On the train ride to Davos, the influential Swiss town in the middle of nowhere. I flew into Zurich from Bangkok so I was not ready for the cold at all.
The economic mood hasn’t been so bright leading up to 2019’s World Economic Forum at Davos. We are very far along the risk curve and are left with a paucity of “alpha” to uncover, leaving the economy at its most fragile state after the unexpected Trump Rally. I often get asked where to park one’s treasury, and I can provide little input (not equities, not gold). The world today is still injured with the events of a mystical 2008 past, and the recent hit in the market leave us in weak confidence. Our collective memories and melodies are mystic not born in relation to reality, but transforms our rose-colored glasses into drenched red optics. Our recollections of overnight economic uncertainty grounded the necessity of order in this dystopian world of corporate manipulation and billionaire self-interest. Laissez-fair market rules could not uphold and preserve the American Dream — so rules were demanded and anger was warranted. In our fresh fear of inflicted and repelled injustices, we looked to authorities to punish the evildoers and to return to a safer past. This opposition of liberty versus mechanism recalls similarities to a more violent age:
“In the age of the 30-Year War, Thomas Hobbes was moved to celebrate the Leviathan State, with the monopoly of legitimate force as the redemption of society. Surely it was better to concede to a monarchical state, in security of persons and property, than to see order drown in civil strife.”
Iron Kingdom: The Rise and Downfall of Prussia, 1600–1947
If I had to pinpoint a pattern this year at Davos, however, it wasn’t about institutions or organizations. The language has shifted significantly downstream, in the issues that we discussed and the sentences we crafted. Thematically and fortunately, many of the conversations that I was personally hearing at Davos were uniquely about the individual in the light of the Fourth Industrial Revolution: namely mental health, blockchain, philanthropy, free trade. I admit this may well have been selection bias, but the thematic discussion of network power is rooted at the individual-user level. We begin to look not at institutions, but in ourselves- governance in our health and in our work. It is through these convictions that we look in the year ahead of us, with the international New Year resolutions blending into our personal objectives.
WEF’s online topic map of the next revolution that was a preamble to Davos 2019
A Walk down the promenade
The Promenade at Davos this year was full of lively discussion and excitement for the new year. Trump tweets were fantastic conversational icebreakers, and his absence made one less distraction for more fruitful, issue-oriented discussions.
Typical discussions ranged from tech somehow solving all problems to the permanence of the US-China trade war, with an exceptional focus on mental health (+50 claps for Johnson&Johnson, Wellcome Trust, Nasdaq, and a number of others), philanthropy (anyone with +$10m) and free trade and speech (Tradeshift, nations, I guess everyone?) and of course blockchain (GBBC, Consensys, Caspian Week, Tradeshift, I guess everyone?)
For especially the foremost topic, mental health, we see that social networks are not necessarily about who is connected, but rather who is not. The structural holes emerge, the gradience of fast and slow growth in certain regions begin to appear like in the First Industrial Revolution. The type of hierarchies are inevitably being seen our new economy. At the individual level, we see similar instances of populism, antagonistic trade and degrading mental health. As much as I want to say that Davos was about tech and blockchain, it was more about what “language” will be used in the Fourth Industrial Revolution. Yes, the tech conversations were dumbed down a bit (AI, ML, blah blah), but people give too much discredit to the conversations happening here — decision makers are open to listening, as long as they can digest the issue.
The Lounges: I spent some time in and around the Consensys’s new clothes, Tradeshift’s very strong presence, Caspian Week’s focus on Eurasia trade beyond OBOR, all the journalism-hosted parties to NASDAQ’s nifty branding (the CEO is a rockstar) and lastly the Blockchain Economic Forum: guest speakers hating BTC (Schumer, Roubini) and the crowd loving fair governance and trustlessness of man. I like how we now default to the fact that if someone can become evil, one will become evil in the age of attention seekers and twitter preachers.
The diluted “herd is coming” narrative was in 5th gear in the blockchain ride (in recent news, Samsung exacerbates the Kimchi premium) as seen by all signs at Davos. There are implications beyond just adoption, however. Perhaps there is a growing dependence on institutions in the desperation of the crypto bear market that will ultimately decenter the participant — I take a look at the obvious divides and surprising reconciliations from the conversations at BEF. Arjun Balaji’s discourse about conflicting visions was at full steam, but was not as bitter as one might expect.
Blockchain Economic Forum
LAToken invited various anti-crypto dialogue despite their own blockchain— when I inquired to Matias, the Senior Content Manager at LAToken about the invitees, he said “it’s mostly good for the ecosystem to argue.” Refreshing to hear.
At the tail-end of the week, I arrived at Blockchain Economic Forum, where LAToken generously invited (and partnered with) Hackernoon to examine the review the scene: I came to report. There were a lot of conflicting thoughts and shaking heads, but also many shaking of hands and respectful follow ups that I overheard.
First, BCG Digital’s Jeff Schumacher said BTC is useless on CNBC, and reinforced it again at BEF. Looking deeper into motivations, it’s probably an indirect marketing stunt in favor of DFinity’s use-case given the group’s outsized involvement with that initiative. So, yay blockchain, nay BTC.
The second highlight event was keynote speaker Roubini who always carries his controversialism with him wherever he goes. As a practitioner who started from Wall Street (but now a blockchain proselyter), I can empathize with some of his main points: central and fractional banking can indeed provide deeper liquidity pools and centralized efficiencies as long as they remain “independent” from the government (therefore a global central bank crypto currency will destroy all competitors). And he’s right, the banking system does fine— it works and worked decently well. Nevertheless, the trauma of the 2008 reverberates in his thinking. Our dependence on centralized authorities is only to forestall disorder through the concentration of authority that was widely employed by government powers after 2008 (Dodd-Frank to REMIT to MiFID). We can not continue to put band-aids to protect the participant’s interests.
As Nobel Prize-winning economist Amartya Sen described, economists and sociopaths (social morons) aren’t so distinguishable given their fully utilitarian mindset — you will see on all offshore banking websites all these agreeable discussions between conspiracy theorists, fiat minimalist cryptoheads and economics PhDs. Roubini puts results over the construction process, and knows exactly what the off-chain banking system can create. Yes, it works based on empirical and theoretical values — but only in the world that we know. Central and fractional banking is indeed the current best system to reach the deep liquidity needed for a US-Leviathan world order, and one that I do not necessarily oppose. My friend Charlie at Reserve described what the daily fear intake was like during the Cold War and doesn’t sound so savory.
Nouriel Roubini, New York University Stern School of Business.
As expected at an event called “Blockchain Economic Forum,” the public retaliated in an distraught manner with their questions: pulling examples from New Zealand’s failed central cryptocurrency, Zimbabwe’s government-fueled inflation, and Venezuela’s need for BTC. To them, these examples illustrate the divide between the government and minting authority as a fragile, “recommended” line in the long-run, putting immutable governance at precedence over “mere” efficiency. Sure, I like the audacity, what kind of underdog-loving American doesn’t. But I don’t like how they push aside all painpoints that the banking and security industries had to go through to achieve what it is today. Most financial laws are usually reactive instead of pre-emptive — from Glass-Steagall (banking) to Sherman (monopolies) to a proper Chinese Wall (insider trading laws, which really started in 2001) — to exacerbate even more, a deeper look into insider trading rules is not that the action is “unethical” but rather that it will hinder market liquidity: utilitarian over ethics. I agree with the public in the long run as reactive processes have their limits. I want to see more practical approaches. A more balance panel (which I describe later) goes into the realities of the problems in a conciliatory manner.
Nevertheless, at the convergence of points on where the future lie, Roubini was a bit short. He claims fintech can be the useful equipment for solving the future. I agree. Looking at history, the M1 supply was essentially created by ATMs, a “fintech” product. In the Q&A though, Roubini said we can depend on the Internet for this source of innovation and fintech-driven liquidity. Yet the internet was originally designed to be decentralized, and now he rejects that same proposition. The Internet, were it to be owned by a single corp, would never have had the J-curve Cambrial explosion without being the open portal to a public space. But it took (is taking) a while before everyone finally accepted that the Sun is the true center of our planetary system. While centralized systems may work as a robust solution with immediately beneficial effects, decentralized processes produces an antifragility that can permits immeasurable ecosystems. What arises is this mentality of an “institutional glut.”
Institutional Glut
In the award-winning book Winning in Emerging Markets (Krishna Palepu, Tarun Khanna), the authors coin the term “institutional void”: structural pain points in emerging markets that a business should focus on paving over with ingenious solutions to unlock unprecedented value. Examples could be using order brochures + local delivery (even mule-wagons) to overcome mountainous, rural road infrastructure as a way to compete against hypermarket delivery systems.
Fact: The US is not an emerging market. Counterpoint: maybe it could be after self-driving trucks destroy all of mid-America micro-economy cities. To play the foil in everyone’s fantastical dreams of the institutional money coming into blockchain, is the dangers of overinstitutionalization — the same things we saw in Too Big to Fail.
After 2008, we tried to “stabilize banks” but I’ll tell you being on the other side that the people that are suffering the most are the legal and credit departments in the banks than just the traders and bankers (power just moved from banks to PE shops). Prayers to those who are drowning in +1,000 page regulatory documents, those poor recent law grads to test their patience and sacrificed trees for paper (disclaimer: we at ABC Platform push for green practices).
It became a worldwide movement with a bit of Hegelian dialectics playing its course: government bloats the bulge bracket banks and behemoth companies with over-swerving, reactionary laws -> the banks buy each other up and companies immediately move toward tax inversions (2013–2014), the people are then affected by downstream costs pushing the offshore banking industry. And then issues pile on issues, starting with this vicious spiral of centralized authority piling centralized issues on another centralized party. Satoshi didn’t see all this collateral damage pan out — he just saw the beginning of the fall, and decided to create a decentralized solution for a centralized issue. And centralization isn’t all so evil as one might suggest as Haseeb Qureshi recently placed it. But I digress.
The mindset that Roubini holds is short term, and doesn’t acknowledge the future power of decentralized systems as a means of creating newer forms of liquidity that isn’t found in being just a globalized resource, but by dependable trust. Trusted speculation can be a very powerful force for spending. Nevertheless, the cryptocurrency defendants are so bulletproof either — they have some serious issues to solve before we come all come to a “winner.” The blockchain public sees a longer horizon with more deontological roots, putting the economic surplus created by immutable governance and uncorruptable laws superseding centralized systems in the long run. No “economic model” could have extrapolated the success of the personal computing era of the 80’s in creating the the phenomena of the internet in the 90’s. We are left to believe that we face before us an ultimatum (albeit a reductionist one) with lean pickings…
- We continue depend on a national central banking system (US, maybe China?, etc.)
- We depend on an intra-national system (UN, consortium of banking, SDRs, World Bank)
- We depend on a participant driven network (decentralized protocol)
…but are we so pushed back to a corner? Ariel said that I shouldn’t start with “which currency” question first though, but rather “what uses” first — yessir.
The synthesis is between the lines
Round Table: The Board and Monetary Policy for Decentralized Currency Prof. Dr. Ansgar Belke, Author Monetary Economics in Globalized Financial Markets, Joshua Aizenman, National Bureau of Economic Research, co-editor Journal of International Money and FinanceStephen Murchison, Advisor to the Governor of the Bank of Canada Ariel Zetlin-Jones, Associate Professor of EconomicsLinda Schilling, Assistant Professor for Financial Economics, Ecole Polytechnique CREST
This is where LAToken’s selection team did a great job in bringing together different opinions that arrived at a solid agreement. While Roubini’s arguments are often repetitive at every conference he talks in, this panel was refreshing to hear as they actively though of possible remediation to debates happening beforehand — a new framework of thinking.
Ariel, an associate professor at Carnegie Mellon, nails some major issues with the current blockchain regime, asking about feasibility rather than disregarding this all as impossibility — we don’t need to jettison the baby out of the bath water.
The thinking was like this:
- Make crypto’s basic tenants work, like as a proper medium of exchange
- Decide if we need/want a global cryptocurrency
- Understanding how to manage or control the supply of tokens (not necessarily for fiscal policies, but general transactional feasibility)
Ariel Zetlin-Jones, Associate Professor of Economics @ CMU. I spoke with him before the event, and he’s been quite involved with a few blockchain initatives like Sweetbridge and PNC Bank —so not his first rodeo
Do we truly need a singular, global cryptocurrency? This board of governors implored a need-based first approach to the simple question: does the world require it? Why not embrace our heterogeneity over imposing this homogeneity that increases diversification risks? Does the Peruvian economy correlate to, say, Armenian trade that it would warrant that both live under a single currency? I completely agree in theory, but maybe less in format and font: this cartographic exercise is not limited to only geopolitics in the 21st century but to more creative divides such as industry vertical and common liquidity horizontals. Back in the old day, until a sovereignty was established in the past, men would seek their welfare by force. The supreme importance of state, in order to suppress such violent realities, is no longer valid in this world and, as such, should not necessarily be the contours we draw in all our policies today. Perhaps the underlying motivation for a collaborative economy is one based on a mutual interest: in virtual video gaming world or a gambling competition. Issued currency may not be tied to another nation or intra-nation, but rather economically valued intrinsically which is what we do in our own proprietary algorithms at ABC Platform. This can be a bit hard to imagine since we always price our things to the USD or EU or any other currency. But before that, we have to make sure such (crypto) currency can act as a proper medium of exchange, as the governors say.
Learn more about the BEF Davos 2019 Program here, they should have videos uploaded this week.
In an age past, Hobbes might have pushed for a monolithic regulatory state as it was the better option of two evils, such as anarchy. As we see the citizens of Western democratic posterchilds questioning the results of their own voting mechanisms, 2020 Davos will have an even longer list of issues to confront for their decade. We are beginning to realize that the people can no longer push these responsibilities away and must take it to ourselves to address — perhaps it is our turn to steal the golden fleece from the Argonauts but this time it cut up into shared goods, not just for Jason. For example, we at ABC Platform look at the opportunity to now exit this Hobbesian “lesser evil,” depending not on centralization processes (ie trade finance financing by government-controlled banks) and to exit and reinvent the system entirely by empowering the user-participants, not trusting overseers. Most of the world and the leaders at Davos, it seems, are thinking in this modernizing direction. I am excited to see where technology can take us, but I am even more excited to see how people self-organize in this new reality. Is the history of computers not more exciting when told through the lens of the inventors and communities? Turing, Englebart, Jobs, Gates, Berners-Lee, Neumann, etc.
I was happy with the entire week at Davos. I got some lifelong contacts and made some great industry partnerships and had some fruitful conversations on ideas for our own platform, which we will be announcing through my company, ABC Platform, in the next few months. I thank again the LAToken platform for making this event possible and Hackernoon for inviting me. I wish them all the best in their next event. Feel free to learn more about what they are doing on STOs and token tradability on their website www.latoken.com.
Looking forward,
-D