As a follow-up to my last post, the answer cannot simply be "it's all good." Thinking more treasury cos buying more coins = always better for equity holders is terra luna type thinking. As in "it'll work so long as prices keep going up, and that's all that'll ever happen" No

As a general rule of thumb, blockchains (both L1s and L2s) should never go down. Liveness is one of the few things we can do better than TradFi or Web2 systems, and must. But it's less bad when an L2 like Base goes down, for two reasons. First, the L2-centric scaling approach allows for market segmentation-different L2s can optimize for different features, like liveness, fees, throughput, MEV mitigation, etc. (an L1 can't do this, it has to optimize for the lowest common denominator for each feature, pleasing no one). So, it's not great that Base went down, but it's also not that big of a deal because right now Base is optimizing for consumer activities like content coins (whatever those are) where liveness isn't as important. I suspect other L2s will optimize for more wholesale DeFi-like activities like on-chain repo, and one feature they'll focus on is never being down. Ever. Also, if a properly designed L2 goes down, users will still be able to self-sequence and withdraw via the L1--a great feature, but one that requires the L1 underneath to really never ever go down or censor. If an L1 goes down, it's unclear if the assets on it even exist. In summary, blockchains should never go down, but it matters more when some go down vs others. A random L2 for a video game going down is just annoying, Ethereum going down would be total catastrophe.

Here's one way to think about what I started calling the "Washington - Wall Street Industrial Complex" since before crypto: Fact: Banking, in America and other countries, is a "protected" industry. It's protected via difficult chartering processes, expensive regulations, and massive bailouts. It's the only industry where regulators have a mandate to make sure it remains profitable. And it's among the few where the government makes sure citizens get inferior products at higher costs to protect industry profits (e.g., the ban on interest payments from FinTechs & stablecoin issuers). Fact: Banking, in America and other countries, is a workaround to building a surveillance state and violating individual liberties otherwise protected by law (in America's case, protected within the most important part of the foundational document, the bill of rights). The alphabet soup of "compliance:" programs like AML, KYC, CFT, Sanctions etc gives the government extra-legal tools to surveil, censor, and oppress. As Commisioner @HesterPeirce pointed out yesterday in her must-read speech, this workaround is enabled by a third-party doctrine where many of our rights (like the 4th amendment) don't apply if we "voluntarily" disclose personal information to a third party, like a bank. But a lot of that disclosure isn't voluntary. Neither is the debanking that the crypto industry (and other non-favored industries or marginalized groups) have experienced over the years. The government can't just willy nilly surveil or discriminate against companies it doesn't like without due process, but banks can, and do. They are encouraged to. Fact: The supposed reason why the alphabet soup exists, to prevent illicit activity, is a canard. None of it actually works. I know this because I've had very frank conversations with senior people in government enforcement of the soup and senior bank execs in charge of enforcing it. They all agree on only catching "the tip of the iceberg". We know this because trillions get laundered through the banking system annually. Every year some big bank gets slapped with a billion-dollar fine and nobody bats an eye. Surveys show the vast majority of bank-execs treat AML fines as "just the cost of doing business." One way to identify a failed regime, or just a bad law, is when most people subject to it just break the rules and pay the fine. Another is to identify simple flaws in logic of how it's implemented, like the fact that the thresholds for reporting are not inflation adjusted. Conclusion: When you combine these facts, it becomes apparent that the way banks are treated by the government has less to do with protecting people and more to do with exposing them--to surveillance and overreach. Crypto fixes this complex. Or at least exposes it for being flawed and disingenuous. Fun supporting evidence: Jamie Dimon, Elizabeth Warren, and countless other no-coiner academics & columnists don't agree on much, but they all agree that on perpetuating the Complex. When the bedfellows are strange, the motivation is suspect.

This speech is one of the most important of the year and a must read by everyone. The question isn’t just about data collection or the role of intermediaries, it’s about a circumvention of basic rights to perpetuate an objectively failed approach.

The Bank Secrecy Act was built entirely for a paper-based world. But money is now a creature of the internet and we need our laws to respect that. A prime example: we should look to Zero-Knowledge Proofs to eliminate the data dragnet that the BSA forces on every consumer. 1/3

If you think about it, USA Today is the Ripple of newspapers. The people who actually care about quality journalism and know what that is forget it exists, yet it's one of the most read/subscribed to papers in America.

Barring deposits & stables from paying interest is not politically defensible. It's the government saying "let's make sure all Americans get an inferior product to protect corporate profits." Can you imagine this being tried in any other industry?

It's a quiet day in the markets with not much going on and a friend just asked me why I hadn't been more vocal on Bitcoin L2s, so here goes: I have a moderately strong intuition that none of these will ever work, both because of Bitcoin's culture (which prioritizes decentralization) and its network design. L2s need to post some combination of proofs and data to the L1 to be valid (otherwise they are just a sidechain). The issue with Bitcoin L2s is that Bitcoin block times are both far apart and unpredictable. This compromises finality. The further apart the blocks of an L1, the greater the trust assumptions required to use an L2. You have to wait for your transactions to be finalized by the main chain, and you don't even know how long. Also, whatever self-sequence/CR/escape hatch mechanisms the L2 might have, you won't know when you'll be able to use them. There are also the technical limitations of using Bitcoin for anything other than UTXO transfers, the cost of posting data, and so on. But those issues might be solvable, whereas dispersed and unpredictable block times are not-not without compromising the L1. That's just how PoW works. If I'm right, then the next question to ponder is how useful is a Bitcoin L2 with large trust assumptions? My intuition is not at all. You might as well wrap the bitcoins and do whatever you wanted to do with them on another L1. Don't get me wrong, it would be awesome if we could have native DeFi on corn, a game changer in fact. I just think that the same vectors of decentralization that make Bitcoin appealing as an asset disqualify its chain as a useful anchor for L2s. "But wait a minute Omid", a maxi, or crypto VC bro who didn't care about Bitcoin until a year ago, might say. "If you are right, why have people plowed so much money into so many different BTC L2s?" To which I say: LOL. Also, welcome to crypto, the industry where we throw billions at every bad idea. But if I am right, then Bitcoin is on a collision course with a crisis of economic security.

Hot off the press: a new blog post co-authored with @LowBeta_ on the question of how stablecoins impact the singleness of money. Organizations like the BIS (and skeptical academics) now argue that stablecoins are dangerous because they might break the hard-fought convertibility at par of the banking system. Zack and I argue otherwise. Here's the TLDR: First, singleness in banking is more of an academic ideal than practical reality. ATM machines have fees (so people don't get back exactly what they withdraw) and every single card swipe leads to a merchant getting less than 100 cents on the dollar. Second, where singleness is maintained in banking, it comes at an extraordinary cost, financially and politically. That cost ran into the tens of billions in the regional banking crisis, and far more (in terms of bailouts) during Covid and in 2008. Most importantly, payment stablecoins (as regulated by Genius) are going to be highly homogenous in their reserves. This means their liabilities (AKA da coins) are far more likely to organically trade at par then those of levered institutions (AKA bank deposits). This fallacy is yet another example of the false projection of the flaws of banking unto stablecoins. So get educated and fight the FUD! Link to the post below. I've followed the cool kids (or at least @nic__carter) and moved from Medium to Substack.

We need cryptography because the only thing AI can’t generate are cryptographic signatures.