[meowkit]

Did you even read the post? The conclusion:

> Innovation has the potential to make financial services faster, cheaper, and more inclusive and to do so in ways that are native to the digital ecosystem. Enabling responsible innovation to flourish will require that the regulatory perimeter encompass the crypto financial system according to the principle of like risk, like regulatory outcome, and that novel risks associated with the new technologies be appropriately addressed.

The Fed recognizes this is a new tech stack with potentially disruptive consequences. Reconcile that with this anachronistic tulip mania point of view you're parroting.

[scoopertrooper]

Crypto may, one day, find utility as part of the financial system (outside of drug deals, sanctions evasion, money laundering, tax minimisation, greater-fool scams, and Ponzi schemes), but its recent volatility has been in no way related to that.

[Zamicol]

I know people that have bought houses with MakerDAO loans.

Its utility is here. To say otherwise is just sticking heads in sand.

[unicornmama]

So someone can collatoralize $1,500,000 worth of ETH to take out $1,000,000 worth of DAI loan. [I will let all my millionaire friends know] This isn't exactly useful for home ownership, as I can collatoralize $200,000 deposit to buy the same house with a bank. The difference that the bank does home valuation and risk assessment, and bears the risk that I will default. And MakerDAO charges a few percent interest for the loan [And at the extreme these loans are only repayble because of fiat monetary expansion...]

These pseudo zero-risk loans aren't exactly useful. The hard part of finance is in valuations, risk assessment, and regulatory compliance. And I stress the word pseudo, even DAI is built on a house of cards, although somewhat sturdier than its competition [order of mangitude depreciation, and when the market can't catch a bid it may be game over]

[wmf]

I did the same with TradFi. There's no additional utility.

[atwood22]

I think the utility is the medium itself. Your TradFi loan was delivered to you using a financial system maintained by thousands of highly specialized bankers and engineers leveraging billions of dollars in infrastructure. A DeFi loan is delivered to you via a smart contract that runs on a generic financial computing platform known as a blockchain. Even if the only thing you can do with a blockchain is implement existing financial systems, that itself is utility because the blockchain has lower barriers to entry, both in terms of knowledge and capital, which thus democratizes the financial system.

I agree with the beanie baby analogy when it comes to the various tokens that people "invest" in. But I wouldn't be so quick to say there was no utility, at least conceptually. It didn't really "click" for me until I implemented a smart contract. I realized that I could implement the entire financial system relatively easily, e.g. I could create an analog for stocks, options, margin lending, etc. Building a similar system without the blockchain would be much more difficult. I certainly couldn't do it alone. And even if I did do it with the blockchain, there would be an additional step of convincing people to trust that my system would stay up. Smart contracts run "forever" (in a sense).

[unicornmama]

As I stress in another post, the hard part of finance is valuation, risk assessment, and regulation. The transmision of ownership of assets, custody, etc. aren't exactly the hard part. Sure you can move digital tokens around on the worlds most expensive Raspberry Pi, but you could also do this on a permissioned system - and you still haven't solved the hard problems of finance. As an analogy it's kind of like saying you got a webapp to work on your home box, and therefore demonstrated any competence to scale it to hundreds of millions of users.

[tyre]

The billions of dollars of infrastructure doesn’t exist for no reason! The regulations and difficulty of starting a bank or mortgage company aren’t there for the hell of it!

Name the specific parts of mortgages that you believe should not exist and that DeFi eliminates.

Should we not do income checks on homebuyers to ensure that they can reasonably be able to pay the debt?

If they can’t pay their debt, what happens to the home? Is it collectively owned by the smart contract? How does that work? Where does the deed go?

Speaking of the deed, what if there’s a bug in the contract? Are we really going to pretend that these contracts have the force of law and a house can be stolen because someone wrote a bug? Or are we accepting that we can override the contract and none of the benefits of “smart contracts run[ning] forever” are real?

How should a smart contract value a home, to determine if the loan is adequately backed? If the buyer wants a $1m mortgage on what is actually a $10k plot of land, they can default and the contract (?) gets (??) an asset two orders of magnitude less than the check it wrote.

Hand-waving “well every real estate transaction will also be on the blockchain with perfect metadata so AI can make that decision” is not an answer.

How does a DeFi platform prevent money laundering? Should it not? This requires people! And regulations!

This is a tiny slice.

But we cannot pretend that any of this makes sense without thinking more than one layer deep. Which is really the problem.

[atwood22]

I think you're entirely missing my point. You're going off on a tangent about mortgages, regulations, and titles. That's at a much higher level than what I'm talking about. To use load balancers as an example, you're talking about L7 stuff, I'm talking about L3 stuff.

Let's use your example of mortgages. When you get a mortgage, your lender wires money to the seller. How do they do that? They use Fedwire, which is a system maintained by the Federal Reserve for banking transfers. Such a system can be totally replaced by a blockchain. If you replaced Fedwire with a blockchain, you wouldn't remove the regulatory and legal requirements, you would just replace a legacy technical system with something that is more powerful. A blockchain can do everything Fedwire can do, and a blockchain implements this functionality in a more generic fashion that allows for additional constructs, like smart contracts, to be added.

Following your mortgage a little further: most mortgages are not held by the bank. The was the main issue in the financial crisis in 2008. Banks don't hold mortgages, so they were very loose in who they lent to. Rather than hold on to the mortgages, the bank sends them to a clearing house that packages up the mortgages into a mortgage backed security. All of this infrastructure could be replaced by a smart contract.

A blockchain can be thought of as a generalization of a financial system (system here meaning the technical system, i.e. the nitty gritty details of how and when money is moved). This is a powerful generalization and can implement existing financial systems in a much more efficient manner. As an individual, I could implement a mortgage-backed security system. That type of productivity is not possible in our current financial system.

This does not mean that I'm advocating for some type of anarchistic hellscape where regulations fall by the wayside. You can still have the same set of regulations, but implement the underlying nuts and bolts financial system in a way that's more efficient, standardized, and democratic.

[peyton]

Why can’t there be more than one financial system? Isn’t diversification valuable?

[majormajor]

"Network effects" seem to be a fairly compelling reason that "two highly correlated and intertangled financial systems" is the most we'll get, not two fully separate ones.

As long as people can interact with both easily, they will, and a lot of the risk/rewards will get tied together. Things move up together and down together.

[peyton]

I don’t think fully separate systems is a common goal. Rather, people are building alternatives that make different tradeoffs to the same end. e.g. a DeFi market may have global liquidity, 24/7 operations, but adds exposure to smart contract risks.

[mistrial9]

"one day" ?

[Karunamon]

It's an HN thread on crypto. Mindless, non-substantive, thought/discussion-terminating cliché comments such as that one are sadly par for the course.

[scoopertrooper]

Quite a few allegations there. It seems like the simplest way to settle this discussion would be to point out a few practical applications of crypto that provide real utility to the finance system.

[where_to_inc]

I can’t speak to other cryptocurrencies. But at least re: Bitcoin:

1. International settlements of any sum of money (small to large) in 10-20 minutes instead of days

2. Markedly lower money transfer fees compared wire transfer or ACH

3. Ability to be one’s own bank if so desired, avoiding government bank account pillaging (Cyprus, Argentina, many more)

4. Ability to send money anywhere (try paying your staff in Russia with USD these days… we have two; they both get paid in Bitcoin since following Russia’s removal from SWIFT cryptocurrency is now the only way)

5. When comparing Layer 2 transactions, orders of magnitude more transactions processed (global credit card network: 19,000 transactions per second; Bitcoin’s Lightning network: several million transactions per second), for significantly lower fees (very appealing if you are a merchant); payment settlement in hours instead of days

6. Deflationary savings account over medium- and long-term timescales

[lern_too_spel]

1-4 boil down to making illegal payments easy. This is not a technological advantage but a regulatory one. As soon as governments regulate Bitcoin the way they regulate banks, this "advantage" vanishes.

5 confuses theoretical maximum throughput with actual throughput. The theoretical maximum throughput of credit card networks is far higher than the actual, and the actual throughput of lightning is far lower than theoretical. Since only three wallets can join the lightning network per second (if all Bitcoin transactions were setting up lightning channels), its utility for actual transactions between arbitrary wallets remains theoretical as well.

6 confuses the value of Bitcoin with its supply. The value quickly approaches 0 when regulation takes away advantages 1-4.

[kkielhofner]

1) Users don't care about final settlement times. Whether CC, wire, etc perception is reality. I pay with a card, it's done. I wire and they get the confirmation the same day (or less). Some may care but the vast, vast majority of the population does not. Ditto PayPal, Venmo, TransferWise (Wise), etc.

2) Debatable because of volatility.

3) Yes but being your own bank also means losing everything is a forgotten/misplaced password/seed phrase, clicking the wrong link, etc away. I don't know how many password resets a big bank in the US does everyday but I'm sure it's a mindbogglingly large number. The vast majority of the population isn't ready for and won't tolerate this. The fees you describe for payments in the financial system have anti-fraud measure costs (reversals, etc) baked in. Yet another feature of the traditional financial system that has been developed (in reality) after decades of real-world experience. It's the equivalent of every single individual building their own hardened vault and hiring armed private security.

4) Fair enough but there are realities in potentially "skirting" the "law" like this. Banks have significant processes to make sure you're not (for example) "funding terrorism" or whatever which is a serious crime in the US and very easy to do with cryptocurrencies. I, for one, don't want to risk the Feds showing up at my door because my funds ended up with someone on my government's enemies list. Just because you can do it with Bitcoin doesn't magically mean the people with guns and prisons will just say "Oh Bitcoin - nevermind - that's ok".

5) Lightning (and for that L2s) are mostly bolt-on hacks that sacrifice one or more features/properties of cryptocurrencies as originally intended when it became clear they fundamentally don't work for anything beyond toy-level. Again, from a users perspective as long as the payment network allows you to swipe a card and walk out with your purchase ASAP transaction rates are invisible to the user. If traditional payment systems needed higher transaction rates they would magically appear.

6) This is a very dangerous supposition.

[peyton]

It’s being used to build an alternative financial system [1]. What sort of utility would you want an alternative financial system to provide to the current financial system?

[1]: https://ethereum.org/en/defi/

[Karunamon]

Generally anytime anyone tries, it devolves into special pleading; basically saying that this or that isn't "real" utility.

As if being able to transact with anyone else on the planet sans middlemen isn't enough utility on its own. I would instead ask people who make comments like the one that started this thread to substantiate their affirmative claims about how crypto is only used for these shady things. For some reason, no such evidence is ever forthcoming.

[olalonde]

Indeed, the amount of misinformation and repetitive comments in those threads is something... It's up there with religion and politics at this point, if not worse.