Jack Chong
@jackchong_jc
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upgrade capital markets with software in stealth | prev: EIR @whitestarcap @friggeco @uniofoxford @homedao_live
Joined December 2020
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DeFi will eat TradFi. The key is via Real World Assets (RWA).
But the industry lacks a rigorous case....
So we wrote a 70-page primer to walk through our idea maze 🔍
Here's a sketch of the report so that you can skip to the section you like 🧵
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DeFi will eat TradFi.
The question for 10x founders and investors is 1) timing and 2) where the DeFi 'bite' starts.
The International Monetary Fund has dedicated a chapter on DeFi in their 2022 report. Huge alpha drop!
HOW will DeFi eat TradFi? Bullish narratives here 🧵👇
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2K
@0xkowloon
and I wrote the 1st deep dive & codebase dissect of
@fraxfinance
$FRAX $FXS
We identified 3 Killer Apps that enable Frax to beat the other stablecoins.
How Frax beats the Rest (Part 1 thread) 🤓🧵👇
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99
387
12/x
IMF did find that DeFi is super cost-efficient compared to TradFi in developed markets and emerging markets.
This is a really important finding!
IMF has given the world ironclad data that DeFi is cheaper than TradFi. It is the 1st research into cost comparison too!
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Stablecoins is an Internet-native money liability.
It is the new Banking as a Service.
The Form of stablecoin (Assets) will not change.
And we are just scratching the surface of its Utility.
Some mental models to predict the future of stablecoins 🧵
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I am excited to share that I have joined
@WhiteStarCap
as an Entrepreneur-in-Residence in the Digital Asset Fund, embarking on a journey to build a category leader in tokenization as the frontier of institutional adoption of digital assets 👇 🧵
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148
Is this the end of the Three Kingdoms period in the Curve Wars? 🧵
@terra_money
@fraxfinance
@redactedcartel
1/ Introducing the 4pool - between
@fraxfinance
, TFL and
@redactedcartel
we pretty much own all the cvx
UST-FRAX-USDC-USDT
Curve wars are over, all emissions are going to the 4pool
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4/x
I have to say, I am very impressed with IMF's precise explanation of DeFi, referencing
@AaveAave
,
@compoundfinance
,
@CreamdotFinance
,
@DefiLlama
,
@defipulse
,
@graphprotocol
.
No mention of crypto innovations tho (e.g DEX, AMM, PoS staking, flash loan)
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I just wrote a draft paper about 1) The Three Tokenomics Problems 2) an attempt to mitigate them with a Productivity-Linked Tokenomics Design!
On token allocation, emission and value....👇🧵
Read directly here 👉
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I'm excited to share that Harry () and I have written the first comprehensive onboarding guide for institutions to digital assets 📖
We believe that this guide unlocks scalable institutional adoption of the tech & asset class
👇 🧵
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19/x
To switch TradFi users to DeFi, look in underserved TradFi markets. That's where DeFi is 10x better.
Emerging markets, unbanked, opaque assets, illiquid real world assets are all frontiers that DeFi should conquer
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I've just thrown myself into the Web3 deep-end 🤯
Joining
@encodeclub
@avalancheavax
's 10-week solidity bootcamp. My goal is to quickly prototype and test my hypotheses on DAO and mechanism design 🎉🚀
Crypto X PPE
@UniofOxford
= good combo for philosopher-king? 📚
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Entrepreneurs build our world. Modern Western institutions fail them.
This is why we are launching a global hacker house movement with
@HomeDAO_live
. We revitalize the decadent West with the second Renaissance of human flourishing.
Starting with our Oxford Crypto Village 🧵
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just wired my first angel investment today!
😇👼
dm if ur building in zk-defi, institutional defi, or fintech x defi!
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Wait is DeFi just speed-running TradFi history? (cc
@matt_levine
)
My intern notes on a TradFi book club we started for DeFi founders 📔🧵
This week, we read about how repo evolved, bank runs, and clearinghouses
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Reading club on the philosophy of technology, for web3/deeptech/alignment founders
I will try my best to guide the readings. After all,
@UniofOxford
is best at producing unemployed philosphoooors
You in? 🫡
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So.... I run OX1 Incubator and we produced a
@ycombinator
(S21) alumni! 🤯
This year's 21/22 cohort is super strong: 50+ DPhils with a technical background in ML, web3, and sustainability 📚
Want to tap into this underpriced talent pool? DM me 🖐️
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Everyone is talking about tokenized treasuries...
..but do we really know how they work legally, technically, and financially?
Announcing Tokenized Treasuries Analytics! 🏦
Today we're excited to publish the most detailed treasuries dashboard along with an industry-first research report by
@jackchong_jc
We cover the legal, financial, and technical nuances of 10+ products for asset allocators 🧵 👇
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23/x
DM me if you are researching on 1) DeFi comparative studies 2) asset digitalization/tokenization 3) just find this thread interesting!
Follow me for more 🧵☀️💪
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I finished my finals today, so I’m happy to say that I’ve graduated from
@UniofOxford
! 🎓👨🎓
It has turned me into a game-theoretic analytical Marxist on Sino-Arab authoritarianism.
Now bring real world assets to defi
@FriggEco
👇🏼How it starts and how it ended
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If you want to go straight into the report, here you go! 🔥
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2/x
Chapter 3 mentions DeFi so we are going to focus on that chapter!
The original reports are available here
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17/x
So, IMF thinks DeFi is efficient but risky. What policy recommendations do they make?
1) Regulate centralized DeFi entities (stablecoin issuers, CEXes, hosted wallets, and market makers)
2) Encourage industry group - self regulatory organisations
I love the 2) idea!
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5/x
So IMF thinks that 'DeFi has the potential to offer financial services with even greater efficiency, becoming a gravita- tional force that attracts a large number of crypto investors.'
But....
'It may also come at the cost of greater risks and uncertainties.'
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Part 2 of 'How Frax beats the Rest!' 👇🧵
Can
@fraxfinance
become a fully algorithmic stablecoin without any $USDC collateralization?
Read on to find out Killer Apps 2 and 3 🔫
@0xkowloon
and I wrote the 1st deep dive & codebase dissect of
@fraxfinance
$FRAX $FXS
We identified 3 Killer Apps that enable Frax to beat the other stablecoins.
How Frax beats the Rest (Part 1 thread) 🤓🧵👇
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I gave a talk at
@EthereumDenver
with
@0xJMG
and
@reserveprotocol
on the DeFi stage.
In case you missed it, I talked about the state of Real World Assets (RWAs), some spicy takes on our industry, and what DeFi needs to make tokenization take off 🧵
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Really excited to announce what we are building at
@FriggEco
The ESG industry is layered with fat fees. While it is a tech-savvy vertical within TradFi, it is poised for disruption.
DeFi is efficient, transparent and sufficient.
A new paradigm of sustainable finance 👇
Climate change is real. And traditional finance (TradFi) is inefficient, intransparent, and insufficient.
It is time to use crypto for good and upgrade our financial system with DeFi.
Enter Frigg 🔥 🧵
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22/x
IMF is a crown jewel of the Bretton Woods system. They hold the keys to institutional DeFi (and thus, help our bags).
Zoltan Pozsar wrote about Bretton Woods III. DeFi will gradually phase out inefficient TradFi.
Which side are you on, anon?
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TLDR: hacker took out an oasis vault. Jump was added as a multisig for oasis -> they assumed control for the vault
SCOOP: Jump Crypto $140M better off after turning tables on Wormhole hacker.
Via
@smyyguy
and
@JonRiceCrypto
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Terra, Celsius, 3ac...
Liquidity, solvency, and collateralization...
How can we build a more robust DeFi ecosystem?
I learn about how central bank <> banks <> shadow banks work.
Applying it to DeFi... 🧵👇
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A wave of companies have tokenized etfs/securities but only allow US-accredited investors to buy 🥲
Don't forget the mission of defi: bring financial products to the masses
IMO, selling US financial products to non-US investors is an untapped opportunity 🧵
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At
@EthereumDenver
, I'll speak with
@0xJMG
from
@reserveprotocol
about Real World Assets, tokenization and more. Join us today 1230pm at DeFi stage.
With lessons learned from the past year, I have revised my RWA thesis 🔥
DeFi needs its killer app, but tokenization isn't one!
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1/x
IMF's Global Stability Report has 3 chapters:
1 - The Financial Stability Implications of the War in Ukraine
2 - The Sovereign-Bank Nexus in Emerging Markets: A Risky Embrace
3 - The Rapid Growth of Fintech: Vulnerabilities and Challenges for Financial Stability 👈🔍🚨
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One year anniversary of publishing RWA primer....
Good to see the industry is paying more attention to this use case
DeFi will eat TradFi. The key is via Real World Assets (RWA).
But the industry lacks a rigorous case....
So we wrote a 70-page primer to walk through our idea maze 🔍
Here's a sketch of the report so that you can skip to the section you like 🧵
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3
53
A hedge fund just announced its short against $USDT. Crypto Twitter is also flipping the Terra $UST/Luna $LUNA narrative. How to understand all of this?
Here's why Fir Tree is loud about their short position, from game theory's POV 👇🧵
(a longer article is under way 🎠✍️)
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So if Terra lost 20B+ out of the ecosystem, who gained 20B? This is a zero sum pvp game right
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18/x
IMF told us some stone cold facts about DeFi. What's the action point? Here's the alpha drop.
If DeFi wants to truly eat TradFi, founders need to think hard about DeFi's value proposition.
DeFi is efficient, yes. But is it universally 10x more efficient than TradFi?
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16/x
My reply to IMF: DeFi costs will stay low because
1) no regulatory buffer means the best protocol that constraint optimizes capital efficiency and risk wins
2) KYC/AML costs stay low thanks to SaaS and API providers
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5. Landscape 👇
So who are the players in RWA?
Look at our 1st comprehensive ecosystem map 👀
We’ve divided the ecosystem into two broad categories: Infrastructuralists and Asset Specialists.
Read the report for details 📖
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2. Problem: In Need of a Standard 👇
DeFi holds promise to deliver solid value propositions.
Theoretically, it is a superior backend for our financial system
(Diagram: from
@FriggEco
's whitepaper)
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Does DeFi structured products & defi as a whole have product market fit?
Some rambling & hopefully nuanced thoughts 🧵🔍
As someone who's traded a structured fixed income book for several years some thoughts on the tradfi+crypto structured products space and a question I've been pondering for a while: Who are these products catered towards?
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Just got
@MessariCrypto
pro so that I can read
@RyanWatkins_
's 'Power and Wealth in Cryptoeconomies'
Winners gonna win and eat your lunch 🍲
Gini coefficient and the Three Tokenomics Problems 👇🧵
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9
45
'DeFi mullet': DeFi backend, Web2 fintech front-end.
This thesis is popularized by
@BanklessHQ
@RyanSAdams
@TrustlessState
But how well does the thesis hold up?
Let's interrogate the DeFi mullet thesis.
First, let's learn from Web2 Fintech's history 🧵 👇
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looking for a digital visual artist 🎨 ! Blending a portrait with futurist 🚀 and philosophical 🧠 themes. I will mint the work as NFTs. HMU! 👏🏼
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9/x
If you are a maths shape rotator, here's more on IMF's methodology (read: greek letters)
I am not an expert in quant finance, but it seems to me that IMF has done quite some original work!
Read them in the Online Annex in the original link.
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6/x
Let's start with risks! IMF on DeFi risks:
DeFi is highly leveraged (but isn't TradFi too?) and volatile.
A robust liquidation mechanism becomes important.
It is triggered when a borrower fails to maintain the collateral requirement (= loan-to-value ratio threshold)
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11/x
That's it in terms of risks. What about efficiency?
DeFi should always be more efficient than TradFi. DeFi runs on code, TradFi runs on suits.
The margins should reflect this cost basis delta. Does it?
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14/x
And DeFi's efficiency comes with higher risk!
That's a price I am willing to take for an open composable financial world.
DYOR!
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21/x
Flashy tokens ain't gonna bring sticky users to your protocol.
IMF has shown us the power of DeFi, a priori. Now, founders, go manifest your destiny to harness the power of DeFi, a posteriori!
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38
@business
reported that banks made billions trading on inflation
Everyone should be able to hedge against inflation. Defi can fix the inefficiencies of TradFi.
Here's why I'm bullish on inflation-linked stablecoins (
@fraxfinance
@feiprotocol
@VoltProtocol
@OneTrueKirk
) 👇🧵
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41
In reality, the IMF has found that DeFi is indeed cost efficient, especially in emerging markets
12/x
IMF did find that DeFi is super cost-efficient compared to TradFi in developed markets and emerging markets.
This is a really important finding!
IMF has given the world ironclad data that DeFi is cheaper than TradFi. It is the 1st research into cost comparison too!
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338
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2
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3/x
Chapter 3 is about how fintech impacts the banking system. 1st half of the chapter is about neo-banks and shadow banking and their risks. 2nd half is about DeFi: how it works and risks involved.
Let's take a look at what IMF writes about DeFi 👀
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7/x
The DeFi lending/borrowing ecosystem is a literal perpetual liquidation machine.
When the collateral shortfall is large, liquidation can be costly. If left unaddressed, it could potentially undermine platform solvency.
@FantomFDN
as an example 👇
🐳For the last few days, Layer 1 blockchain
@FantomFDN
has been the subject of fearful speculation as a large investor's leveraged $FTM position faced liquidation.
📉FTM is down 51% over the last month.
@samuel_haig
has the details👇
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18
1
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36
Facebook + IG + Messenger (the holy trinity) is down. And it got sued anti-trust by the US gov. HAHAHAHA
#facebookdown
#Facebook
#instagramdown
#Messengerdown
#messenger
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4
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13/x
For the quant and econ among you:
IMF used marginal cost as a proxy to compare TradFi and DeFi (debatable)
But token emission incentives are not accounted! The real cost in DeFi is likely higher.
My take: they are 'equity' & cost of capital for deposits
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8/x
So, statistically, how robust is DeFi?
IMF runs a stochastic model to calculate, on average, if liquidation is profitable or loss-making.
The one-year probability of liquidation is 24%. Expected loss is about 0.9% with larger losses incurred by riskier borrowers
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9/x
So DeFi liquidation loses $ on average... what else?
IMF found that liquidity is concentrated among the whales... (e.g.
@Tetranode
@dcfgod
)
Higher concentration -> whale exit -> bank run
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We are launching the first hacker house for young founders in the UK!
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Rari fuse is flash loan attack... exploiter flash loaned from balancer (and other sources)
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How does an inflation-protected stablecoin work?
@VoltProtocol
is the first product in the space. It is a decentralized DAO, tackles the fixed income market, and is a composable money lego.
From the Space event, a recap on how it works 👇🧵
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9
34
Wait is DeFi just re-running banking history? (cc
@matt_levine
)
My intern notes on a TradFi book club we started for DeFi founders 📔
This week, we read about Repo Markets...
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protocols i'm following that show 10x value prop to tradfi users
@goldfinch_fi
@sall
@MHiesboeck
@aaronherawan
@PJoseph_CFA
@maplefinance
@joe_defi
@arca
@jdorman81
@jonahschulman_
@pgaff_digital
@Bodhi_Pinkner
@TrustToken
@AaveAave
@StaniKulechov
30 minute warning🚨The IMF covering crypto through the lens of global financial security sends a strong message: DeFi can no longer be ignored. Join Goldfinch today for our expert panel, exploring the chapter on DeFi in the IMF’s recent report:
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$200b worth of defi summer still can't produce a single protocol that grandmas can use easily
where's the promised decentralized bank?
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Thank you
@0xpolygon
@OndoFinance
& Bril Finance for sponsorships.
Credits to
@Lempheter
@MukundVenkatak1
for writing this great piece together 👍
Thank you
@FriggEco
for the inspiration & support!
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Going to host a house party this Saturday night in Lower Nob Hill, SF at the Gamefi house (
@MarwanRefaat
@j_topoleski
).. tag everyone u know! 🎉🥳
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3. Solution: Protocol Wars and How They will be Fought 👇
Look at Web1, IBM and Xerox fought. TCP/IP won
Now look at Web3, the Protocol Wars happen across 3 layers
-> Standards for Representation and Ownership of assets
-> Infrastructuralists
-> Asset Specialists
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20/x
On DeFI efficiency, we need to break cost down to 1) origination cost 2) transaction cost (marginal cost)
It seems clear that given how cheap it is to trade TradFi equity, bring them on-chain is going to be a tough sell.
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1
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We started a shadow DeFi government.
And we've been plotting....
....a ponzu called...
> 'building a resilient decentralized financial system' <
this week, we plotted about clearing houses 👹
clearing, trading, insuring and scaling? 🧵
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1. Ontology: The Dualism of Real World Assets 👇
All RWAs can be classified as either Birth or Rebirth
Birth: new assets are created e.g. DAO Bonds, parametric insurance, NFT lending
Rebirth: existing assets are re-ledgered e.g. tokenized t-bills
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@__nylda__
@balajis
Our date is programmable scarcity. If you don’t remember, you can always look it up on the blockchain. It is immutable. Oh and have I mentioned smart contracts?
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Hey
@MessariCrypto
@twobitidiot
🫡
I applied for student tickets for
#mainnet2022
. Still haven't heard back.
Consider this 🧵my application!
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2
29
No $ust don’t fail because I’m just about to publish the paper applying Soros attack game theory literature to algo stable
4
3
28
Silicon Valley has the Paypal Mafia 🔫
@UniofOxford
has the Oxford Mafia. But can anyone name it? No.
I am a student founder studying at Oxford. Building without an aspiration to look up to is lonely.
Europe needs to build founding myths around alumni startup founders 👇🧵
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2
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Bye Twitter for now 👋
Going offline for exams
@UniofOxford
Expect this machine to be back mid-June 🤖 churning out quality content & announcements on [redacted]
My writing pipeline 👇
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15/x
IMF thought that DeFi's margins are low because they don't need 1) regulatory buffer 2) compliance cost
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1
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Securitization took disparate, semi-fungible, illiquid assets and packaged them under a more useful standard, CUSIPs.
Tokenization will be a zero-to-one for capital markets in the roaring 2020s.
Yet, there is no standard for bringing RWAs on-chain.
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The tokenization of financial instruments takes many forms. Not all tokenization is equal.
Most think that there are only two types of assets: tokenized or not. However, this binary distinction is limiting.
🧵 👇
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In the long run, RWA value accrues at the two ends of the RWA value chain: Origination and Liquidity
Pricing power comes from the two ends. The middleware will be fungible and commoditized.
RWA winners will look similar to Investment Banks, but for the 21st century.
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who's at eth nyc? imma build degen shit on
@Superfluid_HQ
for our hacker houses
theme: real world assets
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> Capital: Demand from Asset Managers
RWA so far has relied on retail liquidity. Now we are in the Valley of Death. Institutional adoption is essential.
A key question arises: how will asset managers interact with DeFi? What is the role of RWA in that relationship?
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I’ll be judging! see you at Denver and let’s hack 🙏🙏
In less than 3 days,
@reserveprotocol
is hosting its $70k+ hackathon at
#ETHDenver
I'm excited to introduce our esteemed panel of judges who'll be evaluating the submissions 👇
If you haven't applied yet, you won't want to miss out!
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0
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'ETF is just stepping stone into tokenization'
'Tokenization of securities & identities on a general ledger eliminate all corruption'
- BlackRock Larry Fink 2024
it sounds like Larry Fink got racked with his absolute boys last week, had an epiphany about crypto and is now fully entering the crypto rabbit hole
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10/x
IMF also noted DeFi-specific cyberattack risk
Our community has also seen a lot throughout this month....
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You know it’s bear market when no free food & drinks in event
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Watch out - these are the Rebellious Intellectually Curious Hustlers (RICH) 🔥. Thank you all for coming to my birthday 🎂 & weekly founders brunch. Two 🐦 one 🪨
@theofficialJTA
@BilalMobarik
@TheAllNewO
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Now, the institutional DeFi ‘stack’ costs as much as TradFi rails.
Unless DeFi is 10x better than TradFi, institutions remain hesitant.
In the long run, network effect drives cost to 0.
(I was inspired by the cost of genomic seq. graph)
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0
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Gm ☀️ SF! Wrapping up my one-month stay at SF! Grateful for
@MarwanRefaat
@j_topoleski
@gamefi
! To all the new friends I have made (and I will make 😉), thank you and see you soon! Hmu when you are in London/
@UniofOxford
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launching a new project 👀 might be airdropping some 🪙 drop your ens under this 👇
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> DeFi eats the Long Tail first
We do note the adverse selection problem. Read the report for our suggested mitigation!
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> The Battle of Infrastructualists <
The Infrastructuralists build rails that enable the exchange, custody, and settlement of RWAs.
I think DID standards are going to be fierce!
@quadratanetwork
@TokenySolutions
@securitize
@spruceid
@circlepay
(Verite)
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On the one hand, great for the community to recover the lost ETH
On the other hand, how much of 'decentralized' finance is controlled by multi-sig and proxy upgrade patterns?
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@Captain_BTC
@stablekwon
$OHM are the nomads in the north riding horses ready to join the unification battle
Is this the end of the Three Kingdoms period in the Curve Wars? 🧵
@terra_money
@fraxfinance
@redactedcartel
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4. Prediction: Adoption Dynamics at the Tails of Two Systems 👇
DeFi is 'technically' better than TradFi; this does not guarantee the inevitability of DeFi.
In fact, a decade after
@pmarca
's 'Software is Eating the World', software and cloud are still not fully adopted
1
0
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Secondary note: how govs look at DeFi! (cc
@paddi_hansen
, and thanks for inspiring this thread on gov x defi !)
1/ In case you missed it, the EU commission wrote a chapter on DeFi in its "Financial stability & integration review 2022"
It shows that the Commission staff is well aware of how DeFi works, incl. single protocols.
A few selected quotes wrt policy 👇
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