The Market For Zero-Sum Games. Bitcoin Tech Talk Issue #204

DeFi-mania is nothing new. It was preceded by IEO-mania which was preceded by ICO-mania which was preceded by altcoin-mania. The sad reality of this space is that there always seems to be new money coming in for what they perceive to be easy money. The reality, of course, is that the money is anything but easy.

The nature of any system is that there are always people looking to capture value in the easiest way, that is, making money while doing the least amount of work. What’s strange about these markets is that there’s no clear creator of value, so the value capture game is zero-sum. Nobody is making any good or providing any service in DeFi. The previous iterations like IEO/ICO/altcoin at least potentially had future value providers, but this time, there isn’t even a pretense of one.

This was especially evident in the latest scam built on top of a scam (Uniswap) built on top of a scam (Ethereum): Yield Farming. As the above image shows, the bubble popped and a lot of people were screwed. When there isn’t clear value added, the only value being added are new suckers that are trying to be the root nodes of a pyramid scheme.

Which brings up the question, is this just people gambling or is it people trying to make money without providing value? My gut instinct is that it’s much more the latter than the former. There are plenty of places to gamble, even from very restrictive countries. The desire for the latter comes from experience. We all know that guy that seemed to not be that talented or interesting, but somehow made tons of money. Envy is the real driver here.

Bitcoin

Michael Flaxman has a multisig guide based on Spectre, Coldcard and Cobo Vault. This is potentially the best do-it-yourself multisig setup I’ve seen so far. The guide has an excellent explanation of why you would want multisig in the first place (elimination of a single-point-of-failure) and a good overview of alternatives like Casa and Unchained Capital. The whole thing is on Github, and he’s taking pull requests.

Judica.org has published an easy-to-understand introduction to sapio, a smart-contract framework for Bitcoin. What’s great about this framework is that the details of how the money is paid out is abstracted, so each participant can receive on-chain or on lightning as desired. The language itself is very similar to Python and seems to make for a great developer experience. More tooling of this kind will be great moving forward for people that want to create applications on Bitcoin.

Knox Custody has published a wonderful explanation of the mempool as a marketplace for Bitcoin transactions. The post marries the technical realities of the mempool with deep economic information theory. The main insight that I got is that the clearer the price signals are to market participants, the better the decision making of each participant. In this way, UX around mempool visualization like mempool.space is very important.

Blockstream has released a new paper on MuSig with deterministic nonces. MuSig is a Schnorr signature feature which allows multiple public keys to be aggregated to a single public key and multiple signatures to be aggregated to a single signature. There are some potential attacks using carefully selected nonces, so this paper makes selecting such a nonce impossible by making the nonce deterministic.

Lightning

An interesting new standard for exchanges is out, called OpenDEX. This is a decentralized exchange protocol with the extra ability to use Lightning to instantly settle Bitcoin sides of the trade. I’m a bit skeptical of the decentralized exchange concept, as liquidity tends to be a problem, but I’ll be watching where this goes.

Economics, Engineering, Etc.

Parker Lewis continues his Gradually, then Suddenly series with Bitcoin is one for all. There are a lot of gems in this article and well worth reading. For example, price signals are distorted as a result of Fed mingling. This is highly disruptive to good market functioning as wrong signals are sent to market participants. Undistorted price signals are one of the biggest benefits of Bitcoin.

Obi Nwusu has a keen analysis of the Fed’s newest inflation target average of 2%. As he explains, an average of 2% at some point in the future is license to make the inflation whatever it wants in the present. After all, the inflation average can be corrected from even 100% in a given year given enough time. Of course, the CPI is a highly manipulated metric to begin with, so in a sense, we’re arguing about the details of epicycles.

Sylvain Saurel makes the case for Bitcoin from the perspective of preventing collapse. The general arguments for Bitcoin tend to be investment focused, but this one is more about the stability of society and creating a better world. Also included are arguments for proof-of-work and why societal attitudes on Bitcoin are still wrong.

Podcasts

This week on #Bitcoin fixes this, I talked to Adam Back about self-sovereignty. He talked about becoming a cypherpunk, the ethic behind it and the importance of Bitcoin. I talked with some Hong Kong Bitcoiners about DeFi, Bitcoin education and startup success. I was on Tone’s show to talk INX, Ethereum fees and the privacy of Monero.

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Fiat delenda est.