Good post. Many proponents of crypto fundamentally misunderstand their own creation. What they refer to as disintermediation is actually automation: replacing administrative middlemen with more censorship-resistant middlemachines - ideal-typical bureaucrats who, as some proponents seem to think, should be given full autonomy/independence from external power.
As I explain in the text: it's already there. On the edges of the middlemachine (esp. as it relates to interfaces, key management, custody), all sorts of old and new intermediaries are active. But the essence of blockchain technology is that certain intermediary functions relating to administering data are being automated in a way that is more secure and censorship-resistant than relying on human administrators. The end result may be qualitatively different from existing institutions but it's functionally equivalent.
《creditors still gain from their ability to intermediate. They have power, in particular the power to ease the survival constraint, or to choose not to.》
Why is it so easy to tie Minsky's survival constraint to physical resource constraints, but in fact the survival constraint is psychologically noisy? In 1874 did Grant have to impose a harsh survival constraint by vetoing the Greenback Party's Inflation Bill? In 2008, would a different Fed chair have set the survival constraint differently? How arbitrary and fickle is the survival constraint?
Daniel, I've been thinking about this a lot recently, great post. One of the interesting ways this stroy has turned out is we now see "mostly" automated protocols that aggregate funding and loan distribution. So the credit intermediary is served by the protcols balance sheet. Not sure where this fits on the revolutionary vs novelty scale, but it does seem to be a more direct challenge to how the survival constraint is traditionally resolved. Curious to hear your thoughts.
The protocol might conceptually have a balance sheet within the confines of a particular distributed ledger, but it is not a legal entity and so does not have any assets or liabilities outside of that ledger. But off-chain is where the survival constraint binds.
Legally it's a bit of a mess and indeed you're correct. However, for businesses processes that recognize the on-chain ledger as the final settlement, say defined by an off-chain legal contract, then there would be liquidity concerns and a protocol involved to some degree. Combined with secured lending and near instant settlement the environment is rather interesting.
Actually, even without a shared legal entity, the distributed organization as a whole (which includes the protocol) can indeed obtain assets and liabilities vis-à-vis other distributed organizations and ledgers. A complex economy with interlocking balance sheets is possible entirely on-chain and without incorporation. The resulting legal uncertainty probably makes it unsuitable for most organizations, but it is possible.
The legal status of distributed ledgers is going to require some work. The Treasury's Stablecoin Report opens some initial questions about this from a regulatory point of view, which I mention here: https://neilson.substack.com/p/stablecoin-report
I'm surprised that you never mention peer-to-protocol/contract, a type of transaction that - under certain assumptions about the underlying network - is very much possible without a legal entity on the contract side. The protocol/contract can be deployed without requiring anyone's permission and remains accessible/operational as long as the network and its security are intact. It's not Tether that's noteworthy here, although it's clear why regulators would focus on that.
Good post. Many proponents of crypto fundamentally misunderstand their own creation. What they refer to as disintermediation is actually automation: replacing administrative middlemen with more censorship-resistant middlemachines - ideal-typical bureaucrats who, as some proponents seem to think, should be given full autonomy/independence from external power.
https://mariolaul.medium.com/middlemachines-8d7b7784c9c3
Maybe automation conceals the intermediary function. But I suspect it will reappear at some point, probably painfully so.
As I explain in the text: it's already there. On the edges of the middlemachine (esp. as it relates to interfaces, key management, custody), all sorts of old and new intermediaries are active. But the essence of blockchain technology is that certain intermediary functions relating to administering data are being automated in a way that is more secure and censorship-resistant than relying on human administrators. The end result may be qualitatively different from existing institutions but it's functionally equivalent.
《creditors still gain from their ability to intermediate. They have power, in particular the power to ease the survival constraint, or to choose not to.》
Why is it so easy to tie Minsky's survival constraint to physical resource constraints, but in fact the survival constraint is psychologically noisy? In 1874 did Grant have to impose a harsh survival constraint by vetoing the Greenback Party's Inflation Bill? In 2008, would a different Fed chair have set the survival constraint differently? How arbitrary and fickle is the survival constraint?
Great questions!
Daniel, I've been thinking about this a lot recently, great post. One of the interesting ways this stroy has turned out is we now see "mostly" automated protocols that aggregate funding and loan distribution. So the credit intermediary is served by the protcols balance sheet. Not sure where this fits on the revolutionary vs novelty scale, but it does seem to be a more direct challenge to how the survival constraint is traditionally resolved. Curious to hear your thoughts.
The protocol might conceptually have a balance sheet within the confines of a particular distributed ledger, but it is not a legal entity and so does not have any assets or liabilities outside of that ledger. But off-chain is where the survival constraint binds.
Legally it's a bit of a mess and indeed you're correct. However, for businesses processes that recognize the on-chain ledger as the final settlement, say defined by an off-chain legal contract, then there would be liquidity concerns and a protocol involved to some degree. Combined with secured lending and near instant settlement the environment is rather interesting.
Actually, even without a shared legal entity, the distributed organization as a whole (which includes the protocol) can indeed obtain assets and liabilities vis-à-vis other distributed organizations and ledgers. A complex economy with interlocking balance sheets is possible entirely on-chain and without incorporation. The resulting legal uncertainty probably makes it unsuitable for most organizations, but it is possible.
The legal status of distributed ledgers is going to require some work. The Treasury's Stablecoin Report opens some initial questions about this from a regulatory point of view, which I mention here: https://neilson.substack.com/p/stablecoin-report
I'm surprised that you never mention peer-to-protocol/contract, a type of transaction that - under certain assumptions about the underlying network - is very much possible without a legal entity on the contract side. The protocol/contract can be deployed without requiring anyone's permission and remains accessible/operational as long as the network and its security are intact. It's not Tether that's noteworthy here, although it's clear why regulators would focus on that.