Rethinking MakerDAO value proposition — Following last week discussion on credit vs currency, this article dig into currency boards and what we could apply to stablecoins. This will also lead to an improved value proposition for MakerDAO and its stablecoin DAI. Stablecoins and currency board canonical link Currency boards A currency board is a system where a…

In this article, we will analyze the difference between money-like credit and a currency. Then we will try to understand how such a dichotomy related to the stablecoin construct. Canonical version of Stablecoin: currency of credit? Money-like credit versus currency In a poll on MakerDAO forum, I’ve asked the community if they see DAI…

This article shows that liquidity pools, a basic construct of DeFi could create a more robust financial system by improving assets liquidity and, in the same time, improving passive investors performance. Liquidity as the systemic risk and the death of the dealers One issue during the Global Financial Crisis was the refinancing of long term debt instruments with short term funding…

This article dives into the foundations that are needed to build a financial system on top of decentralized finance (DeFi). While there is an explosion of innovation in DeFi, most of it is used for circular speculation. …

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…