Pinned Tweet
A major unforced error in crypto is treating technical dashboards as financial dashboards. Nowhere is this as obvious as with TVL of lending protocols. TVL is NOT a substitute for accounting!
Let’s look at TVL defined as “Value of all coins held in smart contracts of the protocol”, and how it would treat a bank with the following balance sheet:
Deposits (a liability): $100m
Loans (an asset): $80m
Reserves (an asset): $20m
Equity: $10m
The TVL of this simplified balance sheet would show up as:
$100m deposits - $80m loans + $10m equity = $30m TVL
Does that feel accurate to you? It should not, because it structurally undercounts economic activity.
In fact, TVL - a technical metric - is treating the bank’s largest asset (its loan book) as a liability and largest liability (its deposits) as an asset!
The problem is one of using the wrong tool for the job. TVL counts how many tokens are in a smart contract or group of affiliated smart contracts. That’s it. In its most simple form, TVL is mostly just counting the reserve ratio of the bank (or lending protocol).
TVL is not a substitute for actual accounting, and people need to understand this.
A deposit on Aave/Morpho/SparkLend/Compound/Euler/Curvance is a liability to that protocol or pool. You could put $1 trillion in deposits onto one of those platforms and TVL would become $1 trillion. But that’s not an indication of economic activity!
Now imagine $999.999 billion of that got lent out. TVL has crashed from $1 trillion to $1 million. Looks bad on a chart, right? But now we’re seeing economic activity!
There is a reason why TVL is not used outside of crypto - it is a technical metric, not a financial one, and any overlap is coincidental and concentrated in very basic protocols like DEXes.
People do understand that a bank deposit is essentially a CDP stablecoin, yes?
That’s why vanilla banking is an *ok* business but compliant stablecoins are lukewarm at best. It’s the operating leverage.
Well, we should probably distinguish between two different advantages a bank has: balance sheet leverage and entry demand.
Lending vs land, for example, not only provides the former but also a way for their “stable” to be born that’s not from surrendering a dollar.
My calculator to show how many workers it takes to pay for a your social security benefit was popular (beyond just Twitter).
But there’s an inverse I wanted to explore: older people paying local property taxes.
What I found was unexpected!
whopaysformycheck.org/proper…
I made a calculator for people to understand how the lack of kids breaks the system
whopaysformycheck.org
…doesn’t tell you if the treatment is because of senior relief specifically or other special tax treatment (e.g. California’s sweetheart property taxes are based on length of occupancy which correlates with, but is not explicitly for, age)
You can use the new page to see what the share of homeownership and property taxes paid by ages (55 to 80+) in your own state and/or Census unit:
whopaysformycheck.org/proper…
PaperImperium retweeted
What do you do with vast quantities of old paper currency? East Germany decided to bury it.
After unification, 100 billion East German marks were entombed in old Nazi-era tunnels dug with concentration camp labor.
The cash was safe (so they thought)
familytreeofmoney.org/storie…
This is the trouble with banks. It’s a lot like railroads - it’s good to HAVE a railroad, but not a great return to build one from scratch today.
The business fundamentals tend not to be so amazing you’re dying to build from zero.
Newly chartered banks, such as Erebor Bank, Openreserve and Augustus, will likely have to keep raising money as they grow to maintain the capital cushion they need to satisfy higher regulatory requirements
theinformation.com/newslette…
I was discussing this today with someone, and my firm belief is the big money in tokenized stocks is NOT cowboys wrapping shares on their own. It’s being the officially sponsored issuer.
You see this in ADRs. BNY and Deutchebank dominate.
I’ll try to steelman the opposition position:
RH tokenized stocks are probably disliked for the same reason non-sponsored ADRs are disliked: the company’s name is on something it didn’t authorize and doesn’t do things like revert unvoted shares to management control.
The new (not old EU swap-based) RH tokenized stocks do not pass beneficial ownership, and are a debt instrument with exposure to RH itself potentially. Ondo put their backing into an SPV that’s designed for bankruptcy remoteness but the Jersey-issued RH tokens do not appear to be claiming remoteness from RH’s creditors that I’ve seen. Please correct me if you have seen otherwise.
So from AMC or another company’s view, you have people who view themselves as shareholders, but are not actually shareholders holders. The RH tokens feel closer to a Contract-For-Difference.
Legally, I suspect RH is right that everything is meeting the letter of the law, but from the public company’s perspective, the tokens create a big blast radius for you via vanilla creditors of Robinhood thinking they are owners in your company.
⬆️ That’s the steelman I’d construct for AMC et al. I think it breaks down if I’ve misunderstood how this generation of RH tokenized stocks are structured
PaperImperium retweeted
I made a calculator for people to understand how the lack of kids breaks the system
whopaysformycheck.org
Why are there no onion perps? It would offer an actual use case that’s blocked by the ban on onion futures.
Seems perps platforms could be a white knight for a real (niche) area of market repression.
PaperImperium retweeted
Before Benjamin Franklin’s face was on the $100 bill, he was making colonial money harder to fake… by using leaves.
A 1764 Pennsylvania note used intricate leaf veins, along with a less subtle security feature:
“To Counterfeit is DEATH.”
familytreeofmoney.org/storie…
What’s new in DeFi and CeFi that I might have missed?
Can be a complete product or even just a feature. (Just… no announcements of a Uniswap hook that recreates Old Tech from more than half a decade ago 🤪)
Shill me your interesting new projects, products, & features
PaperImperium retweeted
In 1711, Osaka audiences watched a young courier ruin his life by tearing open a packet of gold. The play was Meido No Hikyaku (The Courier for Hell in English).
familytreeofmoney.org/storie…
PaperImperium retweeted
A duck egg once cost $5,000 Taiwan dollars.
Taiwan’s dollar began in 1946, after Japanese rule ended. The Bank of Taiwan issued dollar notes to replace the oldTaiwanese yen still in circulating.
Within 3 years, prices had risen sharply. By 1949, a duck egg cost 5,000 dollars.
