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> Laws and law enforcement prevent crime, not reputation Enforcement, by definition, does not prevent crime. It may deter crime. But a bank cannot be put in p

by darawk 5y ago

> Laws and law enforcement prevent crime, not reputation Enforcement, by definition, does not prevent crime. It may deter crime. But a bank cannot be put in prison. The damage to a bank from stealing its clients money is reputational, the loss of their business. > Second, a bank's reputation comes from its past behaviour, not from the amount of capital it has invested It comes from both. Past behavior, and the amount of capital invested. If a bank has $1mm in assets, would you deposit $10mm? I wouldn't. > Crypto is not going to magically let you provide financial services without investing similar amounts of capital. Yes, it will. In fact, it already has. DeFi provides many of the same services banks do, for a miniscule fraction of the capital investment. You can deploy a contract right now that provides services like margin lending for a few dollars. Building the infrastructure and trust to do that at a bank would take you decades, and tens of millions of dollars in capital expense.

lottin 5y ago
No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) Lastly, deploying a contract is not the same thing as providing financial services. You can deploy a contract in conventional finance too without investing any capital at all. This is not what banks do. The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all.
- darawk 5y ago
  > No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. But the principals of the bank can abscond with the value before the law has a chance to react. The thing that prevents them from doing so is their investment in the bank's reputation. The size of that investment is correlated to the bank's scale. > Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) I work in quantitative finance. I think i'm doing capitalism just fine. It's understandable for you not to be aware of the dynamics of these things, because you probably don't deal with large enough amounts of money to think about what percentage of assets you are at a bank or financial institution. However, anyone who has started a hedge fund has confronted this problem: Nobody wants to be more than 10% of your assets under management. If all you have is a million dollars, all anyone wants to invest is 100k. The same is true for banks, or any depository institution. You wouldn't deposit $10,000 at a bank that only has $1,000 in other deposits. Google isn't going to deposit $10bn at a bank that only has $1bn. You can't trust someone to hold your assets that is small relative to your deposit, for a few reasons, but a big one is that the incentives are all wrong. > The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all. DeFi does not require coercive power to do what it does. DeFi is structurally incapable of violating its own contracts. They do what they say, always. They do not require a legal system to enforce their tenets. This has advantages, and it has disadvantages. The disadvantage is that it is highly inflexible. The advantage is that it is deterministic and certain. Sometimes you want one, sometimes you want the other. They are both useful in different circumstances.

by darawk 5y ago

lottin 5y ago

No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) Lastly, deploying a contract is not the same thing as providing financial services. You can deploy a contract in conventional finance too without investing any capital at all. This is not what banks do. The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all.

darawk 5y ago
> No, a bank can't go to prison, but its executives can. Further, a bank is a registered corporation and a legal holder assets which can be seized by courts. This means it can't escape legal action. The courts would seize the stolen money and return it to the rightful owner, while the bank would be fined and/or stripped of its license. The size of the bank is irrelevant, as far as the rule of law is concerned, because a key principle behind the rule of law is equality before the law. But the principals of the bank can abscond with the value before the law has a chance to react. The thing that prevents them from doing so is their investment in the bank's reputation. The size of that investment is correlated to the bank's scale. > Therefore, no, nobody thinks that because a bank is small it's more likely to steal their money. That's a bizarre idea. The size of banks, and firms in general, is explained entirely by economies of scale. It has nothing to do with reputation, or the fear that they will steal your money. (No offence, but you sound like someone from a communist country who is unfamiliar with how the capitalist system work.) I work in quantitative finance. I think i'm doing capitalism just fine. It's understandable for you not to be aware of the dynamics of these things, because you probably don't deal with large enough amounts of money to think about what percentage of assets you are at a bank or financial institution. However, anyone who has started a hedge fund has confronted this problem: Nobody wants to be more than 10% of your assets under management. If all you have is a million dollars, all anyone wants to invest is 100k. The same is true for banks, or any depository institution. You wouldn't deposit $10,000 at a bank that only has $1,000 in other deposits. Google isn't going to deposit $10bn at a bank that only has $1bn. You can't trust someone to hold your assets that is small relative to your deposit, for a few reasons, but a big one is that the incentives are all wrong. > The problem with DeFi is that it's crippled because of its intrinsic limitations, namely the fact that smart contracts lack coercive power. As a result, most real-life contracts (such as a simple signature loan agreement) are unenforceable in DeFi, and therefore not possible at all. DeFi does not require coercive power to do what it does. DeFi is structurally incapable of violating its own contracts. They do what they say, always. They do not require a legal system to enforce their tenets. This has advantages, and it has disadvantages. The disadvantage is that it is highly inflexible. The advantage is that it is deterministic and certain. Sometimes you want one, sometimes you want the other. They are both useful in different circumstances.