The Breakdown - The Raw, Savage Capitalism of Open-Source Competition

Episode Date: September 12, 2020

On this edition of the Breakdown Weekly Recap, NLW looks at: The “holding pattern economy” – why stocks, jobs and central bank policy seem stuck in place Why Joe Biden’s China plan shows that, no matter who wins the presidential election, U.S. economic policy towards China is likely to get more aggressive The surveillance state gets stronger as Amazon appoints a former NSA head to its board of directors The SUSHI saga and why there’s no capitalism more savage than the competition in open source networks 

They finally transferred liquidity from Uniswap to Sushi Swap, and overnight, 800 million or so in liquidity vanished from Uniswap. This is some insane, vicious, pure free market capitalism at work here in a way that you could never have with closed source protocols. The IP is not a barrier. All that matters is the market. All that matters is incentive alignment and liquidity. Welcome back to The Breakdown with me, NLW.

It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDess. What's going on, guys? It is Saturday, September 12th, and that means it is time for the weekly recap. Today I'm going to be talking about four vibes from this week, four things that were just kind of feelings in the air, and hopefully this helps you understand the way that I saw things play out. So vibe number one was this holding pattern feeling. In so many domains, it felt like we are just sort of circling around the drain very slowly, but not actually getting anywhere. For example, in stocks.

Last week, we completed a three-day drawdown at the beginning of this week that ended up being more than 10% of the NASDAQ. And there was a slight bump back up, a slightly recovery, but it again feels like kind of a holding pattern. It didn't break out. We didn't continue our massive trajectory up. We're just kind of in this in-between area. When it comes to central banks, the ECB had their policy day this week, and they stayed the

course with the same policy they'd been at continuing bond buying through their previous 1.35 trillion euro program, as well as keeping rates at negative 0.5%. Over in the jobless claims front, we basically stayed the same with a slight decline to 884,000 new claims, which was a little bit more than the 850,000 expected. And of course, there's still a lot of bluster and promise and hopes and dreams around a vaccine, but this week, AstraZeneca jolted people by having to pause trials when someone got sick. The CEO then tried to do damage control and said we should still have information this year on whether we can get a vaccine out quickly. Basically to me, if you had to express the feeling the vibe of the week in just one idea, it is that we are in a holding pattern.

vibe two has to do with the elections. So part of that weight and seness, I think, has to do with the fact that we've got these upcoming elections which are entering their final and you have to imagine most highly fraught tense phase. Now, within this crazy campaign, there is one issue where both candidates look fairly similar and both candidates are trying to say that the other is weaker. This, of course, is China. President Trump has tried to say that if Biden wins, China will absolutely own us. At the same time, however, Biden's campaign is signaling that basically they have their very own version of MAGA when it comes to China policy. Reinforcing this, the Wall Street Journal this week dissected Biden's policy with an article titled, What's Biden's New China Policy? It looks a lot like Trump's. Here are some specifics.

Biden advisors say they'd expand American government-backed campaigns to compete in areas like AI, quantum, and 5G. They also refuse to pledge to remove tariffs. That said, Biden advisors have said that they think this new Cold War rhetoric is not helpful, pointing out that there is such a huge existing volume of international trade that we need some amount of cooperation. Biden is also more interested in working with China on macro threats like climate change, and even when it comes to pressure, his approach is to try to rally allies rather than go it alone. I thought the way that actually the Wall Street Journal put it in a much larger historical context made a ton of sense. They wrote, Mr. Biden spent much of his four decades in government working with world leaders

to help shape the modern American-led global order. Mr. Trump's late-life entry into politics was animated by his opposition to that order. He has at times questioned the value of long-time military and trade relations with Japan and South Korea to American allies in China's orbit. Now, this is going to be just an endless back and forth. Each campaign has produced TV ads to go with it, accusing the other party of being really weak on China. And I think overall, what it reflects is that there is a public mood that is very against China right now, and both sides are trying to capitalize on that. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com. Crypto.com offers one of the most cost-efficient ways to

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implications. One of the great fears for many right now is the surveillance available through new technology. The amount of information that is collected about us through social networks and other types of technologies is just massive. However, it's been fascinating to me that the focus historically on Facebook and Google as the centerpieces of surveillance capitalism has distracted us from Amazon. Well, this week, Amazon announced the appointment of a new board member that got a lot of attention. That new board member is former NSA chief Keith Alexander. As the Verge put it, Alexander was the public face of U.S. surveillance during the Snowden leaks. And of course, as a former high-ranking U.S. government official, the goal for Amazon is to get new expertise in defense

contracting. The irony of this timing is that this is the same week that a federal appeals court ruled that the NSA's bulk collection of phone records was illegal. When this ruling came out, Edward Snowden tweeted, seven years ago, as the news declared I was being charged as a criminal for speaking the truth, I never imagine that I would live to see our courts condemn the NSA's activities as unlawful, and in the same ruling credit me for exposing them. And yet, that day has arrived. Michael Krieger, at Liberty Blitzkrieg, for those who have read his writings, wrote about this, not only do those in charge of unconstitutional surveillance of the American people not go to jail for it, they get offered positions on Amazon's board.

That's the ugly truth about this imperial oligarchy. All the voting in the world won't change that reality. Now, the last vibe that I want to touch on this week is this pure play, unfettered capitalism that happens in open source protocols. Defy has, I think, a reputation that maybe it inherited from Ethereum as being a little bit more friendly, a little bit more open, a little bit more kumbaya than, say, Bitcoin, right? I think for anyone who's watching closely, the sushi swap saga has been totally insane and should completely disavow them of that notion.

So I don't nearly have enough time to go into the whole thing, but let me give you the quick TLDR. On August 23rd, Larry Sirmack from the Block tweeted, what could Uniswap do if some talented dev slightly changed the branding, forked everything, and released a token that eventually distributed 90% of supply to LPs? Uniswap is an absolute beast and it has a great team, but what could they do? Within a week, Sushi Swap was launched to do exactly that. It was a fork of Uniswap, but that built in a new token that created an incentive for liquidity providers.

In a world where liquidity is God, it attracted $1.27 billion within a week and a half. Now, everything was all good, everyone was excited, until the pseudonymous chef Nomi made all with $13 million. Now, more specifically, he converted a huge amount of his sushi into ETH worth about $13 million, but then the craziest thing is he said he wasn't actually exit scamming. He said this had all been part of the plan and that he had put in his work, and guess what, the community freaked the fuck out, because it had been a week and a half, and the leader was pulling at Charlie Lee and just making off with everything. After intense pressure, Chef Nomi ended up transferring the controls of the system the single key to Sam from FTX, who has subsequently

acted as a steward for the entire protocol. A lot of things have subsequently happened. A new group of multi-sig signers have been voted in and yada, yada, yada, there's a whole governance thing. Like I said, I'm not trying to get the logistics of this thing, but I want to point out that this week a couple days ago, they finally transferred liquidity from uniswap to sushi swap, and overnight, 800 million or so in liquidity vanished from uniswap. I mean, if you looked at that thing, you watched the chart on DefiPulse go from Uniswap at the very top to Uniswap as something like No. 9. Some astute observers have pointed out that this liquidity was really never Uniswaps to begin with.

It was an artificial jump up based on the hype of sushi. It was always designed to be for sushi, not for Uniswap. But still, this is some insane, vicious, pure free market capitalism at work here in a way that you could never have with closed source protocols. The IP is not a barrier. All that matters is the market. All that matters is incentive alignment and liquidity. Amir Rosec tweeted, lots of peeps in defy are naive. Sharks are everywhere. Governance tokens are easily manipulated. Altruism is a joke. This is war. Platform versus Platform. And while I don't necessarily think that it's quite that dramatic, there is absolutely no denying

that if you are interested in the raw, savage, unfettered opportunities of capitalism, there's nowhere that you should be playing around right now as much as this weird, wacky world of Defi. Anyways, guys, that's it for my weekly recap this week. I hope you're having a great weekend wherever you are, and until tomorrow, be safe and take care of each other. Peace.