Are there other financial markets where a single entity is custodian, trading exchange, market maker, and Kyc/Aml all under on roof? It seems like a fundamental conflict of interest.
Crypto is not a financial market. It's a gambling den. Unregulated one. Scammers use financial sounding mumbo-jumbo to lure destitute suckers with promises of infinite riches. Same old game. Wash trading with make believe shitcoins in magic internet tokens keeps the line going up so DCAing idiots keep providing exit liquidity to OGs to unload their magic tokens.
You are conflating many low cap nonsense coins with actually revolutionary and valued ones.
Gambling returns an expected -2% to -10% by design.
If you pick virtually any 5 year interval for Ethereum or Bitcoin, you see >100% growth. In the current crash, they are up 128% and 187% respectively.
Fiat currencies are not "gambling" even though they fluctuate in relative value and even mimic the -2% to -10% expected return of gambling far more appropriately than major cryptos.
Stock shares are an investment because the stock market is a positive sum game in the long run. Yes there are risks but the returns produced by the market are due to actual value being generated in the form of goods and services.
Investing in Bitcoin is like investing in shares of a company that produces nothing, and which only is able to fund its continued operations by continuing to issue and sell more shares once every ten minutes. Investing in a real compay that worked that way would be considered crazy, but somehow it’s supposed to be different because it’s decentralized. The financial implications are the same though; it’s a negative sum game instead of a positive sum game.
That’s why it’s more like gambling than an investment. The amount of money that comes back out is always going to be less than the amount that goes in, in the end.
You can gamble with anything, to include things that aren't worthless like food, housing, stocks, etc. You can also invest in them. But you can't invest in worthless things.
Is the day trader in your example trading their own money?
Because most traders aren't. They are bank and fund employees with KPIs, risk management oversight, massive support functions and very expensive computer programs.
Retail investors that are day trading on the other side of those professionals are absolutely gamblers though.
The difference is that many consumers used crypto as a gambling tool. More so than in those other classes
The precise definition of gambling varies by jurisdiction, but ultimately the thrill of prizewinning and dangers of addiction/financial loss were enjoyed by large numbers of crypto buyers [1].
I personally bet on Ethereum the same way I bet on sports teams whose players I enjoy watching.
[1] Admittedly my evidence is mostly anecdotal, but it seems like everyone knows somebody who used crypto like this
I think it’s fair to call that behaviour gambling too.
Options and derivatives that create or extract artificial volatility out of economic prices are gambling tools in the hands of most consumers.
The underlying source of randomness for a gambling instrument doesn’t really matter as long as it’s statistically well behaved. The physical uncertainty of a roulette wheel, the economic uncertainty of the business cycle and the athletic uncertainty of a sports match all do the job.
"some coins reported >0% returns" is weak I agree.
Fortunately my point was that the main 2 "report >100% returns for every single 'player' who waited 5 years."
using your gambling definition, I would say that "chance" to return a prize is not accurate as it is a "virtual if not outright certainty" historically speaking.
For every player who bought coins and put them in a cold wallet and sat on them? Because otherwise the chances are pretty high that they got scammed, lost their coins in an exchange collapse, lost access to them, or, you know, traded them like every other person who deals with coins who didn't die or lose their wallet keys or forgot about it.
I am not going to educate you on what gambling is, or what is the purpose of money. You made me laugh by calling some magic tokens revolutionary. Yes a revolutionary new way of duping poor people of their money.
I remember when I didn’t know anything about crypto and I believed ppl like you proclaiming this kind of stuff. But i was curious so i looked at the “mumbo-jumbo” myself and turns out it’s actually just technical stuff and not even that difficult.
I feel ppl like you act in very bad faith, but you also claim crypto isn’t even financial infrastructure, so perhaps you’re just clueless.
> But i was curious so i looked at the “mumbo-jumbo” myself and turns out it’s actually just technical stuff and not even that difficult.
I don't see how this refutes anything above. Just because it is technical doesn't mean it isn't a gambling den and that it isn't being used to fleece suckers.
I think that question relies on looking at how any infrastructure that gets mentioned also supports the people gambling. And then it relies on "revolutionizes" to be a greater improvement than an arbitrary metric.
Reason I point that out is there are somethings I like, that I don't find comparable to other services and just convenient, not necessarily revolutionary.
For example, give me a cloud platform that has the same pricing structure for developers. The pricing structure is that I only pay once application deployment, and then get unlimited reads at any amount of bandwidth for free, and all my users pay to update my variables and database, instead of me. That's not the case with GCP, Azure, AWS and anything non-blockchain that I've looked at. I like that development environment. I like that the users are willing to pay and have an insatiable demand of doing so. I don't care that the same application could work at orders of magnitude greater throughput on other cloud systems when the users now have to be found and then go through a 12-step funnel to be convinced to use credit card rails. So that observation is going to continue attractive developers and their whole networks.
I enjoy the instant collateralized lending. That's revolutionary in the sense that the speed is light years better.
I enjoy the price discovery that allows for the instant collateralized lending.
I enjoy the free and standardized API access that allows for the price discovery.
I enjoy being able to chain actions across distinct services. Especially consequential financial actions, but also not necessarily.
I enjoy being able to simulate the state of the entire economy, to see what affects what. Since you can branch off of a blockheight and prod locally.
I like that there's enough people there for any of this to matter. I'm not someone that needs the "revolutionizes" and "a billion users" goal posts. I think its right for people to be disillusioned by crypto enthusiast's ideological claims. Its still financial services, merely because there are finances to service. The same as how the non-crypto financial services industry works (the largest industry on the planet). It doesn't have to have utility to you, it just needs to reduce friction for the people that are already there, and there are lots now.
This doesn’t require the decentralization or chains, just the same development environment and distributed use of it amongst many organizations. But without the speculation component and confidence in the system, that won’t happen, in the mean time this exists and its fine.
Yes, it is worth it. Crypto doesn't aim to solve what you just described about every market. Crypto has the same distributions seen in other markets and economies.
Crypto just lets you watch it in real time. The efficacy of its transparency selling point is actually at the crux of criticisms.
Whether its simple noticing there’s a big market for collectibles, but pretending crypto’s version of collectibles are uniquely speculative problems.
Or seeing that the cryptocurrencies have wealth consolidated in the hands of a few, as if that undermines something about an infinitely divisible asset, while the criticism is describing state currencies.
We can see the phishing attacks and hacks globally, compared to not being able to see and quantify that outside of crypto, we choose not to make an international headline every time someone falls for a scam outside of crypto.
The top 1% of the USA which you linked about is over 1.3million people. As opposed to fewer than a few thousand? And bitcoins can't don't inflate, so... those 2000 addresses (probably only 50 to 100 people, at most) own most of the bitcoins, forever. I don't think you realize how big of a deal that is.
its an infinitely divisible asset, and nodes can debate tail emissions all they want without any input from old holders. and it also depends on what you care about, what do you care about that makes you care about that? something about bitcoin being a universal reserve asset or something? because that has nothing to do with anything I care about.
Sure. Convince yourself that that an infinitely worse system is an improvement on a system that is already terrible. Either you are entrenched due to sunk cost fallacy, libertarian brain-rot, or you are naive. I hope the lesson you end up learning doesn't cost too much in the end.
There is nothing technical about the biggest "stable coins" not being able to produce a single audit of their financials. The only thing they were able to show were "attestations" of USD in a bank account and even that was done by some shady accounting firms.
Not sure why you were downvoted for what seems like an honest question.
Stable coins and other tokens which are not native blockchain assets are referred to as cryptocurrencies (shiba inu is one such example of this which is not a stablecoin).
Cryptocurrencies like Bitcoin, Ethereum, Solana, Avalanche, and a bunch more are also the native token of their blockchain. In other words, they're the primary mechanism for rewarding participants in the blockchain at the node/consensus level for their efforts, and they're also the currency used for getting transactions included into blocks on their blockchains (for paying the transaction fee, also called "gas" on many chains).
Blockchains which have the capability of running user-submitted code are said to have "smart contracts", bits of code which execute when certain conditions are met during a transaction. Most chains with smart contract functionality also include standards for deploying what are referred to as "tokens" which are essentially smart contracts which provide a conforming interface for interacting with the token and tracking the balances of users on that blockchain.
While all tokens provide the same basic interface, they can also have custom code which affects the behaviour. In the case of most stablecoins (the centralized ones), that means privileged parties who can do things like mint new tokens, or blocklist addresses from being able to transact those tokens.
USDC for example, operates by allowing users to create an account with the issuer (Circle), deposit USD, and then have Circle "mint" new USDC tokens to your address. They also let users go the other way and redeem their USDC. However, not everyone who wants to hold USDC needs to mint it; they can also buy it on a centralized or decentralized exchange (decentralized exchanges also being governed by specialized smart contracts of various types).
There are also "algorithmic stablecoins" which, in theory, don't have privileged issuers, and use various protocols to attempt to "peg" the price to the price of some stable asset / USD (these are complicated, have many different methods of operation, and are not really proven to be completely resilient at this point). UST/LUNA was the big one that exploded about a year ago, vaporizing several billion dollars over the course of a few days.
So, "stablecoins" are a cryptocurrency, but not a native blockchain asset (unless there's a chain that primarily accounts in a stablecoin which I'm not aware of), and the primary stablecoins people hear about are also not decentralized.
Most of these people we are talking to online do not deal with code and logic. They rely on others to spoon feed them information, like little babies, but with fancy suits on. Many of them are very accustomed to the existing system working very favorably for them. They cannot comprehend how corrupt and dishonest it is, as it provides for their every want and material need. There is a lot of effort going in to discrediting crypto because it is the first genuine threat to the status quo. That sort of fundamental purification of the underlying mechanisms attacks the heart of a vast, powerful, and unimaginably corrupt piece of society.
Let the talkers talk. They are acting in bad faith by speaking as if knowing something when knowing the thing will 100% convert you to its side, unless you are a bad actor that profits off the corruption. There is a beautiful elegance to that. Since most people, I think, are "good," then naturally the conclusion is rightly just ignorance.
People who read the code and understand what the real deal looks like will profit. Fighting against math is always a losing battle.
Just because I have a different opinion than you don't mean I haven't done my research or don't know shit. For you crypto folks the only legitimate research is the one that concludes that it is a magical cure to every problem known to mankind. You guys keep harping about doing your own research but if someone does research and conclude that it's a decentralised ponzi, you dismiss it as bad research.
Then it’s a good thing we’re dealing with literally open source code implementing financial primitives deterministically; and not with mythological fictions.
> I feel ppl like you act in very bad faith, but you also claim crypto isn’t even financial infrastructure, so perhaps you’re just clueless.
You did not present any argument in your defense beyond "I looked at it, trust me br0", and then claimed the person you're responding to is acting in bad faith.
However, the Bayesian in me says that (from a simple search on, say, youtube or twitter), anyone who is extolling the virtues of crypto is highly likely to be selling me something worthless, and thus acting in bad faith. How do you expect people to reconcile these facts?
I mean, ignorance is worthless too. You’re still getting scammed by trusting the skeptics blindly, you just get scammed intellectually instead of financially.
> You did not present any argument in your defense beyond "I looked at it, trust me br0"
Neither did the other person.
> However, the Bayesian in me says that (from a simple search on, say, youtube or twitter), anyone who is extolling the virtues of crypto is highly likely to be selling me something worthless, and thus acting in bad faith. How do you expect people to reconcile these facts?
Wouldn't expect bagholders to know the difference.
However, if you read my comments carefully, you'll see that I described an experiment that anyone can repeat and reproduce to come to their own conclusion.
> An activity derived from anecdotes and confirmation bias is many things, but a useful experiment ain't among them.
Thankfully I'm not a bagholder whose sinking bags rely on shilling and pump and dumping 24/7 on online forums, otherwise I would never have developed observational/experimental skills.
Just as a helpful summary, this is the conversation we're having:
A: Crypto Twitter/YouTube is full of shills and scammers.
B: But that's just like, your opinion, man!
A: Actually no, anyone can experience it for themselves.
B: Ehh, that's still SUBJECTIVE EXPERIENCE. I only bow to OBJECTIVE TRUTH.
I mean, yes, that is quite literally just your opinion, man. Ain't nowhere else for this conversation to go, really. Would you like to try having a discussion with some semblance of good faith instead of insisting "everything I don't understand is a scam and my subjective experiences are objectively correct and perfectly reproducible because I say so"?
Ah, the classic "Few understand" attack of the buttcoin pumpers. I fear this may be hopeless, but for anyone else following this thread, I've worked at a DeFi startup during the now famed DeFi summer, and resigned soon after the company narrowly escaped the Terra Luna meltdown despite my repeated warnings.
So I understand the nature of this scam very well, probably better than the shiller above.
> Ah, the classic "Few understand" attack of the buttcoin pumpers.
You can actually demonstrate proper understanding of things rather than continue the same old tired "I can cherrypick a couple scammers therefore the literal entirety of a whole category of technology and financial instruments must be a scam" at your leisure.
> I've worked at a DeFi startup during the now famed DeFi summer, and resigned soon after the company narrowly escaped the Terra Luna meltdown despite my repeated warnings.
Good for you. That doesn't mean your experience is representative. Not sure how many times you have to be informed that anecdotes are fundamentally flawed evidence-wise before it starts to stick.
> probably better than the shiller above.
You can name the thing I'm allegedly "shilling" at your leisure.
In the meantime, anyone else following this thread can see full well that you have no substantial argument here other than "crypto bad, my anecdotes matter more than your anecdotes, anyone who disagrees with me is a bagholder shill". If you've got nothing else to add beyond the same bullshit folks have been parroting for more than a decade now, then I rest my case.
Crypto crowd suffers from confirmation bias and are a classic example of the Dunning–Kruger effect. Any research that doesn't conclude the greatness of crypto is not valid research.
Anti-crypto crowd suffers from confirmation bias and are a classic example of Dunning-Kruger effect. Any research that doesn't conclude the worthlessness of crypto is not valid research.
Providing liquidity by infinitely counterfeiting shares and routing them off exchange to prevent accurate price discovery is only “useful” to the cartel who sell options.
If you’re implying that somehow grandma is being done a disservice because her pension fund can’t make the trades they want when they want then YOU need to explain how “liquidity” benefits anyone that matters.
I didn't imply anything, I was asking for his reasoning since he didn't provide any.
And I'm not sure how to respond to anyone that buckets people into those that do and those that don't matter. Your argument doesn't seem to be made in good faith.
Such a weird attack and downvote just for asking for a clarification?
Many methods of foreign exchange are. Insurance can be.
If anything, it is equities that is unusual, because that market is designed to be accessible to retail investors, with significant consumer protections.
The ads market comes to mind here, but it is a pretty clear violation of securities law to have the broker and the exchange be the same company for financial products.
One company is the broker, the exchange, a major placement vendor, and the software vendor for algorithmic trading (which is a black box anyway). On top of that, in order to trade, you have to show them your books so they know everything about your business. And finally there is the extortion as well, don't advertise against your own name, oh sorry someone else is paying more.
The whole thing is engineered to extract every last ounce of margin from the advertisers. However due to the duopoly of the two colluding players (they carefully don't compete with each other) there is no choice.
It's frankly absurd the situation we have gotten into with online ads. It needs significant regulation.
Other market makers (Wintermute, Keyrock, B2C2, etc) work with all major CEXes, including Coinbase. This is the same for custodians like Anchorage Digital.
I feel like Coinbase would use this info to argue against being truly monopolistic of some or all of those markers.
I am definitely certain that Coinbase (specifically Paul Grewal, their head lawyer, and, previously, Alex Marx, former head of risk) have prepared for similar claims to be made. They have an extensive roadmap of expected legal challenges and their plans to ameliorate any damage done to their business model. I’m confident their goal is dismantle any claim that they have monopolistic control of a customer’s crypto once purchased.
What you're describing is a typical aspect of brokers. Market makers provide large standing buy and sell orders so that anyone who wants to buy/sell a security at ~market price can do so.
It's great for customers but not so great for "brokers". Securities exchanges in the US are not allowed to let retail customers trade directly and have to go through "brokers" (basically middlemen who take a cut on transactions).
The ability of a service provider, such as a broker, to set prices above production costs depends on the amount of competition in the market. The higher the competition, the thinner the margins are going to be. So, a monopolistic broker that doubles as exchange is absolutely not good for customers. In this scenario customers will be charged higher prices for brokerage services, compared to what they would be paying in a competitive market.
Why would adding middlemen lower prices? If it dit, why not require another layer? Brokers of brokers, etc. I think you can see that it doesn't make sense.
You're not adding an intermediary. The broker and the exchange do different jobs. Coinbase is an exchange and a brokerage firm. Under the current arrangement, Coinbase is providing its customers with both exchange and brokerage services, so Coinbase customers are paying for both. If Coinbase was providing exchange services to brokerage firms, and these brokerage firms were providing brokerage services to retail investors, these investors would still be paying for both services (directly or indirectly), but prices would be lower due to competition among brokerage firms.
I don't understand what you mean here. In what way do you consider Coinbase a brokerage? Users on Coinbase can trade directly on its exchange and pay trading fees. Restricting the exchange to only brokers would mean that the middlemen ("brokers") would now pay the trading fees and pass that cost onto their customers, plus some brokerage fee (which means a higher total fee for users). The broker-intermediated trades are necessarily more costly than the direct trades.
- custody of assets
- margin trading
- customer support
If the answer is yes, then Coinbase is providing typical brokerage services which could be provided instead by firms independent from the exchange. Do you not agree?
KYC/AML: the exchange wants your business so is more willing to drop their standards. In most markets most participants trade through brokers who also need to do these checks.
Market making: the exchange has an unprecedented insight into how it matches trades and the scope to front run other traders. Perhaps even introduce "oops" bugs that their MM then exploits.
Any large player can move markets albeit not like the Alameda scam. In Coinbase's case, listing a coin can be a big deal. However, I've tried to time those new listings and it doesn't seem to do too much re: value.
That's not what dark pools are at all, please educate yourself before saying something this inaccurate.
> custodian, trading exchange, market maker, and Kyc/Aml
Custodians are people who hold on to funds and securities. If a mutual fund buys a share of Apple, they don't hold the share themselves, it's held by a custodian bank like BNY.
> trading exchange
NYSE/NASDAQ/CBOE/etc are examples of exchanges, where they match up buy orders and sell orders, and nothing more. Dark pools are examples of exchanges, as they are a private place that match up buy/sell orders.
> market maker
Market makers are, as their name suggests, institutions that exist to make markets. What this often means is that they have the obligation to maintain both buy and sell orders on specific securities they signed up to make markets for at all times. Examples include Jane Street, Citadel, etc.
> kyc/aml
GP probably mistyped; kyc/aml are regulations that must be followed by financial firms interacting with their customers. Applies to basically everybody here.
A few more:
Clearinghouses: when you trade a security on an exchange, you mere commit to buying x for $y at $settlement date, typically 2 business days after the trade happens. This settlement happens at a clearinghouse, which guarantees both sides of the trade.
The objection from most regulators is that a crypto exchange typically acts as all of the above simultaneously. They are custodians, in that they hold the crypto, they typically make markets, they are obviously an exchange, they provide clearing and settlement services, all at once. Regulators don't like this, since there are conflicts of interest inherent in the roles and they should be separated out into different institutions.
No? Dark pools are not essentially a combination of market maker, custodian, exchange, etc. Just because they are not widely understood doesn't mean that you're completely wrong that dark pools are things that they're not.
You do know that the Dark in Dark Pool refers to the trades being secret, not the pools themselves? You can get a (partial) list of dark pool names from Wikipedia.
There is so much misinformation on hacker news any time a topic is related to traditional finance , crypto or blockchain.
Dark Pools (ATS) are very much like exchanges except the quotes are not public. All ATS operators are required to record every trade to the consolidated tape in which everyone in this thread has access to if they want to pay for it.
The only reason Bitcoin and hence crypto actually worked is because the creator all but disappeared. This removes any and all conflict of interest for the rules of bitcoin. Unfortunately no other coin has this, and Satoshi can actually come back at any time.
Satoshi certainly did have a conflict of interest as he ended up hoarding 5% of all bitcoin. Other coins also had disappearing creators, including ones where the creators received no financial rewards whatsoever.
