Beyond Futures: Derivatives Can Help Solve 21st Century Global Problems
Welcome to the first installment of my blog Future Markets. Here you’ll find intelligent discussion about emerging and future industries and…
In this article, I will describe a new and emerging type of asset - one that is self-sovereign and relies on a new type of internal value that is both independent of the issuer and anonymous.
But first, I would like to shed a light on the debt-based economy, providing two interviews as reference. The first interview is with my favorite author, Nassim Taleb. The second interview is with one of my greatest heroes, Bridgewater’s very own Ray Dalio.
The following is a summary of my recent interview with Nassim about the next economic downturn. He explains why the world is more fragile: we are suffering from the same disease that we had in 2008, a shifting of citizens’ debt from the hands of individuals in the form of mortgages to the hands of government bodies, in the form of government and corporate bonds . Over the past decade, this has, in part, fueled the economy, as $2.8 trillion of government-printed money “lent to them” was used for investment purposes (additional corporate bonds).Yet this year, governments needed to borrow over$1 trillion - and since the crisis, Over $10 trillion. The problem: a debt spiral similar to the one experienced by those affected by the Madoff scheme, where people need to borrow more to cover the interest on this loans. In addition, hidden liability is bound to come out in a moment of a crisis in the form of student debt and national security and bailing out firms.
How this can turn around? In 2008, we transferred the debt from individuals to the government in an effort to decrease interest rates. Now that rates are once again on the rise, who will pay and how? The real estate market will likely be the first industry to pay the price; then the stock market, after which people will possibly default on the corporate bonds.
What can save us?
Growth without debt - can be achieved if new types of value are achieved through work/employment, as well as from stack overflow of value from things that do not appear at the surface.
Inflation that will not causing instability.
When questioned about where to invest the money he answers gold and land in areas not affected by major monetary increases. He also says to apply protection options to any stocks already held.
It's hard to summarize Ray׳s new book. Here, I will only cover what he said about the US debt situation. He is worried about what will be in 2 years from now, as we are already in a cycle where the federal government is starting to a tighten monetary policies which assets are sensitive to. A future downturn will be different than the one experienced in 2008. The effectiveness of the monetary policy (interest rate and money printing) will decrease. The effect will be social and political, with political effects taking up greater space, due to an increase in socio-economic gaps.
The downturn will also affect pension obligations. The effect will be on the dollar, which can drop by30%. The US will try to sell more treasury bonds to the rest of the world, but this can prove to be a challenge.
Why we need self-sovereignty and anonymity with respect to assets?
Most of the assets in the economy are related and correlate to each banks are giving debt to companies and real estate developers and people give back this debt from the salary they get from the same organizations. If the interest rate goes up and corporations and individuals can’t pay back their loans,the bank will try to sell the assets to pay back the debt. When this does not work out, the governments will step in and print more money. Our money sits on stocks, bonds and real estate. As such it will be exposed and made vulnerable by such actions. This is why we need new types of assets that do not rely on this cycle, or are even linked to it at all.
Examples can include assets that represent the data we are creating that is a valuable asset by itself that data can emerge out of our body , our gps , our spending and more , an asset that is connected to a work our computer is doing like in bitcoin or assets that are attached to other things that we refer as valuable . We need these assets to be anonymous and self-sovereign because otherwise they are not ours -someone could take them away from us.
What types of assets can be included in this category: (will expand in different posts on each)
Self-owning and self-sustaining daos
By this, I mean self-executing code that rewards people for certain types of work, including work performed by AI technology. The code is the owner of its own property. Examples include the art dao, nature 2.0, and terra0.
Blockchains inject higher confidence into the transactions, for pennies, clearing in seconds or minutes. They do this via cryptography & consensus, rather than via reputation. Put another way, as “trust machines” they minimize the trust needed (in humans/banks) to operate. In doing so, they allow larger and larger organizations of people to interact without requiring manpower to accomplish these goals. Nick Szabo calls this “social scalability.”
All the examples will give us a type of daos, but each has its own specific mechanism .
Proof of space and time - implemented in chia and space mesh:
This allows newcomers to contribute to the security of the cryptocurrency network via unused storage space on their hard drives.
Proof of location- implemented in foam:
They build a consensus-driven map of the world that can be trusted for all applications, while incentives are used to signal their place. Here , here , and here are more materials about proof of location and Crypto-Spatial Coordinate (CSC).
Assets based on a side chain to Bitcoin:
One proposal, BTC-backed confidential asset on mimblewimble chains, works similarly to $USDT and other "stablecoins" - the issuer collects BTC deposits on the Bitcoin chain, secures them, issues "MWBTC" tokens on the Mimblewimble chain and lets people transact there privately. When they want, users can destroy their MWBTC asset units, and retrieve their BTC on the Bitcoin chain from the custodian/s.
While custodians are trusted to secure the "real" Bitcoins and release them on the Bitcoin chain when requested by users, users can automatically verify that the custodians hold the required reserve, at any time, introducing much more trust than solutions like USDT.
What protocols and components can enable them and how do they differ from one another?
Proof of elapsed time