Welcome back.

What happened to the red wave? I encourage everyone to spend some time contemplating their cognitive biases.

Okay so it seems as though the cryptocurrency industry just experienced the biggest news event since the March 2020 collapse. FTX, an offshore cryptocurrency exchange & (thought to be) one of the largest exchanges (by volume) on the planet, appears to be totally insolvent. Blah blah blah… Lehman event… blah blah blah… other catchy headlines. Whatever.

Here’s what I see: healing.

Unclear how much more “healing” we need to go through, but probably more than people will be comfortable with. If the king of the grifters — AKA “Chief Twit” AKA “Twitter Complaint Hotline Operator” — is humbled, then I’ll know for sure we’re close.

Anyways…

The thing I can’t quite solve is the dependency on “number go up.” Most of the interest in crypto is predicated on the coin prices. So, when number goes down, interest goes down.

The harsh reality the industry is facing, the barrel of the gun we’re all looking down, is that nearly every crypto asset is nothing more than a casino chip. And the table isn’t Texas hold’em, it’s centralized exchange order books & private Telegram groups. I just scrolled through the top 50 on CoinGecko and I only see two assets which I can say confidently can play a role in the global financial system: BTC & USDC.

I want to be totally clear… I’m extremely bullish on the infrastructure and the potential of reworking the financial system to be digitally native. I am specifically casting my concerns on the valuations of crypto assets.

I think I understand the sales pitch — the one which the folks at A16Z spearhead — which goes something like, “the tokens are needed to create a financial incentive for the builders to come in and build.” My question is… what happens to those tokens once all the builders have joined?

I think, perhaps, we have a geopolitical angle here — specifically the sovereign & shadow banking systems. Cryptocurrency being inherently borderless & operated 24/7 means the system can be used as a tool (or more cynically, a weapon) by sovereigns to move financial markets. Retail being the loser. As long as this is the largest headwind, the crypto industry will be too high-risk to cement itself as a disruptive technology.

Regardless…

I have a vision where financial systems are disrupted through software from the ground-up to be digitally native. The traditional financial system, while of course use digital technologies, is not “digitally native.”

Shout out to the team over at Block (& Jack Dorsey) who I think are doing this almost exactly right.

Financial systems, and even more so monetary systems, are inherently predicated on policy set by law makers. And who are the law makers? Politicians. Why are nearly all politicians lawyers? Maybe it’s time for some engineers to become politicians…

Wild times.