And do we need fractional or full-reserve banking in crypto? — Link to canonical version Banking is the alchemy of bridging ultimate lenders that want safety and liquidity to ultimate borrowers that want long dated maturities and are making risky bets. It is both an art as a science as achieving this goal is impossible and bring fragility. Yet, it is…

Structuring the liability side of balance sheets — Link to canonical version Decentralized finance promised a Cambrian explosion of nature of tokens. As we will see, we are still far behind TradFi. In this paper, the different source of on-chain funding will be presented with an analysis of pro and cons. When researching for the balance sheet view…

This article presents a simple and short case on why it is commercial banks and not the Fed that creates money and why it matters for stablecoins. Lyn Alden made a lengthy post about it. You can also read the Perry Mehrling paper The Inherent Hierarchy of Money. Link to…

I have tediously insisted that the natural system of banking is that of many banks keeping their own cash reserve, with the penalty of failure before them if they neglect it. Bagehot, Walter. Lombard Street : a description of the money market. Link to canonical version One particular interest I…

What can we learn from it? — Summary The price stability of DAI was expected to be managed by rate settings and speculative arbitrage This didn’t work in the aftermath of Black Thursday when DAI liquidity was needed to close borrowing positions, nor during DeFi Summer A risk-free arbitrage was introduced with a low Collateral Ratio USDC-A and…

Summary Borrower concentration at MakerDAO is increasing over time 3 borrowers are currently ~55% of our crypto-loans exposure and ~60% of our crypto-loans revenues 2 of those borrowers are CeDeFi platforms and represent 45% of our crypto-loans exposure and ~50% of our crypto-loans revenues Efforts to diversify our borrower base should…

In the real world, a one-dollar bill has the same value as $1 at your Citigroup account or $1 at DBS Bank in Indonesia. You can go from one to another quite easily at no cost (besides using an antiquated infrastructure). Yet in DeFi world, going from 1 USDC to…

How to achieve stablecoin peg — Very early draft paper (not sure it will be finished) Link to the canonical version of Stablecoin design — Liquidity Crypto-banking 101 In my last paper, I’ve described the similarities between crypto-banking and regular banking. Stablecoin like USDC, DAI are just deposit. In turn, when you deposit DAI on Nexo, you no…

This paper describes the business of banking and how it applies in the crypto-world. While Decentralized Finance is all about reinventing the wheel and experimenting (e.g. algorithmic stablecoins), banking is an old industry and rules still apply. Link to the canonical version Links for more in-depth research: Stablecoin design —…