In Ethereum we trust: the new Church of money issuance

Transcript

All right. Hello everyone. Thanks so much for coming. I'm going to be talking about in Ethereum we trust the return of private money issuance from John Law's Bank to Ethereum today. So my name is Otto Jacobson. I'm the CEO of Yap Global. We are a PR consultancy in the space been here since 2017 2018. I've been working with ECC since 2020. So very happy to do that. And I guess beyond the obvious question of press coverage and all of that. We really been thinking about what is the story of money and how is crypto changing that interacting with that. So that's really what I want to explore a bit today. So this is not a technical talk.

It's more of a historical overview and then asking a question about what we kind of want to see going forward. So as we were thinking about this and we we were thinking about money uh and needing a coordination layer. So before Central Banks in medieval era up until about 1800 you had uh well this was my thesis that the church Catholic Church or the church generally in Europe was like a moral coordination agent. That turned out to not really be the case as I looked into it. In fact priests and the church invested in a lot of banks that failed uh including private money issuers and there was widespread condemnation of their their involvement basically. So that turned out to not really be the case. It was just a bit of a wild west.

Everyone could issue money if they wanted to and a lot of people did. Then of course we had the modern era Central Banks um with institutional coordination and then now we're living in this very interesting time. We call it the crypto era but uh where we have private money issuers in the form of stablecoins and they're issuing them on Ethereum and other blockchains but we're at ECC so we're going to be focusing a bit more on Ethereum and that leads to protocol coordination which is quite interesting to think about. So why what's an example of the pre-modern era of a failure? You might have heard of the Mississippi Bubble.

Uh basically a young enterprising Scotsman John Law went to France. He became basically the finance minister. He set up a bank Bank Royale which were was allowed to issue money. Many others were issuing money at the same time. And he took over basically all of the tax farming all of the tax collection in France and he invested in the Mississippi in the Mississippi Delta via the French sovereign the king. And this led to a pretty crazy situation where the shares of the bank and the Mississippi company generally was listed on a primitive stock exchange and it was directly exchangeable for paper money issued by the bank. So people wanted to

buy the shares therefore the bank needed to issue more money and you can see how this drove demand in a speculative way for each other and inflation within a couple of months was hitting 100% because again this was money that people actually used as money. It wasn't just something that they issued willy-nilly. And the peak valuation of this business hit 6.5 trillion in today's money which is the second most valuable company ever recorded and the most the most valuable one you might find interesting to know is the East India Company on the height of of that business. Of course it all collapsed spectacularly within about 6 months >> [snorts]

>> and John Law was widely condemned for example by David Hume and this is where I thought that the church acted as a moral coordination. You know surely we should have better systems around this. But basically people just carried on. However there was obviously a lot of issues with this kind of structure in the in the fiscal economy. And you can see how there were bank runs which indeed happened with the Bank Royale where people were basically nervous and tried to pull out money at any sign of trouble and you know the banks basically weren't very stable.

It's also interesting to think about how much friction there was in the economy when you have different forms of money exchangeable for example for each other. We can obviously think of that in today's token swap market. There's a lot of friction there. We had a story a couple of weeks ago a couple of months ago about someone trying to swap you know 50 million on Ave and got basically wrecked. So we we can understand how much friction there was but you know you can imagine you're going to buy milk and the merchant had decided we're not accepting your form of money today just because we we as a merchant have a view that this bank might fail. I mean it's it's not a great system. And then finally which I think is very interesting in today's uh world where unfortunately there's wars

and rumors of wars the state actually wanted a big time financier a someone to finance their wars and private banks were doing this. They still do to some extent I guess but JP Morgan cut his teeth issuing government bonds to finance different wars across Europe and the world really. So a lot of issues with that. However then we get to the Central Bank era and here we basically have a system where money is issued by committee or it's decreed money by committee. It's a political process. And some issues with that. I think we're all kind of familiar with this as as relatively crypto native people. We have inflation and debasement

the money supply will um will expand and the value of them hard money will will decrease. Um banking intermediation most money today is of course not money at all really. It's commercial bank deposits which is interesting for a further point I will make. And you need to kind of you it does affect the economy when bank goes into financial issues. So we we are concerned and the regulators certainly are about the bank's solvency and their liquidity ratios. And then of course we have discretionary policy. We have the big experiment over the last 20 years with quantitative easing on a massive scale which

obviously led to an inflation spike after a couple of years. Who could have seen that coming? Well you know history would certainly tell us so. And then very interestingly we of course also have an issue with censorship where it's not that you know you might be de-banked. You might not be able to open a bank account in the first place and participate in the economy. So lots of issues with the Central Bank era. But um the biggest sort of thing that I want to highlight here and why stablecoins are obvious is Central Bank systems payment rails were not designed for the internet. They Swift ACH target were designed for batch settlement and business hours. However

in today's interconnected economy we obviously want 24/7 24/7 24/7 settlement programmability and global access. And I think if we keep those three things in mind stablecoins do become obvious and on-chain payments do become obvious which is you know good and I think that's a good thing. However it's interesting to think about the return of private money issuers. So we've gone from having private money issuers in the 1800s Central Bank and then now back to it.

And I just want to make a point about Hong Kong here because if you had visited Hong Kong and you've had physical banknotes you might have noticed that they are actually issued by the commercial banks in the in Hong Kong. HSBC Standard Chartered and Bank of China. Now it's basically the government outsourcing the logistics of printing that but still it's it's a reminder that private money issuers is not is the norm in human history. Central Banks is the kind of outlier as money issuers. And of course this becomes the continuation is interesting because it's widely expected that Standard Chartered and HSBC will be the first regulated HKD the currency locally stablecoin issuers under the new regime

that's coming out in the next couple of months or so. But Tether [snorts] and Circle obviously being the biggest one they now hold something like 2% of all UST bill supply which so they are already one of the most important constituencies in the arguably the most most important financial assets in the world and we don't really have time to get into the political influence of that but it would be interesting to see how that plays out in the next couple of years. Um so talking about Ethereum then we probably all agree that credible neutrality is good and Vitalik has written about this and

that you know it's it's a good thing. We certainly wouldn't want to keep anyone out. And the economic punishment and the incentives on Ethereum are you know obvious. If you decide if you engage in certain behavior you will be punished. But is it enough so to say as we get into this new era? That's the question I'm asking here and I mean the social layer is a little bit hard to define. I guess this is part of the social layer engaging in ECC and these kind of talks and thinking about it. But this is like super under explored. I basically found not a lot of research and input into this topic

and I think it needs to be because we're already seeing the collapse of course of various stablecoin issuers. Now it hasn't been like a major problem for the for the real economy or for for most of for because the stablecoin issuers that have collapsed have been pretty small and it's impacted mainly financial firms and those kind of speculating um in in the economy but uh moving on so I used this line here in gold we trusted in the 1970s of course the US dollar went out of [clears throat] the gold foot as a result of basically economic situation in the country and I'm sure you're all aware that the line

changed from in gold we trust and just one letter was replaced and it now says in God we trust since 1974 I think to be exact um so we have this situation where we're moving from having faith in the 70s at least in a specific precious metal to having faith in you could say a higher being and today we need to tell a story why we should move to having faith in stable coins as a dominant form of money because I do think that it is obvious and it's just going to continue and I don't think it's a bad thing but I do think that we need to explore this social consensus around it

basically what are the kind of do's and don'ts is there is there you know rules around it beyond the base layer on on on Ethereum um so that is basically what I wanted to share with you today uh we do think that it has a great we have a great opportunity now as stable coins become dominant across the world to tell a better story and solve some of the problems of central bank money and and address some of the previous issues with you know in the pre-modern era as well but so far it seems like we're not learning that much from history as we move into this brave new world so

thank you so much for coming and listening as I mentioned I'm the CEO of Yap Global we're PR consultancy in the space we'd love to have a chat with you if you have any questions about this or any other topic that you think >> [clears throat] >> might be relevant I think we have quite a bit of time for questions so I don't know if anyone please I'm not sure if it's a question I just want to enter a short discussion well I'm a big proponent of Hayek's denationalization denationalization denationalization of money basically the concept that we need to privatize money and I find it really sad that basically Ethereum has mutated or with the stable coins to basically a mechanism for governments to sell their treasuries and bring down rates in the end

so I would have in my vision would have been to have like a bunch of like gold tokens and stuff like that developing as a means of payment instead of instead of fiat what do you think about that uh yeah I'm not making a sort of judgment call on that but yeah because it is obvious that as I said Circle and Tether hold about 2% of all US Treasury bills and government legislation in the US now you know require them to either hold it in commercial bank deposits or US Treasury bills and obviously they're going to choose Treasury bills because that's where they make the money from you know the spread they pay you zero and they make you know 3 4% um I mean David Hume said this in response to the Mississippi bubble crash he said he basically argued against all form of

public debt and he said men's men are systematically biased knaves and unlucky and I think we can see all three of those playing out in different crypto protocols today so I'm not really I guess answering your question but I think if we can remove the debt part or address that then we shouldn't have these kind of systematic issues I think that's it thank you so much for coming