to these contributors in a manner correlated with their contribution…


A Free Company could also give contributors a stake in what they are building.

Revenue and upside would be generated in three manners:

Contracts with protocol projects

  • A Free Company would be the go-to resource for protocol projects seeking to solve both specific (discrete) and broad (continuous) problems as they ship.
  • A Free Company would also be a good diversifier for projects seeking to embrace the ethos of decentralization as they develop their technology and community.


Winning bounty programs put forth by projects

  • On-chain bounties are increasingly being touted as the future of incentive-based development. These are devised as a way to reward developers with tokens based on their contributions to protocols. The teams who succeed in these bounties will likely be groups working collaboratively and also broadly across the space. A Free Company is well positioned to take advantage of these.

An investment fund that takes a stake in projects

  • Investing in cryptocurrencies and tokens takes a highly multidisciplinary skillset. No cryptocurrency-focused fund today can say that its portfolio managers range across all relevant backgrounds and knowledge bases.
    This investment fund could leverage the multi-disciplinary knowledge base and skill set of the contributors within the Free Company. Select individuals would serve as the investment committee of the fund.
  • By drawing from top minds in protocol design, distributed systems, law, developer experience, programming language theory, use case analysis, marketing, and more, the fund can be uniquely positioned to succeed. But moreover, these contributors will have a stake in the future they are working to build.
  • The fund would act as a separate entity and separately managed vehicle.
  • Those working at the Free Company would be allocated GP interest / carry.
  • The fund could be open to select outside LPs.



2017 was the year of the ICO, the token sale, the fundraise. The best way to capitalize in 2017 was to launch a project and to take money from investors: angels, individuals, venture capital.

That money has now moved from the hands of investors to the hands of protocol projects.

2018 is no longer about issuing assets. It is about building technology. The way to bring this about is to serve the projects, help them ship, and be among the builders shaping the decentralized future.

Working Alone

10 Lessons for Freelancers, Contractors, and Consultants

Last summer, an opportunity for some contracted work came my way that I couldn’t turn down. I soon found myself working with a lawyer to set up an LLC, wading through paperwork and contract language, and figuring out how to buy healthcare.

Over the course of the following 9 months, I expanded what I was doing, taking on more projects. I have loved working for myself. Not enough people consider it an option. I would recommend it to anyone looking to learn more about their chosen industry, but more importantly learn about themselves and their work style.

I have learned a lot of lessons along the way. I share them here in hopes that others might consider freelancing or contracting as an option — and that, if they do, they can be prepared.

1. Get Organized

Working for yourself entails a lot of moving parts. You are your own CEO, General Counsel, admin, CFO, and so on. Fortunately, you also only have one employee to worry about — you.

Get a lawyer. Take the time to explain your goals to her. Invest time and money alike in a good working relationship with your lawyer early. Send her every single contract before you sign it.

Think through your accounting. Come March, you are going to have a headache of taxes to file. Keep good records: have a file for invoices, a document for expenses, and a drawer for receipts.

Spend time optimizing your own workflows. Think about where you want to work, when you will schedule meetings, and where those meetings will take place. Give yourself structure and build a support system as early as possible.

2. Hustle Hard

You are also in charge of your own marketing and business development. You need to source your own deals and projects to work on. This takes more time and energy than you might think.

Network. Start by trying to take every meeting that comes your way. As you become busier and find more direction, ruthlessly cut back on these — but in the early days, put yourself out there.

Come to those first meetings having researched the person or the company. Have concrete ideas and action items for how you can help. Share what you’ve been working on and thinking about.

3. Don’t Do Work For Free

Time is money. Particularly in consulting and contracting, you are directly converting your hours into your wages earned. Be protective of your time.

Knowing when to draw the line between pursuing a project to work with and starting on a formal engagement can be tricky. You obviously will need to demonstrate your value before you can expect a prospective partner to pay you, but you also can’t get caught doing too much work for free.

If you find yourself doing work for free, check in and make sure lines of communication are open about expectations and timeline.

4. Take Care of Yourself

When you are working independently, it’s easy for your days to become unstructured. Even if you are still productive and getting everything done, a lack of structure can cause you to forget some of the basic necessities…

Suddenly it’s 1pm. Your energy is dipping and every problem is just a little bit more annoying than it should be. You realize you haven’t eaten anything yet today.

This used to happen to me a lot. You’ve got to take care of yourself. And it’s not just remembering to fuel up. It is also about sleep and exercise.

Carry snacks with you. Stop for lunch. Set a time every night when you stop doing work. Block off periods in your calendar for workouts or down time. Whatever it is, stay just as disciplined about your health and sanity as you are about your work.

5. Find Support

You don’t realize how much you interact with and rely on coworkers until you don’t have them. Think of the time you caught your coworker’s eye in the middle of a meeting and suppressed a laugh. Or the time you texted your coworker at 7am upon waking up with a fever, asking him to cover for you in your big meeting at that afternoon.

You don’t get any of that anymore.

This is why it’s so important to find support — both in and out of your industry.

I have been very lucky to have a network of a few close friends who work directly in my industry who have turned into my trusted confidants, my advisors, and my mentors. These people understand the field I work in. They know the players. They can make introductions and they can course correct me. They have been my biggest proponents and gentlest critics.

I have also had several incredible friends outside of my industry on speed-dial. For 9 months, they have put up with me pinging them urgent sanity-check questions or bouncing hair-brained ideas off of them. They have kept me balanced in more ways than they know.

6. Turn Off

On that note, it’s important to maintain balance in your life.

It’s easy when you are working for yourself to be “on” 24/7. It doesn’t help when the people you are working with are founders and entrepreneurs who also don’t turn off.

This is me refusing to turn off at 11pm on a Saturday. It was not cool.

But this can result in you zooming in, closer and closer to the frame — to the point where you lose perspective and your work suffers.

Force yourself to turn off. Have balance and hobbies. Do things that make you stop thinking about work altogether. This might be a sport or athletic activity. It might be spending time with family and friends who have no idea what you do. It might be as simple as listening to music. Whatever it is, find it and do it. Your work will be better as a result.

7. Have Direction

This is one I wish I had figured out earlier. I love being a little bit all over the place, with my hands in several different projects. This, I thought, was one of the benefits of being a freelancer.

This is fine, but if you don’t have a narrow theme or focus you will find yourself context-switching constantly. There is a massive cognitive load that comes with context-switching. Don’t do this to yourself.

Pick a niche or a theme and become the go-to person for that one tiny thing. This will benefit your individual brand. It will enable you to feel like you have a consistent identity. Most of all, it will allow you to tap into the synergies between the various projects you are working on, rather than getting pulled in 5 different directions.

8. Say No

Once you are in the flow of work, say no. There is a change that will occur at some point when you are happy with the amount of work you have on your plate. Before you even reach this point, you have to start saying no all the time.

Say no to meetings.

Say no to that 11:30pm Skype call with the maybe-interesting project in Asia.

Say no to the 5:30am follow up phone call with the team in Europe.

Say no to people who want to pick your brain.

Definitely say no to conference invitations.

Say no to meetings with investors looking for dealflow.

Say no to the people trying to hire you.

Say no to projects you don’t immediately want to work with.

Contracting, even more than in other jobs, is the practice of transforming your time into money. In order to do this effectively, you have to say no a lot.

This is emotionally exhausting. You are constantly disappointing people. Be gentle with yourself.

9. Pay Tuition

When I worked in trading, there was a fable that went around. A junior kid had mistakenly bought 100 million bonds when he meant to sell. The position immediately went against him to the tune of a million dollars.

Head hanging, he followed his manager into a glass office. He apologized and said he understood that he should probably pack up his things. His manager raised her eyebrows and replied, “What are you talking about? I just paid a million dollars of tuition on you. You’ve learned the lesson. You’re never going to make that mistake again.”

When you work for yourself, you are paying your own tuition. Accept early that you are going to pay it all the time. You’ll pay it by going to meetings that don’t lead you anywhere. You’ll pay it by doing work you never get compensated for. You’ll pay it by misunderstanding the terms of an agreement. You’ll pay it by not having researched a project well enough before signing on.

Make mistakes. Pay tuition. Understand that it’s part of the process.

10. Own It

When you are working for yourself, most people don’t understand. You have to explain it a lot. This leads you to constantly question the decision.

Sometimes people are just genuinely curious. “But what does that mean? What do you actually do?” You will get this all the time.

Sometimes people have good intentions and are just trying to give you advice. “In order to grow your career, you should really be building something,” they will say. Or they might offer, “that’s not a good way to make money long term.” They’ll tell you that you should settle down and find full time work. Sometimes they are saying this because they are trying to hire you. Other times they are genuinely concerned. It doesn’t matter. It will send you into an existential spiral about what you are doing with your life.

It will become a voice inside your head that keeps you up at night. It might come from someone you really respected. It might come from people you used to work with. Their confusion, and your own self-doubt, will sting in a way you can’t prepare for.

You have to remember that you chose this path not because you didn’t have any options, but because you knew you could create even more options for yourself. You need to remember that the work you are doing is valuable and legitimate, even if many people don’t understand why you’ve chosen this path. You need to look back at who you were or what you were doing six months ago and remember how much you’ve shipped.

Own the fact that you work for yourself, that it’s not conventional, and that you are forging your own path. I can promise you one thing: you will learn a lot along the way.

Decentralized Credit Scoring

Peer-to-Peer Digital Attestations

Decentralized systems, by definition, do not demand central coordinators.Rather, decentralized systems rely on other mechanisms, like market forces or game theoretics, to drive consensus between two or more actors. Decentralized systems are the basis of decentralized applications — user-facing products that are trust-minimized and, generally, do not require a trusted third party, an intermediary, or a coordinating actor.

Decentralized Application #1: Cryptocurrency

Peer-to-peer digital cash (cryptocurrency) is the first decentralized application to emerge out of blockchain technology. Cryptocurrencies allow us to transfer and custody assets directly.

Decentralized Application #1: Peer-to-Peer Digital Cash

Somewhat ironically, holders of bitcoin by and large continue to rely on centralized infrastructure. For many users’ purposes, the experience of custodians and wallet providers like Coinbase remains superior to self-custody options. These users are happy to make the privacy and trust trade-offs that come with that choice.

There is nothing wrong with users opting to rely on a central party for their use of cryptocurrency. The important innovation here is that they have theoption to self-custody their assets; they have the option of running a full node.

Decentralized Application #2: Exchange

Peer-to-peer decentralized exchange is the second application that is emerging from blockchain-based foundations. Decentralized exchange infrastructure allows us to trade assets without coordinating third parties.

Decentralized Application #2: Peer-to-Peer Digital Exchange

There are no perfectly trustless models for exchange, but the developments in this area are promising and have greatly expanded the spectrum of options available to users.

Note: the above is just my guess of what user options might look like.

There are many variations of decentralized exchange protocols and projects that are emerging. Some aim for decentralization at the orderbook layer. Others focus on settlement and custody. If you want to dive into these differences, I would recommend this piece by Mansi Prakash.

In the meantime I will just point out that these various models each serve important functions in that they provide optionality to users. Those looking to exchange their digital assets now have choices depending on whether they value privacy, counterparty risk management, liquidity, regulatory compliance, or UX.

Decentralized Application #3: Lending

A third decentralized application that is becoming a reality is that of lending. Many of the projects being built around decentralized exchanges enable the creation of loans or the ability to trade on margin.

Decentralized Application #3: Peer-to-Peer Digital Lending

Peer-to-peer digital lending opens up possibilities for new forms of financial interaction in a decentralized system. Loans give individuals and entities in need of capital access to funds. Blockchain-based borrowing holds the possibility of improving on the legacy model of lending. Programmatic, peer-to-peer margin calls, for example, could mitigate the likelihood of credit crises and over-leveraged systems.

DharmadYdX, and Lendroid are just a handful of the compelling projects building these types of systems.

Prospective users of these lending systems, however, don’t yet have options if they are looking to leverage a highly decentralized or trust-minimized system. This is due to one missing component…

Decentralized Credit Scoring

Every loan has a borrower and a lender. The lender examines the credit of the borrower to determine how to price the loan (how much interest to charge). The borrower’s credit is based on his historical behavior and current financial status.

Today, credit scoring is generally a centralized process that relies on attestations from a single authority or an oligopoly. An example of a single authority might be a bank or credit card company providing information about an account’s history. Oligopolies that provide credit scoring services include Transunion / Experian / Equifax for US individuals and Fitch / Moody’s / S&P for corporations. Both models rely on sets of central authorities.

But there do exist possibilities for more peer-to-peer models of credit scoring.

Rather than rely on attestations by a single authority or an oligopoly, lenders can use a web of trust model. Parties known to or trusted by the lender can make attestations about the attributes or historical behavior of the borrower. These can be made by institutions, like wallets or exchanges, or individuals.

Borrowers seeking to prioritize trust-minimization at all costs can take an even more decentralized approach and provide lenders only with their on-chain funds and transaction history as a proxy for credit score. This is obviously a weak indicator of creditworthiness and is a set up prone to exit scams — meaning this loan would demand a much higher interest rate — but for some users, this trade-off in favor of privacy may be worth it.

Further combinations and variants of these solutions can also be imagined. The Dharma team, for example, has suggested that zero knowledge proofscould help protect the privacy of borrowers as pertains to their credit history.

Implementations of decentralized anonymous credentials could also unlock possibilities for enhanced privacy and trust-minimization in a credit scoring system.

In order to enable a fuller spectrum of decentralized lending, some of these options for credit scoring need to be explored.


Credit scoring is really just an aspect of identity. It is one form of reputation.

Solutions for decentralized credit scoring, therefore, could be extrapolated into larger identity systems that do not rely on a single central authority. Attestations could go beyond historical transactions and extend to KYC/AML, accredited investor status, or even governments attesting citizenship, residency, and visas.

The problems posed by centralized digital identity solutions have been more deeply felt than ever in the last year. From the Equifax hack to China’s development of a social credit score, solutions created by central third parties have come to be viewed as insecure at best and dystopian at worst.

The development of new digital systems of interaction and transaction based on blockchain protocols have, in their own way, demonstrated the need for a decentralized alternative to the old identity systems. As the markets developed upon blockchain-based infrastructure continue to mature, demand is emerging for more complex forms of peer-to-peer trade, exchange, and interaction, many of which will need notions of credit and identity.

Further Reading

Security Without Identification: Transaction Systems to Make Big Brother Obsolete, Chaum

Decentralized Anonymous Credentials, Garman, Green, Miers

ERC: Identity #725, Vogelsteller et al.

0x Whitepaper, Warren, Bandeali

dYdX Whitepaper, Juliano

Dharma Whitepaper, Hollander

Lendroid Whitepaper, Sundaresan, Meenakshisundaram, Venkateswaran

Thanks are due to David Danko for his work with me in developing these thoughts.

Ideas here drawn from a lot of conversations and work done with Will WarrenAntonio JulianoAndy BrombergZooko Wilcox and others. All errata and logical fallacies are, as always, my own.


Venezuela’s Cryptocurrency Represents a Big Problem

Why does anyone use cryptocurrency?

The biggest real use case today remains evasion of third party control in holding and transacting assets. This control can come from governments, banks, or other intermediaries.

People use cryptocurrencies to make purchases online that they would prefer others didn’t know about. In countries like China and Argentina, bitcoin has been used to evade government controls over capital flows. In Cyprus, bitcoin has been used to avoid government seizures of assets and bank accounts. In Venezuela, bitcoin has been used as a store of value in the face of nearly 10,000% annual inflation. People have also used cryptocurrencies to fundraise in ways that would otherwise be subject to regulation… securities laws, money transfer regs, know your customer rules.

But it’s not just individuals that use cryptocurrencies in these ways.

Many large companies famously hold bitcoin on their books in order to pay off hackers in case of a cyberattack. Anecdotally, I have heard of Fortune 500 executives attempting to use bitcoin to transfer funds between regional subsidiaries of their companies, avoiding capital controls in certain jurisdictions.

If individuals and corporations use cryptocurrencies to evade third party controls, why wouldn’t governments do the same? Governments, after all, do not exist in their own sovereign bubbles. They exist on a global gameboard in which other players are constantly writing new rules. These rules can be explicit — in the form of sanctions or trade barriers — or implicit — in the form of propaganda campaigns.

Governments attempting to use cryptocurrencies to evade the rules imposed by another regime… it sounds like the plot of a cyberpunk novel. Actually, it’s just 2018.

Caracas’ Tower of David, a 52-story half-built skyscraper intended as a symbol of Venezuela’s economic power, was taken over by hungry citizens as the country’s financial system slid into collapse. Source: The Guardian

Defaulting On Your Citizens

Three and a half years ago in Caracas, the Venezuelan president issued a statement threatening legal action against a Harvard professor. The professor, a former cabinet member of the Venezuelan government, had left his homeland twenty years prior. Now the president was accusing him of waging economic warfare on his home country. “We have the proof,” said the president, “in your declarations and articles, up there in your mansions where you live with money stolen from Venezuela.”


The Venezuelan president, a man named Nicolas Maduro, came into politics through the unions and rose to be Hugo Chavez’s righthand man. Following Chavez’s death in 2013, Maduro was narrowly elected to succeed his old friend. He carried on Chavez’s economic policies, which had long since caught up with the Venezuelan economy.

Between 2012 and 2014, Venezuela’s currency, the bolivar, lost 90% of its value. Electricity blackouts became increasingly frequent throughout the country. Government price controls and restrictions on foreign currency transactions resulted in shortages of everything from cooking oil to toilet paper. The running joke was that this was all the bolivar was good for…

Source: MercoPress.


Yet the man at the head of it all was blaming a Harvard professor thousands of miles away in Cambridge. The professor in question, Ricardo Hausmann, had recently co-authored an article simply titled “Should Venezuela Default?”

The article addressed a bizarre dynamic: despite its failing economy, Venezuela was continuing to make good on its extreme debt burden, making double-digit interest payments to bondholders every month. Venezuela had often been praised in international capital markets for continuing to find ways to make these payments.

What Hausmann asked in his article, however, was whether this was really so laudable. The bond payments went to large, international asset managers — hedge funds and mutual funds. Meanwhile, Venezuela had long since defaulted on its people. Was the regime choosing hedge funds over hungry citizens?

Hausmann’s article was exactly the sort of damaging message that Maduro wanted to avoid.

Sanctions and Evasions

In 2015, US President Obama issued an executive order sanctioning certain Venezuelan individuals whom he deemed to be contributing to the humanitarian crisis there. In August of 2017, building on Obama’s edict, Donald Trump issued an order of his own. Trump’s order was more expansive: it prohibited certain dealings in Venezuelan securities, including government bonds.

Three months later, Maduro finally did what Hausmann had called for years prior — he slipped up on a payment and he defaulted on those newly-sanctioned government bonds.

Normally in the case of a sovereign default, the debtor nation can negotiate a deal with its bondholders. The country might offer to exchange the defaulted bonds for new bonds that give them more time to repay their creditors. This is called a restructuring. Because of the sanctions in place, however, US bondholders — Wall Street banks and asset managers — could not engage in a restructuring with Venezuela.


When a country is unable to restructure, it becomes effectively locked out of capital markets. Patria non grata as far as lenders are concerned. This makes it very difficult for the country to borrow and impossible to borrow at a favorable rate.

If only there was a way for Maduro’s regime to evade regulation in a fundraising process — a way to tap investors for money who could not presently engage in his investment offering.

Over last two years, a fundraising mechanism has developed that has seemed at times to exist outside of any regulatory framework. It is called an initial coin offering.

An initial coin offering is the creation of a new cryptocurrency that is sold to the general public, usually in exchange for some other, pre-existing currencies or tokens, such as bitcoin or ether. Over six billion dollars went towards initial coin offerings in 2017 alone.

This image is basically obligatory at this point.


If individuals and companies were managing to fundraise using this mechanism, why couldn’t a government?

This is what the Venezuelan regime seemed to spot last winter. If Maduro could not go to conventional capital markets anymore, he would turn to cryptocurrency markets. Just as his citizens had begun employing bitcoin to avoid his problematic policies, he could now use cryptocurrency to avoid the United States’ sanctions.

Maduro’s scheme might have worked if he had been using his new tokens to fundraise from individuals and entities who were off the grid (and if he had the technical expertise to pull it off). Remember, however, that most of Venezuela’s bondholders are institutional asset managers, some of the most heavily scrutinized entities in the world. If they participated (and ever wanted to report profits), they would have to disclose this transaction to shareholders and policymakers and they would once more find themselves in trouble with the US State Department.


In case there was any doubt on this front, Trump issued a follow up to his initial sanctions, clarifying that the order “prohibits all transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token that was issued by, for, or on behalf of the Government of Venezuela.”

So the Venezuelan cryptocurrency scheme does not work quite as Maduro’s government may have hoped. Their target investors would never risk touching the token. Nonetheless, the very fact that Venezuela undertook an initial coin offering introduces a new model for defaulted nation states looking to access capital. Cryptocurrency has already threatened many modes of government regulation, from capital controls to taxation. Have sanctions now joined this list?


Government use of cryptocurrency is not necessarily a good or a bad thing, but I would be remiss to not bring up here the state of Venezuela’s population. Maduro’s economic policies have long played an undeniable role in thehumanitarian crisis occurring in Venezuela. There has been much debate about their effectiveness, but the Obama and Trump sanctions were explicitly intended to pressure Maduro to improve the state of the country.

Venezuela’s most recent debt issuances to Goldman Sachs were termed “hunger bonds”; the bonds bailed out the regime from having to feel real policy pressure to improve the state of the country. The Petro, Maduro’s cryptocurrency, is intended to do the same thing, allowing his regime to circumvent sanctions intended to pressure it into helping its hungry population.

These are not freedom-preserving crypto assets. These are hunger tokens.

Source: NYT.

The Problem With Platforms

What is this story about?

It’s not really about leftist dictators, or toilet paper shortages, or sovereign defaults, or Donald Trump, or Goldman bankers.

It’s partially about a tragedy that is unfolding in Venezuela and the machinations of the government there to sustain that status quo.

It’s also about the problem with platforms. If you create a tool or platform for innovation, you probably have a vision for how it gets used… but ultimately you don’t get to choose. Maybe you built a platform to make the world moreopen and connected, but instead transformed how people’s data gets used. And maybe that, in turn, has resulted in a new and powerful paradigm forgovernment and corporate propogandaMaybe you built a platform to enable censorship resistant money, but instead created a fundraising mechanism for corrupt governments and fraudulent parties.

Open platforms and tools necessarily take this risk. Even in the realm of security, where paranoia and edge-case thinking are commonplace, builders might not be adequately considering the ways in which their products and platforms can and will be used.

Addendum: Argentina

Venezuela’s issuance of a cryptocurrency is important insofar as it represents a new form of fundraise by a state actor — and a new way of evading sanctions. Thus far, however, it has not worked. This is in part due to inadequate technical expertise on the part of Maduro in implementing the initiative. It is also because Venezuela’s target investors are beholden to the sanctions. Even if they wanted to buy into the Venezuelan government’s cryptocurrency, in order for the investment to be recognized, they would have to report the purchase — and answer some very uncomfortable questions in US federal court.

But I think there is a way, another context, in which a cryptocurrency could have successfully helped a recalcitrant debtor nation access capital markets.

In order to examine this, we must return again to a few years ago in Latin America. This time our destination is Argentina.

Cristina Kirchner, former president of Argentina, who oversaw the 2012–2015 default.


In 2001 Argentina defaulted on its sovereign debt and engaged in a restructuring with their bondholders. Most of their bondholders (97% of them) accepted a deal that traded their old defaulted bonds for new bonds that paid them back in smaller increments over a longer period. This would constitute a more manageable debt burden for the country and at least some relief for the bondholders.

So why would anyone not accept the deal? That small percentage of bondholding hedge funds who refused… what were they thinking?

Well, it turns out there was some language in the old bonds that guaranteed that Argentina could not make any payments on newly issued debt without also paying off those old defaulted bonds. The “holdouts” (as that small group of hedge funds came to be called) waited until Argentina had issued and begun to pay the new debt… and then they sued the Republic of Argentina. Oh and those hedge funds? They also went out and bought up even more of the old bonds in the meantime.

Argentina called bullshit on this move and refused to pay the holdout funds. What ensued was a decade-long legal battle that at various points went all the way to the US Supreme Court, involved the seizure of an Argentine naval vessel off the coast of Ghana, and resulted in some very unbecoming language thrown around by hedge fund managers and cabinet ministers alike.

This Argentine naval vessel was seized by hedge fund manager Paul Singer off the coast of Ghana as an attachment of assets since the country refused to make him whole. Mercopress.


Amidst all of this, there was one moment that would not have been particularly memorable if it were not so relevant to the conversation around state-issued cryptocurrency.

In March of 2015, Argentina attempted to make a payment to its bondholders without also paying the holdouts.

The US courts declared that the payment would not be allowed. If my memory serves, however, (and admittedly it may not because this was a pretty stressful period all around) the courts did not say that the bondholders were not allowed to receive the payment. Rather, the payment was prevented by a quirk of the settlement system. Citibank needed to process it. The US courts stated that if Citibank, the intermediary, attempted to do so, they would be aiding and abetting Argentina in violating New York law. The US courts got their way and Citi did not end up making the payment.


The presence of a third party intermediary, in this case, was what prevented the payment being made (and in part prevented Argentina from maintaining its standing in global markets).

What if they could have issued payment to these bondholders in such a way that didn’t demand an intermediary? What if the government had used cryptocurrency?

Thanks to Antonio Talledo and Alejandro Machado for their feedback and for generally being excellent sources of knowledge on all things crypto and Venezuela. Thanks also to John Loeber for excellent comments and encouragement, as always. Thanks finally to Marjorie Kasten who taught me that if you build an open platform, you don’t get to choose how it’s used. All errata are, of course, my own.

The Mutual Communication Society

Notions of Identity in Decentralized Systems

In the early 1800’s in London, there was a group of shopkeepers — tailors, haberdashers, cobblers — who periodically convened at the British Coffee House in Charing Cross. Over their pints and their cups of tea, they would discuss their customers.

London at the time, as the capital of the British Empire, was exploding with activity. This dynamic was leading to unprecedented prosperity for some of London’s residents, but it was posing a new challenge for the tradesmen who came together in that damp coffee house.


A few decades prior, all business had been local. The tailor over in Mayfair, for example, would have been serving the same customers for years. He would have known and trusted his customers, meaning he could do advance work for them and extend them credit — core pieces of how his business operated. His customers, for their part, knew they would damage their reputations if they did not hold up their side of the deal.

As London grew to be the capital of global commerce, however, the tailor’s customer base expanded. Gradually he found he didn’t know all, or even many, of the people walking through his door. Knowing who to trust was becoming an issue.

And so this group of shopkeepers was not assembled just to gossip about their customers… they came together to share names and details and, in particular, tell each other who to watch out for. Who were the fraudsters, the sharpers, the swindlers? This group called themselves the Mutual Communication Society.

Credit: A Different Type of Double-Spend Problem

Merchants’ concerns around fraud will sound familiar to anyone who has read the Bitcoin whitepaper.

Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable.

— Satoshi Nakamoto, Bitcoin Whitepaper

Satoshi, in his design of bitcoin, is addressing a problem of credit. Prior to bitcoin, merchants transacting with customers over the internet had to extend credit, trusting that their customers were good for the money and would follow through in paying. Generally, merchants relied on a series of expensive and time-consuming hops through banks and intermediaries to manage their risk. “These costs and payment uncertainties can be avoided in person by using physical currency,” Satoshi says, “but no mechanism exists to make payments over a communications channel without a trusted party.”

The solution? Peer-to-peer electronic cash. This breakthrough represents perhaps the most important development in economics since cowry shells andrai stonesBitcoin enables us to make digital transactions without having to rely on credit. But, like cowry shells and rai stones, the system runs into some problems when we want to rely on credit.

Remember our friend the tailor. He was dealing with customers in person, but his ability to work on advance was central to his business. The merchants of the Mutual Communication Society speak to this reality: most economic and commercial activities rely on some notion credit.

Leverage, the borrowing that credit enables, is its own form of double-spending. Leverage is what exacerbated the 2008 financial crisis. But it is also what allows governments to borrow and fund their deficits, fueling economic growth. It lets us take out mortgages to buy our dream homes. It enables students to attend universities they otherwise couldn’t afford.

Credit is an integral part of any mature and functional economic system. So if cryptocurrency is digital cash, what does digital credit look like?

Pricing Risk

It’s important to remember that even outside the realm of cryptocurrency, our concepts of credit are always very messy.

Credit systems usually rely on attestations from a single authority, an oligopoly, or a web of trust.

If you want to extend a loan to me, you might check with my bank to see how much money I have and to learn about my historical patterns of earning and spending. In this case you would be relying on data attested by a single authority.

If you perform a formal credit check (in the United States), you will get a three digit number back from a small set of actors — namely Experian, Equifax, and Transunion. This oligopoly will use their data on me, aggregated across my various financial accounts, to score my creditworthiness. A similar system exists for corporations and countries which are rated by S&P, Fitch, and Moody’s.

Finally, you could take a web-of-trust approach. This would be akin to a Mutual Communication Society. You could ask friends of yours who have dealt with me in the past what they think. Have they loaned me money? Have I repaid them? Am I reliable?

No matter which of these approaches you take, however, you will still be taking on some risk when you make me that loan. To make the risk worth your while, you can ask me to pay interest. In other words, you can price the risk accordingly.

Credit is even more complicated in cryptocurrency systems. Because actors on most cryptocurrency networks can remain pseudonymous, information asymmetry is even higher than in conventional markets. In particular, this means that it is not so costly for bad actors to commit fraud. An exit scam occurs when a party takes out a loan and then takes the money and runs. In a pseudonymous system there are few reputational consequences, no deteriorating credit score. And for the lender there is no bankruptcy court, no recourse.

Does this make it impossible to price the risk of extending credit in a pseudonymous system? I would argue no. But in order to understand how there can reasonably be credit markets *~*on the blockchain*~* we will first need to dive into the topic of identity…

For more on the Mutual Communication Society, go read A Culture of Credit: Embedding Trust and Transparency in American Business by Rowena Olegario.

Short Convexity

The big problem awaiting token teams

Every team that has fundraised through a token in the last 5 years has signed up for an experiment in fundraising, cash flow generation (or lack thereof), and treasury management. And there’s a big problem they would all be wise to consider.

These teams are almost universally sitting on a huge war chest, consisting of both the funds they raised and their own tokens. Capital is the last thing they are worried about right now — and perhaps with good reason given how much else there is going on.

Because they are so flush with cash, little thought is being given to what their capital and cash flow situation looks like long term. After all, these teams have exited before they started. They got their one real shot get money in the door and now that’s it. Possibly for life.

I’ve talked to a lot of teams about this. The standard answer I receive is that the plan for the project is to continue to hold a nontrivial quantity of the token. As adoption occurs, the token price will go up and the project will have more capital to fund development.

This answer fails to recognize an important and troubling problem that will play out for any project relying on that model. In order to explain this problem, I’ll need to take you to the relatively boring world of bonds. Bear with me.

The straight line is something called duration. The curved line is something called convexity. If you don’t know what I’m saying stick with me — this is going to be way less complicated than any white paper you’ve ever read.

There’s this concept in bond markets called convexity. Each bond has several different properties. Like all loans, a bond will have a maturity and an interest rate. Because bonds are also traded in secondary markets, they also, naturally, have prices. Those prices reflect whether the market thinks the bond has become more or less risky since it was issued.

As a quick example:

  • I take out a loan from you for $100 on which I pay a 10% annual interest rate for 10 years.
  • I then get a big raise at work, causing my credit score to go up.
  • Today, if I were to take out the same loan from you, I would be able to do it at just a 5% interest rate! This new, implied interest rate is what is called the yield.
  • This lower credit risk gets reflected in a higher price for the bond you hold. The bond is now worth about $105.
  • Yield goes down, price goes up.

So there’s this relationship between the yield and the price (and a handful of other factors). The relationship between the price and the yield largely gets captured by the something called the duration of the bond, or the change in dollar value per unit move in the yield. But duration plots a linear relationship between the two — glossing over a very important and more subtle dynamic at play.

Enter convexity. Convexity is the second derivative. While duration is the relationship between yield and price, convexity is the relationship between yield and duration. If a bond has positive convexity, the bond will experience larger and larger price increases as the yield falls. Conversely, as yields rise, the bond will experience smaller and smaller price drops.

Put simply, if you are long convexity, your risky exposure increases as the market moves in your direction and decreases as it move against you (yay!). If you are short convexity, you become less exposed as the market moves favorably and you become more exposed as it moves the wrong direction (uh oh).

One of the number one rules of the bond trading desk is to, all things being equal, always be long convexity. (I learned this the hard way when I once tried to go short one of the most convex bonds out there — the Mexico 100 year bond. The Bank of Japan announced a $1.4 trillion stimulus package a few days later. Talk about rekt.)

Here’s the problem: right now, token projects — despite their talk of antifragility (another word for convexity) — are all short convexity in their overall business models.

Remember: the whole idea is that they will use the vast sums of their own token to fund the project over the long term. Even as their tokens go up in value, they will inevitably have to sell some on the market to actually deploy that capital. They will be less and less exposed as the market moves in their favor.

And what about if things don’t quite go as planned? Projects may find that the most prudent thing to do in a downturn is to sit on their tokens rather than try to sell them into an illiquid and unfavorable market. They may even find themselves supporting the market for their token, buying some back from the open market. They will maintain or gain exposure as the market moves against them.

The takeaway: we need to start thinking about ways for these projects to get long convexity. If you are an investor, especially of the venture capital variety who is playing the long game, this should be all you are thinking about. If you are a founder, you should be considering options for long term, sustainable, and convex funding for your project.