Relaynode SoCal: October 14, 2019 – Relaynode SoCal
Further Reflections on China
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Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power.
― Lao Tzu
If you read last week’s post, then you now have context on my personal relationship with China. To recap, I’ve been a student of mandarin and Chinese philosophy since 2006; I visited China for the first time in 2008 to study in Shanghai and experienced China’s display of power at the Beijing Olympic games. I wrote a dissertation weaving the taoist philosophy of wuwei (無爲; non-action) into the teachings of Confucius. I am extremely grateful for the rich teachings of Taoism which led me to the philosophy of yoga that guides my life to this day.
In 2010, in spite of my conviction that the global growth engine was moving east, I did not have the stomach for the ex-pat life. It would be another eight years before my work in crypto brought me back to China where I would embarrass myself with my now abysmal mandarin. (“Duibuqi danshi guo ba nian wo mei lianxi shuo hanyu”).
Two weeks ago marked the 70th anniversary of the People’s Republic of China. Celebrations in the mainland continued as did protests in Hong Kong with the first known shooting of a protester. There seems to be no endgame for the once peaceful protests as violence is on the rise. Hong Kong is becoming ground zero for the larger problem of east-west relations.
During China’s 70th anniversary celebration, Ray Dalio released another warning on the potential consequences of these rising tensions. TLDR: Dalio expects that President Trump will use the emergency powers granted to him, like the International Emergency Economic Powers Act (IEEPA) of 1977 to continue to limit trade with China. Possible uses will be to de-list Chinese companies from US exchanges, to prohibit US firms from investing in and outsourcing to China, or to freeze the US assets of any Chinese firm.
Dalio is a vocal critic of these policies and a large investor in China who has a lot to lose from these political decisions. He is also a vocal supporter of the Chinese people and after visiting China, it’s hard not to be. The people that I have encountered during my time there have an unmatched work ethic, strong family values (sandaitongtang), and care deeply about relationships (guanxi). They are, in many instances, more capitalist than Americans (more on that next week).
As individuals, we are simultaneously nothing and everything in regard to global conflicts. For there ever to be a de-escalation, we need to differentiate between the institutions and the humans that comprise them.
On the opposite side of the China question is J Kyle Bass, one of the few investors who accurately predicted the global financial crisis. The predictions he made in his April 2019 paper titled the Quiet Panic in Hong Kong seem to be coming to fruition. There are reports of increasing capital flights and overdrawn ATMs (this is good for Bitcoin). In addition to Hong Kong, Bass criticizes the Chinese financial system more broadly, echoing the arguments of Minxin Pei’s China’s Trapped Transition. China’s obsession with growth has led to outsized fixed asset investment, ghost cities, and toxic zombie loans propped up by government-backed banks. Like Dalio, Bass has skin in the game. Unlike Dalio who has a lot to gain from smooth US-China relations, Bass has a lot to gain from Hong Kong’s collapse.
This week (amidst the NBA controversy) Bass’s critiques of the CCP have grown increasingly ideological. His latest tweets have focused on the alleged organ harvesting of Falun Gong, a religious (Buddhist) group in China who the CCP has labeled political dissenters since 1999. In August, following Mike Pence’s speech to the Hudson Institute on the militarization of the South China Sea, Bass hosted an interview with the highly controversial Steve Bannon on US/China relations. Bannon helped craft the Trump foreign policy, one pillar of which was to bring manufacturing jobs lost to China back to the US.
Given the financial incentives for both of these brilliant investors, it is important for us to evaluate each of their arguments as well as other source material before drawing conclusions.
Anti-Chinese rhetoric in American politics is increasing and anti-American rhetoric in China is too. Like the protests in Hong Kong, there does not seem to be an end in sight. This week’s trade talks in Washington seem to be going nowhere, and I feel it’s likely that relations will worsen .
What can we as individuals possibly do other than weather the storm?
There is no simple solution and the reality is that this subject is extremely nuanced. It is easy for us westerners to criticize the Chinese Communist Party, and often justifiable. That said, it is equally important for us to clean up our own institutions or as Lao Tzu says, to “master ourselves.” In many ways, the Chinese military industrial complex mirrors that of the United States — sometimes when we look in the mirror, we don’t like what we see.
More US/China next week
So many great reads this week + a lot of big news, so it was hard to choose
I really enjoyed this post on unstructured learning by Haseeb Qureshi who just became Dragonfly Capital’s newest partner. This quote stuck with me:
“Be honest about the limits of your knowledge. Ask basic, obvious questions, over and over again.”
This next read is about as shocking as the above was inspiring. Imagine a weaponized claim, called Shiri’s Scissor, that is obviously true to one faction, but obviously false to another. Release it into the wild and watch it grow into a meme with the power to destroy a nation. Seems shockingly reflective of today’s politics (or Crypto Twitter).
This piece by Epsilon Theory on the future of financial markets as told through Dune was equally disturbing. I really hope that what we’re building here (Web3) will help smooth the transition away from a “Great Jihad.”
Hasu, James Prestwich & Brandon Curtis released a monster paper on Bitcoin’s security in the face of a declining block subsidy. I learned some new things about Bitcoin:
- The “rule” stating that a certain # of confirmations must pass until a payment is final is a security fallacy
- The average BTC miner commits 50% of total costs up front to non-repurposable assets that depreciate over approximately 24 months (in other words, it’s not easy to simply “spin up” an efficient attack by renting equipment)
- The UASF movement of 2017 showed that users lead and miners follow. This made me realize that shifting social consensus on code could change core features in Bitcoin like the SHA-256 algorithm (if necessary)
- There could be a BTC hashpower monopoly right now and we’d have no way to disprove it
- The block subsidy makes up 99% of the miner rewards and is steadily being replaced by a secondary market for blockspace that does not yet exist.
- The writers propose a number of solutions for the declining block subsidy at the end of the paper and even provide a downloadable model to play around with the assumptions.
A number of major members of Facebook’s Libra Association followed eBay on Friday and dropped out of the association. Mastercard, Visa, Stripe, and others left citing regulatory uncertainty. Though they did leave the door back cracked slightly open, claiming that the technology was promising. It looks like Libra is on life support, but I still won’t bet against Zuck.
Speaking of regulators, they hit hard on Friday. First, the SEC filed an emergency action against the two offshore entities responsible for Telegram’s TON / GRAM token sale. The SEC considers the sale of GRAMS to have been an illegal security offering (1 billion tokens were sold to 39 US investors (who account for over one third of total tokens sold). The full complaint can be found here. This places Telegram in a bind because their investor documents require them to return investor capital if they don’t deliver a working mainnet by October 31 (reminds me of Basis). A number of outsourced validator providers have complained that TON’s testnet is still incredibly unintuitive and buggy. It will need more testing in the wild before anyone could trust it to transfer real value.
Second, the SEC, Fincen, and the CFTC released a joint statement on Friday warning crypto companies to rigorously follow existing KYC and AML regulations. In the past, these warnings have served to lay the groundwork for immediate impending regulatory actions.
This is not crypto, but I believe that Lambda School’s mission is aligned with that of Web3 — remove value extracting middlemen (in this case universities) that take more than they give and burden the rest of society with negative externalities.
Unstoppable Domains has gone under the radar while its competitor, Handshake, has been majorly hyped. However, Unstoppable continues to ship product with the launch of their .crypto domains this week, a huge improvement on their existing .zil addresses. Though their domain naming service is still built on Zilliqa’s blockchain.
This section written by the great Roy Learner my friend and former colleague at Wave Financial.
There’s been a lot of excitement around the idea of mixing and matching pieces of DeFi primitives, enabling new use cases and compounding innovation. Instead of building everything from scratch, developers can now take primitives like the Dai stablecoin and Compound’s lending platform to build a neobank.
InstaDapp’s bridge is a more complex example of DeFi composability, essentially enabling users to migrate their debt positions between MakerDAO and Compound in a single “atomic” transaction (i.e. the smart contract pays back your CDP debt, withdraws the ETH, moves it to Compound and then borrows an equivalent amount).
This type of atomic transaction is exactly what sharding complicates. Vitalik recently put out a great post addressing some of these concerns, arguing that many of the popular DeFi use cases (Uniswap, Compound) will be seamless with ETH 2.0’s sharded architecture.
The most simple solution is to have app-specific shards — so Uniswap would live on a single shard, Compound on another… While certainly straight forward, popular apps with thousands of transactions per second would cause congestion on their respective shards and reduce usability. Expanding to additional shards for an application like Uniswap fractures liquidity, since liquidity providers would need to split their inventory across multiple shards.
Vitalik points out that instances of Uniswap or Compound could live across multiple shards with certain tokens on Shard 1 (Dai pairs) and Shard 2 (ETH pairs), but clearly there are trade-offs for developers to think through before a transition to sharding. It will be particularly interesting to see whether proposed solutions like “yanking” can address major concerns around sharding breaking composability, or if DeFi applications will look to alternative scaling solutions that preserve composability (non-sharded Layer 1 protocols like Solana or Layer 2).
Spring Labs — Senior Blockchain Engineer (Full Time)
Wave Financial — Consulting Associate (Full Time)
Ikigai — Analyst (Part Time)
WAX — Senior UX Designer (Full Time)
ARCA — Data Scientist / Quantitative Analyst (Full Time)
This Week (LA Blockchain Week)
CryptoMondays LA(Free)
When: Monday, October 7th, 6–9P
Where: Upstairs Space 1212 Restaurant on 3rd Street Promenade in Santa Monica
HODL Masters Crypto Golf Tournament ($50–70)
When: Monday, October 14, 2019, 8:30A-12P
Where: Westchester Golf Course — 6900 West Manchester Blvd, Westchester, CA 90045
Hosted by Melrose PR, enjoy a day on the linx with a few new crypto friends.
LAToken Blockchain Meetup (Free)
When: Tuesday, October 15, 2019 7–9P
Where: Skyline Suite 1206 Maple Avenue Suite 901, 9th fl, Los Angeles, CA 90015
LAToken exchange hosting drinks event for those attending CIS
Crypto Invest Summit
When: Tuesday, October 15 — Wednesday, October 16, 2019 (All day)
Where: LA Convention Center, 1201 S. Figueroa St. Los Angeles, CA 90015
LA’s leading investment focused crypto conference
LA FinTech Awards 2019 ($11–25)
When: Tuesday, October 15, 2019 7–9P
Where: LAAC 431 W. 7th St. · Los Angeles, CA
Watch presentations from a few of the nominees and discuss the future of finance
LA Blockchain Week Tron Meeting (Free)
When: Tuesday, October 15, 2019 7–10P
Where: Boomtown Brewery, 700 Jackson St , Los Angeles, CA,90012
Hosted by Crypto Wendy, Tron will be providing food and drink for networking.
LA Blockchain Week Yacht Party ($45–250)
When: Wednesday, October 16, 2019 7–11P
Where: Marina del Rey Marina del Rey, CA 90292 (exact location at purchase)
The Crypto Invest Summit official after party hosted by Blockchain Beach, Melrose PR, Monarch, dMail, and Casper Labs
ELEV8 Industry Reception | Los Angeles Blockchain Week (Free)
When: Thursday, October 17, 2019 5–9P
Where: BizHaus 4136 Del Rey Avenue Marina del Rey, CA 90292
An blockchain industry reception hosted by Elev8, an organization focused on connecting enterprise and corporate clients to blockchain professionals
Blockchain Gaming & ESports Tournament (Free; $50 VIP)
When: Friday, October 18, 2019 10A-5P
Where: Two Bit Circus, 634 Mateo Street, Los Angeles, CA 90021
Will include esports tournaments and panels from blockchain gaming experts like Dapper Labs’ Mickey Maher, Miko Matsumora of Gumi Crypto, William Quigley of WAX, Fred Kreuger of Lynx Chain and more
UPCOMING EVENTS
Bit Active: News, Education, and Community (Free)
When: Thursday, October 24, 2019 7–8:30P
Where: Location available upon registration
Meetup for crypto beginners
Notable Conferences
October 15–16 — Crypto Invest Summit (Los Angeles)
October 16–17 — Blockchain Life (Moscow- 10% off with RelayNode)
October 18–19 — Eurasia Blockchain Summit (Turkey)
October 19–20 — The Lightning Conference (Berlin)
October 19–20 — Diffusion 2019 (Hosted by Outlier Ventures) (Berlin)
October 21–23 — ACM: Advances in Financial Technologies (Zurich)
October 23–24 — CordaCon (London)
Oct 28 — Nov 3 — SF Blockchain Week (San Francisco — 10% off with “RelayNode”)
Nov 1–3 — Prosper Retreat by Celo (SF Bay Area)
November 4th-5th — Stellar Meridian (Mexico)
November 12th-13th — Capital: Global Coinmarketcap Conference (Singapore)
Nothing written in RelayNode SoCal is legal or investment advice and should not be taken as such. RelayNode SoCal does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.
Published at Wed, 16 Oct 2019 05:11:48 +0000
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