How YFI becomes the leading world bank

The Restaurant Era of Digital Finance

Ethereum ends the oligopolized banking industry, just as the internet ended the oligopolized journalism industry. Banks on Ethereum have one product to sell: yield [1], so we occasionally refer to Ethereum banks as yield-optimizers. Anyone will be able to launch their own bank, a.k.a. their own yield-optimizer, on Ethereum with the same friction as launching their own website on the internet. However, banking on Ethereum will be more competitive than journalism on the internet, whose competition has been hindered by prominent social media companies’ moats of user-generated data. …

How Public Blockchains Go from Niche to Mainstream

Co-written by March Zheng and Cameron Sepahi

Moore’s Law

For those unfamiliar, Moore’s Law is the primary reason why iPhones today possess more processing power than the rockets that defined the Apollo moon missions. In 1965, Gordon Moore observed that the number of possible transistors in a circuit doubled every year; he predicted the trend would continue for a decade. Moore ended up being slightly wrong: the number doubles every two years; the trend has now continued for over five decades.

As history shows, Moore didn’t need to predict the future perfectly. All he had to be was directionally right. Because the…

An Upgrade to the Internet

Public blockchains will be as important to the world as the internet. The internet allowed for the frictionless flow of information. Public blockchains allow for the frictionless flow of value.

Value has been a second-class citizen on the internet, until now. Value has been largely overlooked by businesses, who have accepted commercial banks, payment rails, and payment APIs as they are, who have accepted data accumulators, data brokerages, and targeted advertisers as they are. We propose that blockchains will flood the world with ‘value opportunities’, just as the internet flooded the world with ‘information opportunities’. …

Changing the Properties of Currencies

Today, a currency must assume three roles to achieve widespread adoption: a store of value [1], a medium of exchange [2], and a unit of account [3]. Store of value tends to separate itself entirely from the other two characteristics. The assets that make the strongest stores of value have historically been the least transactable; today, wealth is primarily stored in equities, debt, and alternative assets (i.e. commodities and art). …

In the past ten years, a decade primarily of open, globalized trade, Europe, China, and emerging countries combined to double their outstanding dollar debt from $30trn to $60trn [1] (Total outstanding global debt is approaching $260trn, for reference.). These countries grew their dependence on the dollar because, put simply, it was the optimal decision for both parties in the debt transaction process: buyers of debt (dollar exporters) sought to denominate their returns in the most liquid, stable currency, while sellers of debt (dollar importers) preferred to receive loans in dollars because A) the dollar has the most liquidity when they…

While Ether is very likely to become the biggest winner in crypto, usurping gold in the process, its competing blockchain-based commodities will assume roles as digital silver, digital bronze, etc.. Like Ether, these neo-commodities will live their metaphors based on the usefulness of their corresponding blockchains [1]. It is still too early to publicly project which Ether competitors will become which commodity metaphors. It is also too early to determine how steep crypto’s Pareto distribution will be, but based on the network effects of both liquidity and security [2], the curve should be steep [3]. …

Crypto’s biggest winner will replace gold as state-free, global money.

Gold as a Currency

Some people claim that gold has accrued value due its usefulness via jewelry and smartphone manufacturing. However, jewelry is inherently unuseful and the amount of gold used in smartphone production is negligible: $1.82 worth of gold per smartphone, which, at 10bn smartphones, renders $20bn of utility, a far cry from gold’s $8trn market cap. Thus, gold’s success as the world’s store of value can be attributed solely to its scarcity: alchemy has proven impossible, and expensive mining expeditions can only inflate gold’s supply by 1–2% per year. …

Part 1 can be found here if not read.

The Future of Payments

Public blockchains merge the rail layer into the vault layer, significantly simplifying the current complexity of payment networks. Current debit/credit transactions typically require four middlemen: the payment processor, the issuing bank, the payment network, and acquiring the bank (along with nine steps of interactions between these parties). International bank wires typically require four as well: the sender’s bank, the receiver’s bank, and two correspondent banks (along with four steps of interactions between these parties). Blockchains reduce the intermediaries in modern payment rails from approximately four to one, the chain itself. …

Consumer and enterprise financial applications will become the first mainstream products built on public blockchain infrastructure. Current financial infrastructure is decades old but has been immune to disruption due to expansive regulatory and network moats. These moats have afforded finance firms some of the largest market capitalizations in the world: Wells Fargo at $200bn (regulatory moat), Visa at $500bn (network moat), the list goes on.

There are four layers to finance’s current stack:

  • the vaults (commercial banks, such as Wells Fargo),
  • the rails that connect the vaults (back-end payment networks, such as VisaNet),
  • the APIs that provide access to either…

Co-written with Eric (Yiming) Wang, graduate of Renmin University of China Law School

You may or may not have heard President Xi Jinping’s recent speech on blockchain technology. Here’s a highlight if you haven’t:

“The integrated application of blockchain technology plays an important role in new technological innovations and industrial changes. We must take the blockchain as an important breakthrough for independent innovation of core technologies, clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation. It is pointed out that relevant departments and their responsible…

Andrew Bakst

Partner at Bizantine Capital

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