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Every day is proof of keys for DeFi

Market Monday for January 6, 2020
Ryan Sean Adams Ryan Sean Adams Jan 6, 20208 min read
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Every day is proof of keys for DeFi

Dear Crypto Natives,

Not your keys not your coin.

If you don’t have access to the private keys of your cryptocurrency then you don’t really own them. The ETH you own in your Coinbase account or on BlockFi is really an ETH-IOU. It’s backed by trust. It’s not fully bankless.

I’m not against using crypto banks by the way. I use them all the time. But if crypto ends up dominated by a small set of powerful crypto banks that we have to trust—well, what’s really changed?

If we do use crypto banks ideally we have a way to verify that they have our money.

That’s why I like the idea of Proof of Keys Day—a day when crypto holders simultaneously withdraw their crypto from the crypto banks to prove that the banks really have their money. A socially coordinated run on the bank every January 3rd. A bank system audit by mass fund withdrawal.

An aside—it’s interesting to consider the equivalent in traditional finance. What would happen in a Proof of Cash Day in traditional banking if we mass withdrew dollars? Pure chaos! Banks operate on a fractional reserve basis so they’re only required to hold 10 percent of their liability obligations in cash (yes, your savings account is a bank liability). And most of these dollars are digital not physical and these digital dollars are held in special accounts with the Federal Reserve that only certain banks can access (not consumers!). So the cash can’t be withdrawn because most of it doesn’t exist and the part that does exist isn’t available for regular people.

Not to worry though. The banking system is highly efficient as long as people trust it!

Back to crypto. Is a bank run through proof of keys really the best we can do? No! People like Nic Carter advocate proof of solvency. That crypto banks voluntarily report and cryptographically prove their reserves on a regular basis. So far, the market has not demanded this of the banks and neither have regulators, thus there’s been near zero uptake. Banks will be banks.

But we can do better than banks now.

Money protocols like Maker, Uniswap, and Compound have proof of solvency built into their systems. Anyone, anywhere in the world can audit them at anytime with the click of a button.

You want to know how much collateral backs DAI? One click & you have the answer.

Don’t trust Etherscan? Try another site. Or run a node and do the query yourself.

You can see how much DAI Compound holds. You can audit the liquidity pools of an entire exchange on demand. No CPAs, legal system, or government required.

A Bitcoin node can assay a Bitcoin. But an Ethereum node can assay a banking system.

Do you see how powerful this is? How much does it cost to audit the traditional banking sector—the lawyers, accountants, reporting across Every. Single. Bank.

An Ethereum node can audit the open finance banking system for $30 a month.

This means anyone can do it.

So I’m saying proof of keys is good. But open finance is better. Because it’s not just one day a year.

Every day is proof of keys for DeFi.

- RSA


Price of ETH and BTC up—is that the smell of bullishness in the air? Everyone predicting a flat or slightly up year for crypto. I predict a 10x year for leveling up.


MARKET MONDAY:

Scan this section and dig into anything interesting

Market numbers

  • ETH up a smidge to $143 from $132 last Monday
  • BTC down a bit to $7731 from $7,302 last Monday
  • DAI stability fee stays 4% with savings rate 4% (vote may move it to 6% & 6%)

Market opportunities

New stuff

What’s hot

Money reads

Lots of great reads this week—people busy writing during the holidays it seems!


WHAT I’M DOING

Check out a few opportunities I’m capturing right now with my crypto money

Used the newest version of DEX.ag exchange aggregator. Before I trade on decentralized exchanges like Uniswap or Kyber, I check here. Savings on trades often exceed 1%. Note that exchange aggregators exist for centralized exchanges too—SFox and Tagomi are two such examples.

Became a liquidity provider on the Uniswap MKR/ETH pair courtesy of Nodar. He actually created the liquidity himself then gifted it to my RSA.eth address using DeFiZap. This drew my attention to that Uniswap liquidity pool Zaps can now be gifted to Ethereum addresses. Magic!

Explored Tax software that auto imports DeFi transactions. There’s not much at the moment (just manual Eth wallet imports), but several tax software groups reached out to me about working hard to bring DeFi tax functionality to market—starting with protocols like Compound and Uniswap. I bet we’ll see a good start in Q1 and by the end of the year automated DeFi tax features will become standard.

Submitted a GitCoin grant to help expand Bankless media. Gitcoin is running its fourth CLR matching program, so grant donations will be partially matched based on popularity. This time $75k is allocated to education and media. If you’re a writer or educator in this crypto space—apply for a grant!

What’s the coolest thing you did last week in crypto? Here’s what you’ve been up to:

👉See more in thread from last week.


WEEKLY ASSIGNMENT:

Make time to complete this assignment before next week

Lock away some ETH (5 minutes). Lock is a simple protocol that allows you to lock up assets like ETH, DAI, or a token for a period of time. During that period, no one can move the asset—it’s locked. Once the period expires the assets can be released to your own address or to someone else’s address.

Note: This project is early and I’ve not fully reviewed the audits for this protocol. Do not lock up large sums with this protocol. Test amounts only!

Why lock assets? There are many use cases for simple asset lockups. Perhaps you want to solidify your holding ability—lock up some ETH for 6 months. You could give someone a time-locked birthday gift—the DAI is given but only released on her birthday. I’ve personally used time-locks like these for investing—invest some DAI in a token project but the tokens stays locked for 12 months. Here’s a list of other ideas.

Today we’ll setup a simple lock on some ETH. (You’d need MetaMask)

  1. Go to app.lock.finance
  2. Select an asset to lock (e.g. ETH or DAI)—just a test amount
  3. Set amount and number of days (beneficiary can be blank)
  4. Click “Lock Asset”

Congrats! Your asset is locked for the number of days you specified.


Extra Credit Learning


MAIN TAKES:

Read my takes but draw your own conclusions

MINI TAKES:


TWEET-A-QUESTION

Tweet me your question—I reply to one per week

Question from Twitter:
Isn’t ETH just a commodity?


RSA Response:
This question is most often expressed as a statement, as in ETH is just a commodity so it will never accrue monetary premium. You know my thoughts on ETH’s monetary premium, but I want to also clear something up.

ETH is not a commodity. It’s never been a commodity. Here’s how I put it recently:

This is of course another reason I’ve never liked the “ETH is oil” analogy. If we’re using that analogy, blockspace is the oil. ETH just happens to be the currency set by the protocol for purchasing the oil.

ETH is currency that pays for Ethereum blocks.

Not a commodity. A money that pays for a commodity. Or course, as its used as trustless economic bandwidth and as a reserve asset within the crypto economy, its money use increases beyond just a money for blocks.

- RSA


Some recent tweets…

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Ryan Sean Adams

Written by Ryan Sean Adams

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Crypto investor going bankless.

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