The Securities & Exchange Commission Chair is really going after the cryptocurrency industry. While there are some things we can disagree with him on, there are others that he gets right.
At question is whether assets within the cryptocurrency realm are securities. If so, then these entities are subject to regulation just like other financial institutions.
This is a very important point since most of the financial industry is highly centralized. It is a situation which incorporates enormous network effects, making entry from the outside near impossible. Could we be seeing this with cryptocurrency?
According to Gensler, the same thing is happening.
Here is an example of the current state of affairs:
As the chairman noted, merely four asset managers in the U.S. now control over 80% of total assets held in U.S.registered investment company index funds. Equity market makers responsible for handling retail market orders are also trending towards centralization, due to executions largely taking place off-exchange.
Of course, it does not take a genius to figure out the power being wielded by exchanges such as Binanace, Coinbase, and FTX. It is a move that is mirroring the intermediaries who controlled the established financial system.
As such, Gensler pointed out the cryptocurrency industry is not decentralized.
Decentralization Has To Step Up
This might seem like an obvious statement yet it is truly reflecting reality. Most are aware that Ethereum is about to become a chain that will be in full compliance. Transactions can be blocked by the producers. It was the post-Merge events that brought this to everyone's attention.
Thus, if Ethereum is centralized (and compliant) then how can anything built on it claim to be decentralized? The answer is obvious. When looking at points of vulnerability, there is a major one right there. Hence, the idea of decentralized finance (DeFi) encounters a bit of a challenge.
Hive is operating differently. This is a blockchain where there is no central, overriding authority. Nodes are spread throughout the world. We also see the coin distribution which far outpaces what exists on other chains. The absence of a foundation, lab, or anything else tied to a founder's stake is proving very valuable.
Gensler added this point:
“This field actually has significant concentration among intermediaries in the middle of the market,” he said. Thus, we must remain vigilant to areas where concentration and potential economic rents have built up or may do so in the future.”
Here we have the same rent seekers in different clothing. These exchanges are only growing in power especially in light of some of the collapse of centralized crypto firms. They are now able to buy the assets for pennies on the dollar.
At the same time, the network effect they are riding is powerful. Intermediaries of this nature benefit from the increase in depth and liquidity. They see their profits increase along with activity. Each step of the process includes transaction fees. This is something we discussed regarding both HBD and the Hive Financial Network.
Most People Do Not Think Decentralized
It is evident, even on Hive, how few people think in a decentralized manner. An example is the liquidity pools set up by Leofinance on both BSC and Polygon. They were able to create derivatives of both HBD and $HIVE.
This is something that received lackluster support overall. In fact, there are some on Hive who view this as a threat. The belief is that all should be resident in the base form.
Where this goes awry is in the fact that, by creating derivatives, we are decentralizing both coins. As more is spread out into liquidity pools, we see the ability to leverage the network effect in a powerful way. This also can take from exchanges.
One of the motives behind the article Adding To Hive's Fixed Income Platform: HIVE Into Savings is to incentivize people to remove their $HIVE from the exchanges. We are better off if more is in savings and the Internal Exchange is used for trading. Since this feeds the Decentralized Hive Fund through the HBD Stabilizer, we see how the advantage of the ecosystem comes into play.
At the same time, the goal is to set up massive liquidity pools using derivatives. Here is another concept that is widely misunderstood. Derivatives are a way to reduce risk. That is their design. By creating mirrored versions of HBD and $HIVE, we push the risk further out, away from the core. As liquidity grows at that level, the network effects can take off. A massive LP will keep gaining in value as more turn to it. Ultimately, there will be a handful of pools that take the majority of transactions.
This is much better than a few centralized exchanges.
Another concept is the idea of decentralized exchanges (DEX). We already have the Internal Exchange and one is being built on honeycomb. All of this will serve as a way to alter the landscape of these coins since there will be other options. Also, by enhancing the sophistication tied to HBD, such as with Hive Bonds, we move things to a completely new level.
If Not Hive, Then Who
The natural tendency is for people to stand around waiting for others to do things. Here is where we encounter a major problems in cryptocurrency. Few projects are being set up as decentralized. In fact, that is not the desired outcome.
We have billions in venture capital funding flowing in. This is not in alignment with decentralization.
Cardano, EOS, Ethereum, and Tron all have major centralization issues. None of them are being set up to provide a resilient base layer. To show how bad things are, Block.One already paid a fine to settle with the SEC. If you can do that, it is not decentralized.
Hive is one of the few out there with any hope. Fortunately, there are a number of people who believe in the concept of building decentralized systems using open source software. They are not really concerned with making themselves a boatload of money although, if their stake is high enough, they will do rather well.
Instead, they are driven by other motives. The ability to airdrop to Hive holders instantly removes the tendency to have a founder's stake. We saw this on a couple of occasions and other projects would be smart to follow suit.
Part of the excitement with some of what is taking place on the second layer is the fact that we see a decentralized node system emerging. If we tie that to the base layer of Hive, we have two layers where there is no overt control. Again, this is something we do not see out there.
So while many want to scoff and overlook Hive, those within the ecosystem should realize the onus that is upon us. This is not just some little blockchain that has no meaning. Actually, the opposite it true.
When it comes to decentralization, Hive is the leading candidate to make a difference. With the second layer infrastructure that is presently under construction, we will be able to leverage the network effects just like the centralized entities are doing.
We already do it with long-form blogging. Soon we will be adding microblogging and finance to the list.
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It kind of makes you wonder why they don't just try to make a new classification for crypto instead of wasting so much time arguing whether it is this or that. If they had just put that energy into calling it something new and moving forward we would all be better off. I agree about it being hard to think decentralized. We just weren't wired that way for so many years.
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It is surprising Ethereum is becoming a centralized chain, aside Bitcoin and Hive I don't know of any decentralized blockchain put there, to alter the way things are currently with centralized entities we need to start seeing an increase in decentralized blockchains.
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There is indeed decentralized thinking in the crypto space because many people are still trying to mirror the old model into this new model.
Hive is surely leading the way in decentralization, holding the torch. We just have to make sure the fire keeps burning. Binance and friends have lost the way and are bad examples.
With the power they are wielding, they would then try to dictate the 'standard laws' for cryptocurrency.
Man, I love reading your articles, it's always a great opportunity to understand a little more about all this. I think everyone here on hive should follow your content.
In the link to Internal Exchange, the definition has
The internal exchange is a decentralized exchange (DEX) on the Hive blockchain. It is part of the base layer code. Here is where people are able to swap $HIVE for HBD and vice versa. It does use an order book similar to centralized exchanges.
There are no transaction fees associated with trades occurring on the internal exchange.
But isn't there a loss of 5% when converting Hive to HBD on the internal exchange? While that isn't a transactional fee, isn't there a cost of 5%? So, the net on the first year is 15% APR, not 20%?
5% fee is on conversion from Hive to HBD, not on internal exchange.
Internal exchange is when you place an order and wait for it to be matched with opposite order from other people. Your existing Hive is sent to the other guy and his existing HBD is sent to you.
On the other hand you can convert Hive to HBD without involving other people, however you pay 5% fee for it (just Hive-to-HBD, HBD-to-Hive conversion has no fee). In the process you burn Hive and print new HBD. Their respective supplies change.
Thanks. I appreciate the information. Where is the internal exchange located? Is that like Tribaldex?
On the blockchain obviously, you interact with it with use of
limit_order_create_operation/limit_order_create2_operation, but I'm pretty sure such answer would not be satisfactory :o)It depends on what wallet you are using. When I need to use internal exchange I do it on https://wallet.hive.blog/market but I'm sure there are other tools that give you access to that exchange.
This was very helpful. I've been doing it inefficiently for a year. I appreciate the link. I bought and sold Hive and HBD without any problems at the link you provided.
decentralisation, as a concept, needs to be deeply explored and understood for most people to feel about it in ways that they value. partly, this is because they have been conditioned to feel that centralisation of power is a good thing for everyone and party, they do not think of decentralisation as implying power. decentralisation needs to be understood as the empowerment of all who take part, making a whole that is greater than the sume of it's parts and also greater than a centralised equivalent which is dominated by the few.
Interestingly, the false left/right paradigm that is inserted into politics at every opportunity by those of limited capacity for reason and those who deny reality out of convenience, gives us simple ways to sell decentralisation to all involved. The 'right' mindset of personal empowerment is satisfied by the way that decentralisation gives every person an avenue to build power. The 'left' mindset of strength through unity is also satisfied by having defined ways of forming consensus that everyone can participate in adjusting if they are inspired to do so.
In actuality, we need center. Not an imaginary center that takes no action, but the balance of personal and group interests. This balance has never been found on Earth but it is possible to achieve. A key part of the process relies on all voices being heard, which is a huge part of why Hive offers so much potential. Hive's uncensored capacity for structuring human consensus provides a combination of key puzzle pieces that are rarely found together. Humanity needs to catch up to what the technology is making possible here.
Interesting thoughts. I just wrote on decentralized and centralized systems, we are amazingly centralized in this decentralized space. But there are exceptions, and we are currently one of them.
It’s amazing how cryptocurrency concerns move toward greater centralization as they grow, as if that’s all they know, or it’s all the experts they hire know.
We need new experts, raised in this space, not the tradfi space to help us move forward.
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I don't understand one thing. Is it really all that different from centralized exchanges to use LPs of wrapped assets? Internal market is truly decentralized. I get it that wrapping assets on other blockchains can leverage on the host chain popularity, value of its native coin and possible existence of other wrapped assets to trade with. The trading itself might also be considered decentralized. However just like on centralized exchanges there is still a single point of failure - gateway. Failing gateway can pull the value of wrapped coin to zero. Gateway can also undergo maintenance or "technical difficulties", change its fees at any moment or start to require KYC and whatnot without prior notice. A lot of gateways failed on BitShares for example.
Ok, one thing is better - it is technically a lot harder to introduce unavoidable selective censorship. Centralized exchanges can stop handling just your trades and exit requests.
Amen to that!
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ETH moving to proof of stake meant that it would become more centralized. I just don't really know if decentralization will happen anytime soon because most people aren't just use to the crypto scene. From what I see, I just don't see people understanding keys and how they are use to the forgetting password system.
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This post have points to recon with, keep the flag flying.
HIVE survived two bears and Sun. The SEC ain't got shit on us.
I don't understand why our core dev team is not building this out? This along with a core marketplace would be a HUGE move for hive in general and since no one else seems to want to do it on their own why not take core dev time out and build these featured? It would be a huge boost to adoption of hive and use cases on a all new level instead of all these other odd and end things.
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