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June 2022

The Monthly Ledger Report

By Bryan Wilson, Legal Engineer at Upside
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A Historical Examination of Market Volatility

Money was invented as a convention for quantifying need and demand among people, businesses, and governments. The value of money is not derived from any phenomena observed in nature, but instead from a social contract among individuals. As such, it is subject to evolution. The relative need and relative demand among people, businesses, and governments is always changing. However, the dynamics of money are also subject to manipulation - each of these parties, behaving in a self-interested manner, will be optimized for a different set of outcomes.

Opportunists, grifters, and even the well-intentioned have long sought (to varying degrees) to engineer social outcomes in such a way as to make themselves richer and adapt to changes in market behavior. Going back to the Roman Empire, coins known as Denarius were almost entirely made of silver. However, over time and changes in monetary policy, the Denarius began to lose much of its value as coins minted with a copper core and silver coating made the currency easier to forge. Fun fact: this is partially why Isaac Newton developed the system for ridged edges of coins as a mechanism to combat fraud.

Fig. 1. The decline of the silver content of Roman coinage, as envisaged in Haines 1941: 47.

Even here in the United States, where we are free to elect people to represent our financial interests, the purchasing power of the dollar has declined, as evidenced in recent years (as well as over long periods of time) according to the Bureau of Labor Statistics' Consumer Price Index. The Visual Capitalist demonstrates this quite well in the chart below: 

Visualizing the Purchasing Power of the U.S. Dollar overtime

The reason for these fluctuations is not because we want to transfer value among people in a way that is unstable or that declines over time. Instead, the reason for fluctuations in the conventions we use to represent value (i.e., money) is that our global society is becoming more complex with more actors doing different things. The very nature of need and demand is dramatically shifting on a global scale. So the price fluctuations of global forms of transferring value will naturally follow along with these trends. 

I would argue that the ability to define volatility to specific applications or specific token economies is a big selling point for creating tokens. Instead of collecting or using one form of value transfer, it is possible to mitigate reliance on one and use many forms of money that are specific to the domains most relevant to individual consumers. Instead of lamenting the changes of market dynamics, we ought to harness them for our own utility.

Imagination in Action

Ideas spread through forums, gatherings, and discussions. The most durable learning comes from application, from doing, and from getting feedback about what does or does not work. 

Stuart Haber & W. Scott Stornetta "How to Time-Stamp a Digital Document"

This is also the case in crypto. Ever since the 1990 conference where Stuart Haber and Scott Stornetta presented an idea – How to Time-Stamp a Digital Document - convenings have served as  a cornerstone for the development and dissemination of new ideas.

At the end of June, Upside's Legal Engineer and Research aficionado Bryan Wilson (aka the person writing this report) traveled to Boston to take in the sights and sounds from a veritable smorgasbord of experts and innovators at an event, which included more famous people than I can list. For a full rundown of speakers, check out this page! For an overview of the event, visit this Forbes article. Below, I've listed a few of my biggest takeaways from the event.

Truly innovative ideas take time to mature - listening to Stuart Haber describe the reception of the blockchain article after he and Scott presented it for the first time, he said "a few people came up to us and said good job." And that was all there was. However, if you look at the Bitcoin Whitepaper, these two guys made up nearly half of the paper's citations. Also worth pointing out is that the idea took a lot of effort before it could be truly transformative. Numerous additional papers on cryptography needed to be developed before the idea was ripe for the purpose it serves today.

Web3 needs more standardization - the reason Web3 is not more popular than it is now is because the cost of switching to Web3 applications does not make up for the cost of moving away from Web2 applications. And when you boil it down, the costs are incredibly high. There are obviously  implementation costs to switch from one system to another, but there are also legal costs, costs related to uncertainty, and costs associated with educating consumers about new products. To demonstrate this point, let's consider stablecoins. Stablecoins provide a function similar to fiat currencies that are backed by governments and, within the blockchain community, provide a way to interface with Web2 systems. But how are consumers supposed to know if the stablecoin they pick is going to be more like Terra/Luna or USDT/USDC? The answer comes from more standardization of and ability to audit popular Web3 products.

Adopting of Web3 requires participation from all stakeholders - in the last session of the day, George Howard (a technologist and professor at the Berklee School of Music) illustrated something that had largely been absent for a majority of the day. He convened a panel on music and Web3 and, at the end of the panel, had Debo Ray (a professional musician and Grammy-nominated singer) come up on stage for a performance of her song Filly. The song concluded and George asked her how many of her friends knew anything about Web3. Debo kindly responded that not many, if any had an idea about it. This must be a wake-up call for everyone. If we want the technology to be adapted in other industries, we need to make a bigger effort reaching out to them and having them at the table from the outset.

Highlights From This Month

In The News

Debate from the last month about the extent to which blockchains are decentralized led to the price of Bitcoin falling further – :How 'Trustless' Is Bitcoin, Really?

Isaac Patka found an exploit for the integration between Gnosis Safe and RealityEth

We found out about TOTEMfi, and application for staking-based prediction markets that seems like a far-out frontier

The emerging bear market in crypto is leading to lots of arbitrage, per Bloomberg

The debate about Soulbound Tokens v. Signed Claims intensifies with a great response from Kate Sills

Let's Use New Forms of Money to Commit to Our Communities by Matt Prewitt (RadicalxChange) demonstrates some of the most interesting potential of the Web3 space

Kenny Schacter – an artist and champion of NFTs – presented "What is NFTism?" at a conference exploring Art and Crypto in Europe

Packy McCormick's blog from Not Boring continues to produce amazing content on Substack.

In History

I've been going down a deep dive of the origins of Web3 and revisited David Chaum's article  about Blind Signatures for Untraceable Payments from 1982, as well as revisiting the paper by Stuart Haber and Scott Stornetta from the Imagination in Action section.

There was lots of history also included in the first piece of this report on the historical examination of market volatility.

Beyond Capitalism: Leland Stanford's Forgotten Vision gives an interesting and underrepresented account of the founder of Stanford University and what he hoped it might become.

In The World Of Communities

Types of DAOs provided by the team at from Alchemy.


Which Legal Wrapper to Choose? Chris Brummer and Rodrigo Seira have come up with this useful diagram to bring clarity.

Chris Brummer and Rodrigo Seira: Legal Wrappers and DAOs

Online Communities are Still Catching up to My Mother's Garden Club by Nathan Schneider digs into what is missing from the existing implicit feudalism of the internet

Adimverse, a project with Rob McElhenney from It's Always Sunny in Philadelphia, explores coownership of celebrities in the metaverse

Introducing Incentives Into Communities explores how we can collectively cocreate the types of worlds our communities are looking for by aligning the incentives and motivations of participants.

In The World Of Gaming:

Gaming has long been where new technologies are innovated. Part of this is because people who like science fiction frequently overlap with people who like technology. Part of this is also because gaming usually involve lower stakes than, let's say, the financial industry does. This is why cryptokitties was so interesting back in 2019.

Crypto Gaming & the Monkey Run, the first article in Republic's Substack also posted to CoinTelegraph (w/ picture to the right), explores the major camps of game design, as well as the most sustainable opportunities for developing web3 games

NFTs are Gamifying Fashion: What's in the Wardrobe? looks at the concept of gamification  in a bit different context - the fashion industry.

DeFi Kingdoms – Tokenomics – Summoning Costs and Tavern Fees and Impact on Quest Reward Pool pairs nicely with the Monkey Run article.

And, if you're looking to begin experimenting with ways to visualize game theoretic applications, I'd recommend checking out this Webinar on AMM's by Machinations.io:  Webinar: Simplified Example Token Side AMM

Square Peg For a Round Hole

Something bothering me lately is trying to understand why so many people in web3 are interested in building our decentralized future using the same old architecture. Obviously, it would be foolish to throw the baby out with the bathwater, but Coinbase's failures over the past month, as well as other market dynamics from the past few years, illustrate the type of growing pains the incumbent mindset will inevitably face if it is not adopted for the unique abilities of crypto.

That NYT article (How 'Trustless' is Bitcoin, Really), referenced earlier, also provides a good demonstration of the infrastructural complexity required of Web3

Evolution of Analysis

Building from the standardization angle at Imagination in Action, much of the standardization required in Web3 will, like it or not, come from lawyers. But that means that legal analysis is changing.

Copyright Caterl: 0 demonstrates how there's equally a chance for more opportunity if we are clever about how we put things together.

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