Why provide liquidity?

Have you ever wondered how some crypto sites can offer ludicrous APRs? Here’s a short primer to dive in – and as this is a primer, some concepts/ background are edited for clarity.

Some of the most promising sites/ tech in DeCentralized Finance (DeFi) are DEXs. A DEX (decentralized exchange) facilitates trading round the clock, every day of the year, without requiring a username or password. You retain custody of your crypto on your own cold wallet hardware (say Ledger or Trezor). Once the transaction is recorded on the blockchain the ownership/ settling of the asset is done automatically – there is no T+2 settlement like in TradFI (Traditional Finance).

Let’s use GMX (on Arbitrum / Avalanche) as an example – if you want to swap say your ETH to USDC, you go to the Trade page and execute your trade just like you would on a centralized exchange:

Now, you may ask yourself – all these centralized exchanges (Coinbase, Binance, Nasdaq, NYSE, GS dark pools etc) – how do they make money? Well, they make their money on trading – pairing Bob who wants to buy ETH for $2000 from Alice, and charging a fee (price difference or transaction fee) for the service. 

Imagine that all for example ETH owners, including Bob, could “Pool” their ETH (in a Liquidity Pool), allowing them to earn fees on ETH trades. Essentially the ETH is placed in a ‘vault’ or smart contract that pools your ETH with other DeFi users. Then you as a “Liquidity Provider / LP” earn a good chunk of the fee revenue that accrues to the pool – as a percentage of your ownership in the pool.

Throughout history a centralized/ third party has earned these fees. With DeFi you still custody the assets (you are the only one with the private keys). This is at the core of DeCentralized Finance – getting rid of the intermediaries, and allowing the actual owners of the assets to benefit.

So what kind of rates can earn in these pools? On GMX V2 pools today:

And we’ve heard Ethereum transactions are expensive right? GMX runs on Arbitrum – an ETH Layer 2, and transactions are normally 10c-20c… (and will get cheaper..).

Remember these are new technologies, where some sites/ users have been hacked, you take on smart contract risk, risk of owning the crypto asset etc, but it’s not ‘Fake SBF / Terra Luna’ yield, it is native yield based on fee generation. Always do your due diligence on the sites you use – personally I prefer the larger DeFi sites with a higher TVL (total value locked), higher revenues, clear open-source code on Github for all key functionalities etc…

Finally – this is NOT financial advice, be careful out there 🙂

Taylor Swift – charting a Community-Centered Music Revolution

Introduction

Taylor Swift isn’t just a music icon; she’s also on the front lines of changing how stars and fans connect. She’s created a passionate community, taken on big music companies, all while being aligned ethically with what’s called Web 3 – let’s dive in how…

Building a Fan Family

Taylor’s fans, the “Swifties,” aren’t just cheering from the sidelines; they’re part of the conversation. She talks to them straight through social media, not just to share music news but to get their take on things, too. Swift’s approach to engaging with her community directly, without going through traditional media or platforms that might act as intermediaries, also aligns with the Web 3 principle of decentralization. This creates a tight-knit fan club – whereas Web 3 technologies can provide the tools for online communities to decide how they want to govern themselves, how the community is built etc.

Cutting Out the Middleman

Taylor’s bold move to re-record her old songs is a game-changer. It’s her way of taking back control and getting closer to her fans without the music industry’s big players calling the shots. In 2019, Swift spoke out against the acquisition of her master recordings by Scooter Braun’s Ithaca Holdings as part of its deal with Big Machine Records. She emphasized the importance of artists owning their masters to control their work’s usage and financial benefits. It’s similar to what Web 3 wants to do—cutting out the unnecessary middleman and letting creators sell their art to their most hard-core fans. Imagine owning an NFT, that for example gives access to alternative versions of songs, or allows the owner to receive a share of the song’s royalties.

Music for Everyone

Swift’s ethical alignment with Web 3 is underscored by her advocacy for artist rights and fair compensation. Her public battles against inequitable streaming revenues and ownership rights echo the Web 3 emphasis on fair value distribution and transparency. For example in 2014, she removed her entire catalog from Spotify, protesting against its streaming royalties’ distribution model. In the Web 3 world, smart contracts on blockchain platforms could ensure artists receive their due share without the opacity that sometimes shrouds the financial flows of the music industry, or could allow the platforms themselves to be owned by the artists and fans.

Advocating for Fellow Artists

In 2015, Swift wrote an open letter to Apple Music, criticizing their policy not to pay artists during the service’s free three-month trial period. Apple reversed its policy following Swift’s letter, agreeing to pay artists even during the trial. This action reflected a Web 3-type advocacy for transparent and fair compensation models that benefit all stakeholders.

Avoiding scalpers

With tickets to concerts often costing $1000’s of dollars due to scalpers, blockchain-based systems can enforce identity verification and purchase limits at the point of sale. Smart contracts can be programmed to allow only verified users to purchase tickets and limit the number of tickets each user can buy. This reduces the likelihood that scalpers can buy large quantities of tickets for resale at inflated prices.

Challenges to Think About

The music industry is deeply entrenched in its ways, and a single artist, irrespective of their influence, can face significant hurdles in changing the system. Additionally, the Web 3 space is still in its infancy, and its principles, technologies are yet to be tested at scale, especially in creative industries.

Conclusion

Taylor Swift is not just writing anthems for generations but also rewriting the rulebook on how artists and communities interact in the digital age. She’s showing us a peek into a future where music and the internet can be a place where everyone wins, with artists in charge of their own music and fans getting front-row seats to the show.

Thanks for reading,

Oskar

My ICD saved my life

It was the morning of Wednesday Sep 20th 2023, and we’d gone out for a walk with Jolene at 7.25AM. I had eaten my breakfast (yogurt, chia seeds, flaxseed, blueberries) and taken my morning medicine of metoprolol – a beta blocker, and a baby aspirin. After the heart episode in Finland, these were the medications ascribed to me.

I had regularly felt a pain in the chest/ thyroid – about 5-7 minutes into starting a walk/ exercise, and I had equated it with the beta blocker medicine (metoprolol) kicking in to do its job. I’d take a pause, breathe and after a minute or so the symptoms would go away. We’d walked about 10 minutes or half-way when the symptoms kicked in.

This time the chest pain got worse and worse, until I felt the ICD (intra cardiac defibrillator) kick in. It felt like my whole body was jolted. However the ICD did its job, and my heart rate returned to normal.

The ambulance showed up quickly, and the EMTs were able to confirm my heart was back in sinus rhythm, my EKG was normal. I did feel a little shaky still so we took it slow and drove ourselves to the closest ER/ hospital – at Baycare Countryside.

In the ER

In the ER the staff took us in and did some basic EKG, bloodwork etc. Jolene was with me the whole time, and we held hands as we discussed. Around 9.30AM we started discussing a topic that caused me some distress, and I could feel the familiar chest tightness, and heart racing symptoms start again.

The ICD fired three times, and brought my heart rate back to sinus. I only felt two of the ICD jolts, but each threw my body in the air with the kick. 

At this time the staff put me on an Amiodarone drip, and transferred me to the Intensive Cardiac Unit. The next 24h-48h were very stressful, filled with anxiety as I wondered how my heart would perform, whether I would get shocked again.

Medications

Now armed with the additional information we had about the chest pain, Dr Hazlitt – an electro-physiological cardiologist, together with Dr Bruno (internal medicine) put me on two different medications: 800 mg Amiodarone to keep the heart rate down, and avoid fibrillation, and 4 pills of Imdur (Isosorbide dinitrate), which is used to prevent chest pain (angina) caused by vasospasm. It works by relaxing and widening blood vessels so blood can flow more easily to the heart.

The flowchart of issues as we can best tell today is:

I was released from the hospital on Saturday September 23rd, starting another journey of recovery. Even though my body felt battered, and scarred – I felt like a survivor, some-one that had gone through some traumatic sh*t. I’m hoping this tale can be informative and helpful to others who are going through similar or other difficult circumstances. I will write more about the recovery and lessons in an upcoming post.

Peace & Love.

Oskar

The day I almost died

This is the story of the day I almost died, and how I’m so grateful today to be writing about the event instead.

I’m a 49 year old Dad, IT professional and athlete, living in Tampa Bay, Florida. I’ve generally been healthy all my life, and as written about in my health test, I thought I was doing well.

In July 2023 we came to Helsinki, Finland to spend our vacation, to visit our family and friends. We had Penny & Liam with us, and every-one was excited about visiting Finland/Sweden and in general spend time with family & friends.

On Wednesday July 26th, we spent the day doing sauna, cold water swimming and eating Nepalese food. On Thursday July 27th 2023  – we’d decided with Sam and Liam to go jogging/ workout, so I woke up the boys and we headed out after having a small glass of water to drink.

I felt fine, except some carby bloat from the Nepalese food. Otherwise I was in excellent shape for a 49-year old (or so I thought). We jogged down the slope to Mannerheimintie, I suddenly started feeling unwell and passed out. This has been told to me later:

EVENT

Sam notices me collapse on the ground, panics and then quickly alerts a bystander to call an ambulance. He tells Liam to run to get everyone else. 

I’ve been hit with ventricular fibrillation, which reduces the heart to a quivering mass of jelly, unable to pump blood. VF leads to Sudden Cardiac Death, with a mortality rate of 95% after 15 min without resuscitation. As I’m convulsing on the ground, start foaming from the mouth, Sam and the bystander start to perform CPR/ chest compressions. Minutes tick by like an eternity.

The ambulance arrives, and the Emergency medics rush to the scene. They assess the situation and give an electric shock which resets the electrical circuits in the heart. I’d spent about 10 minutes in V-Fib. I’m rushed to the hospital, in a state of shock and confusion. After a couple of hours my state is better, the confusion is lifting, and I’m able to see my family again. I spend 24h in the Cardiac Intensive Care unit, unable to sleep with the noise and beeping around me. I feel scared and anxious as I’m not sure if I will wake up if I fall asleep.

AFTER

The evening of the event the cardiac surgeon performed an angiogram, and found only mild changes related to coronary artery disease, but nothing that would explain the cardiac event.

An MRI was performed on Monday July 31st – with no indications of root cause. On Wednesday August 2nd, a electro- physiological stress test was performed on my heart – also here the heart performed well. This test though is no walk in the park – as you are given electrical shocks and chemicals to your heart, and it feels as if you are relieving the event all over again.

I was also given a neuro-psychiatric evaluation, and thankfully no loss of function/memory/ability was found.

Finally on Thursday August 3rd, an ICD (Intra Cardiac Defibrillator) was operated into my chest. The ICD monitors the heart rate, and in case the heart goes into fibrillation again, the ICD can give an electric shock to reset the heart. I was shell-shocked, very raw emotionally, but at the same time so grateful to Sam, to my family, to the first responders etc.

There are many lessons, and a journey to recovery from this, that I’ll write about in the next post.

CGM Experiment (part 3) – cold therapy post

I’d wanted to learn about the benefits of cold therapy, to extract the physiological and psychological effects, benefits of getting into cold water, especially as it relates to health benefits, insulin sensitivity etc.

As an intro to this topic – this post covers Professor Andrew Huberman interviewing Dr. Susanna Soberg, an expert in deliberate cold and heat exposure protocols, talking about the science and impact of deliberate cold exposure from this study (Cell reports). The interview also covers the importance of the cold shock response and how to approach a deliberate cold exposure protocol.

FYI – this post has been ‘co-written’ using tools such as:

The study

The study was done in Denmark on a male cohort, and carried out by having participants do winter swimming for minimum two days per week, measuring brown fat activation with an infrared camera, and taking fat biopsies. The study was done in a field setting, and participants were encouraged to do the winter swimming whenever they had time. The relevant ‘minimum viable dose’ was 11 minutes of weekly cold exposure.

Why cold therapy?

Cold exposure can improve insulin sensitivity, which can help to prevent type 2 diabetes. 

“ We did see that the winter swimmers had an increased insulin sensitivity. They produced less insulin on all the experimental days. We measured insulin when they were fasting, meaning that they hadn’t eaten in eight hours before the study day. We could see that the winter swimmers had lower production of insulin. Also when they had glucose drinks, the winter swimmers had a faster glucose clearance in the bloodstream. So after two hours, we could see that they had a lower level and the curve went down faster than in the control group.”

Cold exposure can increase brown fat, which is a type of fat that helps to burn calories and generate heat.

“ What happens is that you get adapted a little bit every time you go, like exercise, you get a little bit stronger. So every time you go into the cold water you will feel more comfortable in the cold. You are building your adaptation, which happens on a metabolic level, which is happening via activation of your brown fat. 

The mitochondria in the brown fat cells are gonna be activated, you’ll have more of those and they will be more efficient at heating you up because the body expects you to do this again. The capillaries in your skin will also become better at constricting. So you will have a better shield of your body to prepare you for the next time.”

Also your stress response will subside a bit, so you will have a less increase of your catecholamines with time. With time also you have, because of this activation of your brown fat or your muscles, you will have an increase in your metabolism, which will then make your insulin sensitivity better.”

Cold exposure can reduce inflammation, which can improve overall health, mood and cognitive function.

  • The winter swimmers had lower levels of cortisol at night time – which is beneficial for sleep quality. 

And I think it’s very important to think about the cold exposure and the heat exposure as something that lowers the inflammation in the body. And if we can do that, we will have an open door for preventing lifestyle diseases, right? So for type diabetes, but actually also for some mental diseases as well. So as known as depression and anxiety and also Alzheimer’s disease, which are all associated in research, also newer research showing that inflammation increases the risk of depression, anxiety, and Alzheimer’s disease, neurological diseases. So if we can decrease inflammation in the body, we will decrease our modern lifestyle diseases, but also these increasing mental diseases that we see in these modern lifestyle times.

It’s just exposure to temperature, actually just a cold or to heat that is gonna trick our body into a natural state again and reset it where the homeostasis, the balance is lost a bit. So the body is gonna repair itself in that way. And I think it’s beautiful that we can do that just by changing the temperature of our body. 

Conclusion

Cold exposure is a safe and effective way to improve health. If you are considering trying cold exposure, be sure to talk to your doctor first and follow any safety tips. 

I will incorporate cold baths into my health routines :

  • Tuesday, after cardio session – 4 minutes total time (2 x 2 min dip)
  • Thursday, after cardio session – 4 minutes total time (2 x 2 min dip)
  •  Saturday, after cardio session – 4 minutes total time (2 x 2 min dip)

Thanks for reading

Lessons from two weeks with a CGM

I received a CGM (Continuous Glucose Monitor) about two weeks ago via the Levels start-up. The package arrived a few days after ordering, and the initial setup was relatively easy and painless. I was able to easily export the data from the Levels website.

So how do the results look? The easiest way I can think of to show you the results are using Python (pandas, matplotlib, seaborn libraries) so here we go: (I’m skipping some data wrangling bits here..)

Glucose level distribution as a histogram

Glucose Level Time Series with rolling statistics

Honestly this data has me a bit worried because generally doctors, Peter Attia MD and the Levels program all suggest that fasting glucose should be less than 100/mg/dl…

Also, I wanted to correlate the glucose readings with the time of day, so we can do that eg with a heatmap:

Glucose Levels by Day, Hour in a Heatmap

This chart is really interesting to me because here a number of things stand out to me:

  • I was in Austin from April 26th to April 28th for a conference, and those days I did a light workout in the morning, and had a light lunch. So clearly a lighter lunch, moving around in the afternoon leads to lower fasting glucose.
  • I slept really badly Fri-28th-Sat 29th due to a late flight, and clearly a bad night sleep results in a bad fasting glucose.
  • I generally workout in the afternoon – between 4PM and 6PM, and so higher readings there are not alarming to me. 
  • What strikes me as odd is the differences in the morning fasting glucose -say 5AM to 10AM – varies between 66 mg/dl to 120 mg/dl…The mean is still around 100 mg/dl (which is not great), but I’m surprised about the high variability.
  • Since I do intermittent fasting (lunch is my first meal) I had generally thought that my morning glucose would be lower. 
  • There is a missing block on May 2nd as I switched the old sensor to the new one – as you have to do that every 10 days. The most painful thing was tearing the Levels patch off my hairy arms 🙂

All in all I’m very happy to have all this data from the CGM/Levels to explore, giving a lot of actionable intelligence – so I will try some life-style, diet modifications soon.

How I train in 2023

This post is an outline, a template of how I train in 2023.

Disclaimer: I’m a middle-aged male, 6ft 2 in, just under 200 lbs, and my goals are mainly to keep myself healthy for the long-term, and to have energy, vitality for all daily interactions. You can adapt this template to your own needs and always listen to your doctor 🙂

The basic training blocks are focused on either strength or cardio-vascular health, with each training day geared towards adaptions in either one. I train most days, with Sundays being ‘off’. This is a template, and so smaller changes can be made according to how I feel, my shorter-term goals and my schedule etc. Exercises marked e.g. 2A and 2B means they are super-setted, meaning you do one set of A, then one set of B.

Monday – strength focus

FocusExerciseDurationSetsReps% 1 RM
Speed1. Front Squat15 minutes5260%-70%
Strength2 A) Standing Press25 minutes3-43-580%-90%
Strength2 B) Weighted Chins25 minutes3-43-580%-90%
HIIT3. Chins, Dips and Run (done as fast as possible)15 minutes31260%-70% – HR 140-160 BPM

Tuesday – cardio focus

Exercise# roundsDurationComment
A – Assault Bike38 minKeep HR in Zone 2 (about 13o BMP for me)
B – Jog38 minKeep HR in Zone 2 (about 13o BMP for me)
TotalAbout 45-50 minFollowed by light stretching

Wednesday – strength focus

FocusExerciseDurationSetsReps%1 RM
SpeedExplosive push-ups & long jumps15 minutes33N/A
StrengthTrap Bar Deadlift20 minutes3-43-575%-90%
StrengthBulgarian Squat (or RFESS)15 minutes31070%

Thursday – cardio focus (alt. yoga, alt. rest)

Exercise# roundsDurationComment
A – Assault bike38 MinutesKeep HR in Zone 2 (about 13o BMP for me)
B – Jog38 MinutesKeep HR in Zone 2 (about 13o BMP for me)
TotalAbout 45-50 minutesFollowed by light stretching.

Friday – strength focus

FocusExerciseDurationSetsReps% 1 RM
Speed1. Power Clean15 minutes5260-70%
Strength2A Bench press25 minutes3-43-575-90%
Strength2B Weighted Inverted Row25 minutes48-1265-75%
Assistance3A Bicep Curl15 minutes2-38-1265-75%
Assistance3B Lying tricep extension15 minutes2-38-1265-75%
Assistance3C Face pulls15 minutes2-38-1265-75%

Saturday – cardio focus

Exercise# roundsDurationComment
1A – Assault bike28 minutesKeep HR in Zone 2 (about 13o BMP for me)
1B – Jog28 minutesKeep HR in Zone 2 (about 13o BMP for me)
2 – Sprinting4-615 minutesVary shorter and longer sprints, with good amount of rest in between rounds.
TotalAbout 50 minutesFollowed by light stretching.

Hopefully this gave you some ideas or inspiration how to plan your own training, let me know in the comments if you have any questions.

Thanks for reading,

Oskar

A deflationary currency is better

As I argued in my previous post the financial system is broken, and it shows itself for example as the poor are getting poorer and the rich getting richer (US gini co-efficient 1990 – 2020). At the root of the financial system is the US dollar, which is no longer backed by anything else than ‘the might of the US army / IRS’, every dollar is an IOU to some-one else.

The message we hear in main-stream media is that spending is driving the economy, that the ‘mighty US consumer’ keeps the economy rocking and that ‘2% inflation’ is something the Fed should target as a worthwhile goal so that the economy can ‘grow’. Hold those thoughts in your head for a moment.

Does that work on an individual level? If one person spends all their money, and doesn’t focus on their earning power or saving anything – will that work? No, you will go bankrupt.

Does that work on a household level? No of course not – that family would end up on the street sooner or later.

Does that work for a company? A company spending tons on fancy offices, employee salaries, growing like a weed. Sounds like WeWork, and we know how well that worked. It ONLY worked as long as the company was growing.

So WHY in the world do we think that that advice, those policies are good for a nation?

The current consumerist, wasteful, opaque, spend it now messaging is due to the demands of constant growth, which is inherent in a debt-based, inflationary system.

We saw a small deleveraging happen in after the Financial crisis and the whole system almost came crashing down – because otherwise the costs of servicing debt will become un-tolerable.

https://tradingeconomics.com/united-states/households-debt-to-gdp

I predict that the inflationary, fractional reserve, constant growth mandate will sooner or later inevitably meet the limits of a finite, resource constrained world. We are seeing overconsumption of natural resources, overconsumption of calories / energy, leading to climate change and chronic indebtedness – both public and private. There is only so much debt that households and countries can take on – this is shown even by mainstream economists like Rogoff and Reinhart.

The alternative is a deflationary currency that incentivizes actors to save for the long-term – to adopt a ‘lower time preference’. A lower time preference encourages actors to plan long-term, postpone immediate gratification and encourages global collaboration.

A deflationary currency that is immutable – such as gold or Bitcoin, have inherent properties that are favorable for bringing about a lower time preference. The Gold standard worked well for a long time, and IMO a Bitcoin Standard would work fine as well.

Imagine a nation where politicians were not able to spend money willy-nilly, and budgets actually had to be balanced? Increases in bureaucracies would actually be questioned, instead of just pawned off on consumers to pay – eg 95% of new hires in health-care since 1990 have not been doctors, but administrators.

Imagine a nation where wars actually had to be paid for, and you would have to raise taxes if you wanted to go to war? Eg in World War I – the first thing the combatants did was drop the Gold standard. We’ve just seen how we can spend Two Trillion $ in Afghanistan, without real oversight or deliberation. How many less wars do you think we would have had, and could be avoided in the future?

Imagine a financial system where savers, wage-earners, pensioners were able to keep their earnings, savings in the base layer money and actually earn yield on that, instead of being pushed into equities and junk bonds in a reckless chase for yield, chase to keep the value of your ‘monetary energy’ intact.

And finally as as an investor which asset would you prefer to build your financial house on? The Fed balance sheet has almost 10x since 2007, and the USD is getting devalued at the rate of $120 Billion per month. Meanwhile Bitcoin is algorithmically set to get scarcer (new BTC rate is halving every four years), and has a cap of of 21M coins by 2140.

That’s algorithmically set, immutable, open-source money.

The financial system is broken

I will argue here that the financial system is broken mainly due to these points:

  1. Currently the rich are getting richer (gini coefficient rising), and the poor getting poorer.
  2. The developed country governments and central banks are having to take on more debt to keep the economy going.
  3. It seems the fractional reserve, debt laden Developed economies are getting more fragile, and more challenged to provide the products and services they have promised to their citizens.

So how did we get here? To understand that we have to go back to 1971, and recap a few things.

Today all money is ‘debt’ – it is a claim on the productive resources in the future. New money is today created in two ways:

  1. The Federal Reserve ‘purchases’ eligible collateral – eg Treasuries, and enters a Debit in their Fed ledger, and Credits one of the ‘money center banks (JP Morgan Chase, Citibank etc)
  2. A bank issues a loan for say a mortgage – the ‘money’ is created into existence by crediting the sellers account with the dollars, the mortgage is created as an asset on the banks balance sheet. The mortgage is the home-owners liability – and when the home-owner pays down the principal, dollars (‘money’) as actually leaving the system.

Due the Vietnam war costing the US too much, and foreign governments pulling their gold from the US, the Nixon administration decided to suspend ‘temporarily’ the convertibility of the US Dollar to gold. The untethering of currency from a gold backing since 1971 has enabled the greatest global monetary inflation ever seen – check out the great site called ‘https://wtfhappenedin1971.com/.

The US economy has grown from 1.2 Trillion USD per year in GDP in 1971 (Revenue) to 22 Trillion USD in GDP in 2020 – about 18x. The average household income was $10,600 per annum, rising to $66,000 per annum – about 6x.

Source: wtfhappenedin1971.com

So while our economy has grown 18x (nominally) and incomes have grown 6x (nominally), let’s look at what happened on the financial side of the ledger.

In 1971 the amount of financial instruments was about 4.5 Trillion in the US – with the bottom of ‘Exters pyramid’ held down by gold:

1971 Money and assets

While Money & assets (not counting derivatives) are over 150 Trillion today – which is a 33x increase.

2020 Money & assets

So to re-cap -incomes have grown 6x, but assets have grown 33x. In my mind these increases in Debt are driving making the rich richer, and the poor poorer:

Source: wtfhappenedin1971.com

To note here – I’m not against rich people per se, most rich people in the US have worked hard most of their lives and I’m sure have earned it. The issue as I see is that the system primarily benefits the ‘Cantillonaires’ today  – the megabanks and the 0.1% wealthiest with the first access to money. So while new debt is created – it is mostly an asset for the 0.1%, while it acts as a drag on the economy, for the majority of wage earners.

So who are these Cantillonaires you ask? It’s named after a French economist – Richard Cantillon – who realized that when new money is created – it benefits most those who first gain access to it – they get to enjoy the purchasing power undiluted. By the time that the new money reaches the regular wage-earner, prices and interest rates have risen to account for the new money, so the nominal amount they benefit – say from a stimulus check – is counteracted by the rise in prices.

We also saw in the aftermath of the 2008 financial crisis how we don’t really have a functioning capitalism anymore where those who take risks are allowed to fail (hence ‘too big to fail’). We have instead a capitalism for the cantillionaires, a crony capitalism where the 0.1% reap the profits, but the losses are socialized – i.e. paid for by the tax payers.

Finally today in we are not only taking on new debt, but we are printing more money – the Fed’s is buying 120B in assets (80B in Treasuries, 40B in MBS) – as this extra ‘support’ is needed to carry 30-40% of the US government spending, while it in actuality it is digging a deeper hole for the majority of people. We are following in the footsteps of Japan, down a Keynesian folly where any mishaps are resolved by ‘printing more, stimulating more’. I’d be very interested to discuss or hear how the developed countries are going to get out of this mess we are in today.

Thanks for reading,

Oskar

A short story on the evolution of money

Trade in ancient times

Different people in different locations and times have used different instruments – seashells, squirrel hides, large stones and metals to conduct trade. The first commodity money – coins – were minted in Mesopotamia about 5000 years ago.

The key thing here is that money is a human agreement – based on a narrative that recognizes its value. The narrative exists only in a network, and the larger the network the stronger the narrative.

Over time precious metals (mainly gold and silver) emerged as the best monetary instruments – freely chosen by the market because people agreed so, because the monetary metals had these main criteria:

  1. Recognizable
  2. Divisible
  3. Durable
  4. Incorruptible
  5. Scarce
  6. Fungible
  7. Units of account

The First point to understand about ‘money’ is that its value primarily exists due to its salability – to transfer Value over Time and Space.

In a free-market humans have over time selected gold and silver to be used as money, mainly due to the aforementioned criteria – and because you can’t easily find/create more of it compared to existing stock (ie Gold has a High ‘stock to flow’ ratio).

The Second point to understand about Money is that Money is a Network. The more nodes in the network, the more valuable the network becomes – this is often called ‘Metcalfe’s Law’. Only with money in a network can it be used as ‘currency’ or a medium of exchange.

With these two main points established:

  • Currency / money is a network between humans
  • Desirable qualities of money resemble those of gold.

..We can then contemplate how should we act should a better money emerge? In a rational, free market humans would choose the money which best fulfills the criteria of money (ie that Best transfer Value over Time and Space).

The case that Bitcoin is better than Gold at being the ‘base layer’ of money is elegantly argued by the Winklewoss Twins in their piece “The case for 500k Bitcoin“.

For example this table shows that in many aspects of being money – Bitcoin is better than gold:

Features of Bitcoin vs Gold

So why do we need a new money or alternatives to the fiat moneys – USDs, Euros and pesetas of the world? Because money is at the base of the financial system, and the current financial system is broken.

The rich are getting richer, the poor are getting left behind -and I will argue in the next post – that no amount ‘UBI’, ‘MMT” or ‘taxing the rich’ will resolve the fundamental issues.