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> One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. Fr

> One thing, well there are thousands, but one thing traditional finance does far better than crypto as the above quote points out, is separation of duties. From the perspective of most technical people in crypto, FTX was traditional finance. Traditional finance doesn’t run on-chain, and you have to trust the people running it. See FTX and Coinbase for an example. In opposition to traditional finance is decentralized finance. Decentralized finance is implemented via smart contracts and cannot steal your money. See uniswap for an example. There’s a gray area in the middle with things like Tether, USDC, and rollups like zkSync where the creators have a privileged key that allows them to steal all the money deposited into it.

chollida1 4y ago
Great point. I see your point but I'm having a hard time figuring out how Tether is anyway different from FTX? Both require trusting someone else and both have off chain components to how they work, it seems like a distinction without a difference here. Can you add more colour as to how those are different because I can easily see how they are very similar? I think the difference between traditional finance and FTX is the oversite piece and the separation of duties piece. Traditional finance places a large roll on oversite and compliance to the point where people complain about all the rules and regulations that have been built up to protect people, and to be fair to allow government oversite. FTX had no oversite and therefor its hard to lump it into traditional finance as compliance and oversite are bedrock must have pieces of traditional finance. Also as was my main point, traditional finance requires separation of duties, given that FTX had none of these, its very hard to call it traditional finance without destroying the meaning of the term or watering it down so much that its meaningless.
- dzdt 4y ago
  > how Tether is anyway different from FTX So far there is only evidence that Tether has mis-appropriated SOME of the money it claims to be holding, whereas FTX lost basically ALL of the money. As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value.
  - CPLX 4y ago
    In the event that whoever runs Tether has committed financial fraud on a large enough scale to lose, say, 5% if the total value, which is billions of dollars, and they are now felons and fugitives facing certain lifetime confinement, what possible incentive could they have to return the other 95% to you? How, exactly, do you think the story here is going to end?
    - charleslmunger 4y ago
      >In the event that whoever runs Tether has committed financial fraud on a large enough scale to lose, say, 5% if the total value, Why is this phrased like a hypothetical? >In fact Tether reserves were not “fully-backed” the majority of the time. https://www.cftc.gov/PressRoom/PressReleases/8450-21 https://www.cftc.gov/PressRoom/PressReleases/8450-21
  - vba616 4y ago
    >As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value. What is the "size of Tether"? Do you mean the total customer deposits, or do you mean the assets of Tether Limited Inc? The percentage of customer deposits lost and whether any customer deposits are lost are distinct things. Once the owners' net equity is negative, who will be holding the bag if not customers?
- matthewdgreen 4y ago
  What if there was an organization that served the same purpose as Tether, but was overseen by a well-regarded US regulator that also regulates depository banks? Would that make any difference to the analysis here?
hef19898 4y ago
On-chain or off-chain, I prefer a regulated financial system. For all the reason that have been discussed to drath by now.
- helf 4y ago
  Ditto. The people who get off on unregulated things irritate me. Regulation came about for a reason. It’s not just to control you and make the rich richer. It’s also to help prevent exactly the sort of thing FTX did.
  - junofan 4y ago
    FTX was regulated.
    - hef19898 4y ago
      In which way?
    - vba616 4y ago
      At some level in some way? A space station will never be truly airtight; are screen doors as good as airlocks?
    - helf 4y ago
      Uh huh?
pavlov 4y ago
> “Decentralized finance is implemented via smart contracts and cannot steal your money.” This sounds very good until you realize that “DeFi” also can’t receive or send you actual dollars or euros — the thing that people actually hope to get out of these trades. It can’t steal your money because the money to steal isn’t there. So the toy financial system remains just a toy, and you’re at the mercy of such high-quality operators as FTX, Binance and Tether to get any of your profits out one day. Good luck. IMO Levine’s article is too forgiving on this point when he writes that DeFi looks pretty good after the crash. Well, duh, it’s just a sideshow in the great crypto retail circus; a hall of mirrors to keep you busy while the exchanges pick your pockets.
- deleted 4y ago
  [deleted]
giaour 4y ago
All those gray areas also happen to be the only way for defi to interact with traditional markets. I think an important implication of your argument is that your entire economic life needs to happen in the crypto economy (from getting paid to buying groceries to paying your taxes) to be protected from the myriad scams that thrive at crypto's entry and exit points.

chollida1 4y ago

Great point. I see your point but I'm having a hard time figuring out how Tether is anyway different from FTX? Both require trusting someone else and both have off chain components to how they work, it seems like a distinction without a difference here. Can you add more colour as to how those are different because I can easily see how they are very similar? I think the difference between traditional finance and FTX is the oversite piece and the separation of duties piece. Traditional finance places a large roll on oversite and compliance to the point where people complain about all the rules and regulations that have been built up to protect people, and to be fair to allow government oversite. FTX had no oversite and therefor its hard to lump it into traditional finance as compliance and oversite are bedrock must have pieces of traditional finance. Also as was my main point, traditional finance requires separation of duties, given that FTX had none of these, its very hard to call it traditional finance without destroying the meaning of the term or watering it down so much that its meaningless.

dzdt 4y ago
> how Tether is anyway different from FTX So far there is only evidence that Tether has mis-appropriated SOME of the money it claims to be holding, whereas FTX lost basically ALL of the money. As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value.
- CPLX 4y ago
  In the event that whoever runs Tether has committed financial fraud on a large enough scale to lose, say, 5% if the total value, which is billions of dollars, and they are now felons and fugitives facing certain lifetime confinement, what possible incentive could they have to return the other 95% to you? How, exactly, do you think the story here is going to end?
  - charleslmunger 4y ago
    >In the event that whoever runs Tether has committed financial fraud on a large enough scale to lose, say, 5% if the total value, Why is this phrased like a hypothetical? >In fact Tether reserves were not “fully-backed” the majority of the time. https://www.cftc.gov/PressRoom/PressReleases/8450-21 https://www.cftc.gov/PressRoom/PressReleases/8450-21
- vba616 4y ago
  >As long as you are optimistic on the "SOME" fraction being small in comparison to the gigantic size of Tether, you can hope that Tether is still a low risk for losing your value. What is the "size of Tether"? Do you mean the total customer deposits, or do you mean the assets of Tether Limited Inc? The percentage of customer deposits lost and whether any customer deposits are lost are distinct things. Once the owners' net equity is negative, who will be holding the bag if not customers?
matthewdgreen 4y ago
What if there was an organization that served the same purpose as Tether, but was overseen by a well-regarded US regulator that also regulates depository banks? Would that make any difference to the analysis here?

hef19898 4y ago

On-chain or off-chain, I prefer a regulated financial system. For all the reason that have been discussed to drath by now.

helf 4y ago
Ditto. The people who get off on unregulated things irritate me. Regulation came about for a reason. It’s not just to control you and make the rich richer. It’s also to help prevent exactly the sort of thing FTX did.
- junofan 4y ago
  FTX was regulated.
  - hef19898 4y ago
    In which way?
  - vba616 4y ago
    At some level in some way? A space station will never be truly airtight; are screen doors as good as airlocks?
  - helf 4y ago
    Uh huh?

pavlov 4y ago

> “Decentralized finance is implemented via smart contracts and cannot steal your money.” This sounds very good until you realize that “DeFi” also can’t receive or send you actual dollars or euros — the thing that people actually hope to get out of these trades. It can’t steal your money because the money to steal isn’t there. So the toy financial system remains just a toy, and you’re at the mercy of such high-quality operators as FTX, Binance and Tether to get any of your profits out one day. Good luck. IMO Levine’s article is too forgiving on this point when he writes that DeFi looks pretty good after the crash. Well, duh, it’s just a sideshow in the great crypto retail circus; a hall of mirrors to keep you busy while the exchanges pick your pockets.

deleted 4y ago
[deleted]

giaour 4y ago

All those gray areas also happen to be the only way for defi to interact with traditional markets. I think an important implication of your argument is that your entire economic life needs to happen in the crypto economy (from getting paid to buying groceries to paying your taxes) to be protected from the myriad scams that thrive at crypto's entry and exit points.