The Clever Person Slaughterhouse

“How does lending happen?” he asked. It was a fair question, but not one I thought would be too complicated. Of course, it was. I dismissed it by saying, “Yeah, that’s a good question, I’m not sure, but let me look into it.” My friend didn’t say it out loud, but he was more dismissive of Bitcoin than I expected him to be.

Ten years later, we are still good friends, but we don’t talk about Cryptocurrencies or Web 3. Because we know that if we do, neither of us will enjoy the conversation. I’m an optimist and something of a futurist. I have an almost naive but extremely hopeful long-term view of blockchain technologies and my friend who’s a lot more steeped in high finance, finds the entire development… disgusting. He describes the entire place as one where people too smart for their own good, go to get cheated out of their money by others who are smarter than them.

A place where people too smart for their own good, go to get cheated out of their money by others who are smarter than them.

It is crazy that we, as a world are at the same time extremely advanced since the first ever Bitcoin Blockchain and at the same time somehow still just getting started. But it’s certainly a wild wild west situation here. While the SEC Chair, Gary Gensler, is effectively describing all Crypto Tokens as securities, the SEC is being unclear and unhelpful in describing any kinds of rules around them. In part, the ethos of Crypto is decentralization so it’s natural that the earliest adopters were against rules of any kind.

If you choose a random person among the first 200 owners of Bitcoin and ask them about setting up a meeting with Satoshi Nakamoto, the odds are they would pass it up (although they would probably try to find out who Satoshi is first) because Satoshi Nakamoto does not make the rules on who gets how much Bitcoin. So why should Gary Gensler get the privilege of making these rules?

Of course, the community today has a different gripe - namely that they’re happy to seek clarification from the SEC, but the SEC is quite inclined to avoid providing any such clarification.

While the Crypto community resists regulations, it does not mean that they resist all rules. Decentralized Finance, in particular, wants to be permissionless, but still know what the agreed set of rules are so that everyone is on a level playing field. This is not a new story, it is an old story, something that lawyers praise as the virtue of stare decisis.

Actually, a few different things going wrong at the same time may have softened the hard stances that were initially taken by some of the Crypto enthusiasts. For starters, the algorithmic stablecoin Terra lost its peg. When that happened a big financial ecosystem built around it collapsed and many people lost their life savings. Do Kwon, whose confidence at one point was large enough to taunt billionaires at first vouched that the ecosystem will survive, but when it didn’t, has eaten humble pie. Right now, Interpol is looking for him and has issued a Red Notice.

Similarly, Vauld, another startup aiming at providing Banking services for Crypto seems to have hit some troubled times. Following the recent Crypto crash, many users of Vauld’s services looked to withdraw their deposits. Hundreds of millions of dollars of withdrawals prompted Vauld to suspend its deposit and withdrawal services in order to stabilize itself.

A little sympathy for the SEC. Knowing how good the Crypto crowd is at hacking and finding their way around rules, perhaps Gensler and his team are deciding that not providing information is the best approach in this case. Maybe they also wish to proceed on a case-by-case incremental basis until they know exactly how far they can go. Still, it feels unfair that a big company can turn up at the SEC offices armed with several of the SEC’s former employees and eventually get their way, while Crypto founders with a vision for the future get laughed out before they even make it up the steps.

Make no mistake about this, not everyone getting into Crypto is smart. Not everyone getting in honest. But, largely, we do seem to be in a phase where everyone involved is learning along the way and this might be happening at the expense of someone who’s not even in the game. So not that different from what happened in 2008.

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