“FTX/ Defi: If it looks like a duck and quacks like a duck . . . Sam Bankman-Fried explains “yield-farming” to Bloomberg.” was the latest headline by the Financial Times aimed to gain clicks from cryptoheads (and BitcoinNews.com writers alike).
However, FT journalists did not condescent to argue. They simply printed the transcription of Sam Bankman-Fried’s appearance at Bloomberg’s podcast “Odd Lots”.
The world can be divided into two groups, those who want money they can use to regain freedom from the tyranny of banker-controlled currency, and those who want to use it to make even more banker currency for themselves. Some of us fall into both categories!
It could also be divided into those who understand the disruptive economic implications of Nakamoto’s white paper and those who do not. Those who do not are easy targets for all kinds of craptocurrency and kleptocurrency. Stuff that sounds really amazing but in reality is just another seignorage scam with an uncertain future.
Both The Financial Times and Bloomberg have shown that they are rather indifferent about the truth. Or they believe their readers will easily figure it out by themselves.
The duck test is a form of abductive reasoning. This is its usual expression:
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
The test implies that a person can identify an unknown subject by observing that subject’s habitual characteristics. It is sometimes used to counter abstruse arguments that something is not what it appears to be.
DeFi is promising to allow the full removal of third parties from financial transactions. Sadly, like “the cloud” (just other people’s computers) what is being presented by many as some kind of highly advanced, sophisticated mechanism, is not “decentralized” at all. Nevertheless, influencers can make a decent living out of “explaining” how all the mumbo-jumbo works.
Sam Bankman-Fried now exposed the entire scam to Bloomberg journalist, Matt Levine. In an interview along with other Bloomberg staffers, Levine asked him to explain how “yield farming” (fancy term for staking coins to get interest) works. Here’s a condensed version of his reply:
“Let me give you a toy model of it. You start with a company that builds a box and they dress it up to look like a life-changing, world-altering protocol that’s gonna replace all the big banks in 38 days or whatever. It’s just a box. So what this protocol is, it’s called ‘Protocol X,’ it’s a box, and you take a token. You can take ethereum, you can put it in the box and you get an IOU and then you can redeem that IOU back out for the token.
X token promises that anything cool that happens because of this box is going to ultimately be usable by governance vote of holders of the X tokens. They can vote on what to do with any proceeds or other cool things that happen from this box. And of course, so far, we haven’t exactly given a compelling reason for why there ever would be any proceeds from this box, but I don’t know, you know, maybe there will be, so that’s sort of where you start.”
He goes on to describe how the price is pumped up and confidence gained merely because other people are putting money in the box, a self-reinforcing process once it has started. An essentially worthless token magically becomes a dollar-making machine.
From the questions of the interviewers, it’s clear that they see Banks’ view as very skeptical, while it’s unclear whether they finally accept what he is saying, despite being unable to logically dispute any of it. At the end of the Bloomberg article we get a conclusion:
One takeaway from this whole conversation is that DeFi might be more similar to Bitcoin than a lot of people thought, deriving its value from collective agreement that the ‘thing’ (in this case the box, or yield-farming protocol) is worth something rather than deriving value from a fundamental usefulness.
Despite all Fried’s efforts, his interviewers seem to have entirely missed the point. Instead they try to include Bitcoin in the description he just gave them of Proof of Stake and other centralized coins! Bitcoin does indeed derive its value from a fundamental usefulness: the usefulness of being used as a store of value and global, immutable settlement layer.
There is bitcoin and there are shitcoins and yes, it’s not easy to understand the difference. Bankman-Fried benefits from the confusion as its good business to get liquidity on his exchange for the promise of yields. But how it actually works, doesn’t seem to matter. He’s not able to explain it and FT can’t comprehend. It’s a win-win.