Blockchains are Bureaucracies par Excellence

In an earlier post, I likened decentralized networks to fields - social arenas of symbolic and material production within which interested actors compete and cooperate over network-specific resources.

The promise of blockchain and related technologies is that these arenas can be set up in ways that minimize trust requirements, reduce concentration of control over data, and enable free, censorship-resistant transactions in an increasingly global and automated setting.

In this post, I propose this development represents an important step in the evolution of bureaucracy. That may sound counterintuitive given this term’s common association with inefficiency and excessive paper-shuffling. But once we understand the essence of bureaucratic organization, it will become clear that blockchain networks are actually bureaucracies par excellence.

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Value Capture and Quantification: Cryptocapital vs Cryptocommodities

The majority of cryptoassets are shaping up to be capital assets in nature, whereas many early examples like bitcoin are better characterized as commodities, with a subset poised to become commodity monies. Within the burgeoning capital asset field of crypto, some closely resemble equity, others more closely resemble debt, and others have a bizarre enough mix of capabilities and value streams to be unrecognizable from prior renditions of capital assets. As part of explaining why governance assets have value, Joel has done an excellent job of laying out foundational principles behind capital, which is a piece that should be read before continuing here.

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DeFi Liquidity Models

As the potential of open financial protocols becomes clearer, some applications are gaining adoption faster than others. Maker dominates in terms of value locked and volume transacted. Compound and Uniswap trail, but are well ahead of 0x, Dharma, Augur, and dydx when it comes to liquidity. The rest have yet to show up on the radar. Looking at the three dominant protocols reveals a design advantage with respect to liquidity: none of them require users to find a specific peer to take the opposite side of a trade.

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Mario Laul

At the end of 2017, I started providing research support to Placeholder. It was a part-time role and I never took the opportunity to officially introduce myself via the blog. Better late than never!

I am happy to announce that I’ve now joined the team full time. In addition to supporting investment due diligence, my research efforts will focus primarily on the topic of cryptonetwork governance.

My background can broadly be described as social sciences. A few years ago, I completed my graduate degree in technology governance which translates to a mix of development economics, innovation studies, and public administration. Prior to my current role at Placeholder, I worked as a research assistant to Carlota Perez, focusing on the modern history of financial innovation and public policy in the UK, Germany, and the US. More recently, I had the opportunity to hone my analytical skills at the European Commission where I mainly worked with investment and financial data on one of the EU’s largest grant portfolios.

I’ve always had a keen interest in sociological theory, and each fall, I teach an introductory course on the sociology of culture to undergraduate art students in my home country of Estonia. I'm excited to leverage this background in my approach to decentralized networks, as I’ve previously done here.

Maker Network Overview

Since launching Single-Collateral Dai (SCD) in December 2017, Maker has become one of the most widely used protocols on Ethereum. A diverse ecosystem of borrowers, currency users, keepers, and speculators continues to drive rapid growth of the system. This report presents Maker as a network of heterogenous actors, examining the activity of each of its key stakeholders in an attempt to isolate the key economic drivers of the system. The focus will be on analyzing SCD’s first fourteen months of operation, while providing a few projections on the network’s future. The analysis is broken down by stakeholder group: CDP Creators, Keepers, MKR holders, and dai users.

This is not intended as an introduction to the inner workings of the Maker system. Readers unfamiliar with the Maker system should consult the MakerDAO Whitepaper and Placeholder’s Maker Investment Thesis prior to reading this report.

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