PaperImperium

I’ve been doing a lot of accounting-related posts lately, as investors finally wake up to there needing to be a fundamental business case for investment. Here is a list of items crypto needs to do better to become investable: 1) Your own tokens are $0 in assets if uncirculated. They are a contra asset or contra equity if repurchased. 2) DATs that are related to the issuers of their tokens are hobbled with cost-minus-impairment valuation under GAAP. So valuation can only ratchet down and never up. Unrelated DATs can use fair value, where GAAP value can go in both directions. 3) If you send money to an entity that’s not a subsidiary (even if under common control, like the founder controlling it) this is likely an expense. 4) Your controlled subsidiaries/DAOs can be consolidated into your own accounting, but then you must back out the minority interest you do not own. 5) Due to years of structuring projects to have multiple actors (e.g. Labs, Foundation, DAO), a project can be insolvent even if a specific entity is not. Likewise, the project can be solvent even if a specific entity is insolvent. 6) Stablecoin issuers can simultaneously be insolvent and their stablecoin fully backed. 7) Noncash expenses are still expenses. Some projects are at negative billions in profit due to emissions. This often is structured as a Labs entity getting paid in cash while the project pays out tokens. See number 5 for the result. I’ll add more as I see projects struggling with them.

At the end of the day, stablecoins as they currently exist are a way to meet USD demand where USDs are scarce - blockchains and emerging markets. Guess where there is not a shortage of USD? The US. These are just totally different user bases with minimal overlap. Go look at PayPal - their stable is held for yield by DeFi, not zipping around making payments and being a substitute for a checking account (like a regular PayPal balance is)

Case in point. @FifthThird sent me this today. Yield bearing stablecoins are not competing with US bank deposits. Stables have to hold backing assets with yields ~3.7%. Stablecoins compete with foreign bank deposits, sure - both USD-denominated and not. But for banks to say they’re scared of a lower-yielding, uninsured product outcompeting them tells you that bank lobbyists are either low-information on stablecoins or think their clients’ products are bad.

@llamaonthebrink If that’s the standard, then your universe will be very small, because it means retail has to get in on same terms as VC, which MKR was very unusual in approximating that (I think?)

@ImperiumPaper Oh fore sure they made bank But at the expense of secondary buyers getting rekt Maker is the one exemption to that

Was reading about a16z’s new crypto VC fund and a thought occurred to me… In all of crypto’s history, have there been any successful tokens from VC backed projects? Tokens, not projects or L1s. I can’t think of any.

@llamaonthebrink Pretty sure they and others made bank on COMP and UNI as well

@ImperiumPaper Okay good example. Possible exception to the rule?

Similarly, this is why you don’t subsidize the demand side of borrowing markets in crypto. Growth is driven by supply.

@JillCastilla @sawinyh I can’t use my local credit union card there now. I have to download their Walmart app to pay or use cash. I also don’t see how you can’t replace “stablecoin” with “tokenized deposit” here.

For example, Walmart offers a stablecoin through a partnership with a 5 percent cash back, discounts, incentives based on balances with a direct deposit. Walmart dominates rural America. Those funds that previously came to the local bank and lent out locally would go to some mega bank. Even if lending stayed flat nationally, locally loans would migrate to the larger markets killing local small businesses.

1) true 2) also true, but banks would rather destroy an instrument to help the emerging market population than take a 1% tail risk All very logical, but it does suggest banks think their own products are worse than stablecoins, despite two important structural advantages: 1) FDIC insurance 2) can make loans that yield more than tbills

MegaETH’s variety bag of sweets: terminal.megaeth.com

I remember teaching a Maya Archaeology and wanting to get across to students how important trade is for increasing wealth. It was just after Halloween, which in the US means you can get these huge bags of mixed candy bars for very cheap. Things like Milky Way, Snickers, Kit Kats, Crunch Bars, M&Ms, Reese’s. I gave each student 3 or 4 pieces at random, but told them they couldn’t eat the candy yet. Going around, each kid was asked to tell me, from 1 to 10, how much they valued their free candy. It was a wide range, because they had to decide for themselves and I didn’t offer any guidance on what value meant. I remember one kid said negative 10 because two of his were peanut M&Ms and he was allergic. I tallied them all up on the white board and told the class they would have 5 minutes to trade if they wanted to. Some traded, some didn’t. Afterwards we went around again and lo and behold the sum of every kid’s self-reported value was higher! No new candy was added (in fact one kid had already eaten hers during the trading period, and I made her assign a value to only her remaining Mars Bar). But somehow the class now rated its wellbeing higher. Of course, what happened was that people had different favorite candies, and could offload their less desired candies for ones they really liked. We focus a lot on productivity gains in the modern economy, but historically, just moving things around was the big winner. You may have heard the phrase “differences of opinion make a market”. This doesn’t mean some -EV me vs you bet where someone wins at another’s expense. When market participants have heterogeneous preferences, time horizons, and needs, then the same assets can be moved around to the profit of everyone involved. This is why it is so, so important for chains to get many different participants using their dapps and protocols - it increases the number of mutually beneficial transactions possible, which in turn decreases the need for incentives and subsidies. Wave 4 of apps on MegaETH were introduced into our Terminal dashboard today. Our bag of mixed candy bars has even more variety in it. I think most people can find something they would enjoy taking a nibble of, and maybe earn some Terminal points as well. I encourage you to check it out (link below)

@iang_fc I choose to believe education can diffuse many of their complaints. I think being afraid of something unfamiliar is a more likely explanation than malice.

This is all too logical and mostly irrelevant. The banks are the scorpion - they will always fight to stop someone else in the money business. To the banks, when someone else does a transaction, it's food off their table, it's a theft from their children. The reasons are cosmetic, the action is deep carnivore.

@JillCastilla @sawinyh Can you explain how a stablecoin even gets into your local economy? Like, what’s the mechanism? Specifically.

@sawinyh @ImperiumPaper I don’t view as a direct threat to my bank. I view it as a threat to local economies. There’s a difference. I’m not a Wall St banker - I’m a community banker. Those responsibilities extend well beyond deposits and loans.

@sawinyh I just don’t get who they think is going to move into a 3% stablecoin who hasn’t already moved into a 3–4% account at a depository institution. I see >12 that offer 4% or better today.

@ImperiumPaper This is the funny part. Banks have the regulated balance sheet, distribution, insurance wrapper, and still look at stablecoins like the existential threat. Feels like tacit admission that UX and access beat product design on paper.

@JillCastilla @Cam_Fine A yield bearing stablecoin isn’t a threat to US bank deposits. Seems a weird hill to die on

I’m all for tokenized deposits. I like Stablecoin too - for payments they can be revolutionary. I don’t trust big box retailers and card processing companies with a yield earning stablecoin. Stablecoin should be a giant win for small businesses with a nearly free payments method and it’s turned into a debate about letting money sit. That’s not good for the economy.

This is what you get if Stablecoin yield passes - another BlackRock fund. Stablecoin is a great payments mechanism. As a savings tool, it's a local economy killer as these funds cannot be lent out and suck liquidity out of local institutions.

Many people would be surprised to know the US Postal Service is actually in the Constitution. It’s hardcoded into America.

@aadith_gbd There was no world where Optimism was going to see a positive return on the 118,111,595 OP token grant to Base. Nevermind all the other grants.

@ImperiumPaper Yes true that Optimism superchain plans were straight through the ecosystem grows and value flows back to the collective and OP buyback, it looks good on paper But yeah any chains that has enough value would not stick and leave like base

I’ve seen some confusion about USDM supply, which is dropping on many dashboards. TLDR; this is healthy for a new ecosystem right now. But the explanation is long (although not complex): We always talk about “money” as if that’s a simple definition but economists have multiple definitions, each measuring a different set of assets considered part of the money supply. You may have heard terms like M1 money supply or M3 money supply if you read financial news a lot or took economics in school. At the bottom of the stack, the narrowest definition is M0 (which stablecoin issuer @m0 takes its name from). This is physical currency + your banks’ balance at the central bank. ⬆️ This is what most dashboards will show you for a stablecoin’s supply, because it’s relatively easy to count. Just add up the tokens, and of course central banks aren’t generally holding untokenized balances at Circle or Tether or Paxos. While this is a useful number, it excludes most of what we would in everyday usage call “money”. M1 is the next layer in the money stack, and includes M0 + demand deposits. When you say you have $500 in your checking account, you’re including M1 in your definition of money. ⬆️ This is where a deposit into @aave, @Morpho, or other short-term markets sits in the money stack. Quickly going through the other layers for your own curiosity: M2 = M1 + savings accounts + money market funds M3 = M2 + time deposits + repo agreements + short-term debt (usually up to 2 years) As of today, the M1 supply of USDM > M0 supply. Generally this is always the case with any currency, since it is what happens when fractional reserve lending, like on Aave, Morpho, Euler, Compound, or a traditional bank occurs. In the case of USDM, the M0 supply has shrunk while M1 has continued to grow. And remember that M1 cannot unwind without M0 (but can persist without it as long as the debt is healthy). This is due to a cross-chain carry trade. USDM has become a more attractive funding currency than USDC, and debt is being refinanced. This should be good news to those worried about USDM demand being purely for looping on the MegaETH Aave - it’s a second use case. Because Aave rates rise as utilization increases, at some point USDM will cease to be a good funding currency, and we’ll be at an equilibrium. This is growing pain of a healthy path for a new stablecoin (what’s the alternative, that no one wants to even borrow it?) - and is mostly a function of concentration on the Aave market. As USDM is accepted into other apps and another lender or three steps in for a piece of the market, I would anticipate less volatility in M0 supply of USDM, while M1 continues to grow at a more sustainable pace.

@omnifient @aadith_gbd Because you already had a big asset and user base to work from

@ImperiumPaper @aadith_gbd you think a new chain was not a good choice? why?

@omnifient @aadith_gbd I think you guys should have just gone ahead and run the Katana experiment on Polygon itself. Or at least, the bridge asset part of it.

@ImperiumPaper @aadith_gbd on the Katana side: wdym?

@ImperiumPaper Hiring paper imperium is still one of the best move by Mega Always wondered if any of other Defi chains had thoughts or have designed things in depth [ like mega is doing after you joined ]