 I'll start a recording and I'll start my video so that you can see what it looks like on a cloudy day in New York. Two things before we start one is of course the fact that we are part of the Linux foundation. And hence we need to abide by the antitrust policy. The other is about treating each other with the respect even when we happen to disagree with something somebody says we can always debate and talk about stuff rather than call each other names. So with that, I'm going to start this presentation. I'm going to share my screen. You got to tell me whether you can see it or not. That is my screen. Yes. I'm going to go into slideshow. So this is meant to be a discussion in that in the sense that you are welcome to ask questions and to participate and to comment. So, I want to talk about the themes that we are going to talk about today, which is one is about minceki himself, Hyman minceki contributions and some of the things about minceki moment. And some timeline of the text collapse and contagion and hopefully the remedy or the antidote, which is still being formulated. So, what is minceki contributions he reinterpreted the teams for the modern age. Well, not really the modern age because he died in somewhere in the 80s or 90s. I don't know exactly when. The main view was against classical market view, which is basically consists of two things that water now proposed, which is that the participants are infinitely selfish and infinitely far sighted. But Poincare, objected to this right in the beginning he said that I can allow you in China selfishness, which is maximization of utility, but not infinitely far sighted, which is the crux of all the financial problems that we have seen so far. That means people forget and people projecting to the future, the present and see a rosy picture, but really speaking, there are problems, always bubbling under the surface. So, the classical view of markets is that the markets are efficient, and the economy is an equilibrium seeking and self sustaining system. But means he says, this is not true. He was ignored. For a long time, but then came into prominence during the 2007 2008 crisis because his words were proved sort of prescient. It's not prescience. He's, he's a student of history and of human behavior in a certain sense. And that's why he's accurate, not because he's a prophet, and can see into the future. We can see into the future because we use common sense to a certain degree, and we do not attribute to ourselves in finite far sightedness. We do not say, I'm a Bitcoin maximalist. I'm a financial sector maximum maximalist. I'm a bond maximalist, anything of that sort. We act with a view to the past, but knowing that the future is unknown. So, that is the main takeaway from min ski but I can go a little deeper into what he actually said. So there's empirical evidence. I mean, obviously, we are starting in 1873 but the empirical evidence stretches far behind before all of this. There are many crises. And there is the crisis of 1873 1893 panic of 1907 of course everybody knows about the Great Depression. In 1766. So there's a long period between 30 and 66. So everybody thought oh now the era of financial crisis is over because we have had 20 or 30 years of stability, but obviously, for those who forget 1873 financial crisis is never, you know, can never be said to be handled properly. So, you know, he goes through empirical evidence saying that okay these are all the different crisis. We have heard of bank runs, the one on the left is the familiar figure, which has happened in the United States with depressing regularity. But on the right is what happened in Lebanon, for example, you know, which is just a year old, and there have been runs, even in 2022. 2022, especially with respect to Russian banks, it's better bank in Czechoslovakia. Other instances. So the runs are with us. And we will see what is, you know, obviously everybody kind of knows what a bank run is, which is basically all the depositors clamoring to get their deposits back at the same time or in a short period of time. Since bank reserves are not 100%. That can cause tremendous problems. But in the case of the United States, bank runs are not that common. The main reason maybe the provision of the FDIC insurance and people are getting used to the fact that FDIC will back a regulated bank, you know, up to a, I think it is 150,000 and 250 for a joint account. Most people do not have more than that in a regular bank account. So they are pretty much complacent, even if they hear that the banks are in trouble, they're not all going to rush to the bank, either physically or virtually to look at to, you know, withdraw their funds. The thing that happened with FTX is of course, characterizes a bank run, even though FTX was not a bank, but it's basically a customers who had short term demand deposits of some sort like immediate deposit, like a money market or a, you know, term deposit, all running to the bank and all running to FTX to withdraw their money. So the main contribution that Minsky made, which is even today, irrelevant even today, is says that that he is looking at economy as a capitalist economy with expensive capital assets and a complex sophisticated financial system moving through time. Moving through time is important because today everything looks good, but what about tomorrow and the day after tomorrow. And that's what we are to be concerned about. And so the normal investor action is where the present money is exchanged for future money, future money in the sense it is a debt to be paid back in the future with interest. It is an investment in something that will yield future returns. So in both cases, it's looking at the future to come up with a, you know, with a case for investing today. And it's supposed to be enthusiasts versus skeptics in this context. Minsky couched that the enthusiasts are the businessmen who are trying to do something productive and the skeptics are the bankers. But it's not just the bankers bank does not mean bank it means anybody who finances deposits, or in any way, participates in the financial life of the country that includes households, governments, international institutions, and other institutions, who may function as people providing credit. So enthusiasts versus skeptics. This is the background. Okay, all this stuff. So, what does he say he says that every day we face a survival or reserve constraint it's a balance sheet operation. I mean, are we bringing in enough money to pay our obligations, either our interest or provision for future payouts. So he divides the types of economic units into three. One is called a hedge. I mean, it might seem similar to hedge fund but they can fulfill all of the their contractual payment obligations by their cash flows speculative can meet their payment commitments to interest but not principle. They cannot pay their interest not principle from cash flows. So how do they exist by bringing in more people investing in them, and they are able to pay the interest by that means. The normal definition of a Ponzi scheme, but this is nothing to do with the Ponzi scheme it is analysis of economic units in the existing economy divided into three by their ability to make to meet their payment today. Today, only today. That means, can they pay their interest. Can they pay. Can they have provisions to pay everything. So, on the one edge, we have hedge and the other edge we have Ponzi. So, there is a spectrum. It goes from hedge to Ponzi. The first theorem is the economy as financial regimes, under which it's stable and financial financing regimes under which it's unstable over periods the second theorem over periods of prolonged prosperity. The economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. In other words, a movement from hedge to Ponzi. This is a characteristic of capitalist systems, according to him, and the instability is baked in because it's based on sentiment. And furthermore, the containment measures, like for example, central bank racing interest rates. During the times of prosperity and the increase in Ponzi schemes will cause more units to move towards the Ponzi and, and the collapse of the formerly Ponzi units in other words, the speculate speculative economic units will move towards a Ponzi unit. When the central bank Titans. And when the central bank loosens economic policy. I mean this is just one way of looking at it right. It also talks about the sentiment in the marketplace. So, there is a definition of a mince key moment is a sudden major collapse of asset values which mark the end of the growth phase of a cycle in credit markets or business activity. The mince key moment is sort of an invention. It is a catchy phrase, but mince key never used it. It is probably a mince key cycle. In other words, it is not just a sudden moment where all this stuff happens, although many people have tried to put their finger on exactly when the financial crisis happens. In our, in our case in the, in the. So, so to back up a little bit, the two phrases that I use cryptos means key moment. I mean the two, you know, yeah, two phrases I can say cryptos. You can't talk about crypto really because the cryptographers often object and mince key moment, as we know, does not exist. It is more of a mince key cycle. So, both the phrases used in the heading of this presentation are wrong. That's kind of interesting observation but that's what's happening. So, according to mince key, it's like breathing the economy goes from a disciplined approach where the money supply goes down or money is tight to where the money is loose, and it expands. So it is almost like the breathing of a giant beast that that might be, you know, it's a natural phenomenon. In other words, so we go from discipline to elasticity and back. It's like, you know, it's a it's a part of the business or the money money cycle. So we bring this knowledge to what happened with FTX and Alameda. Of course, the nexus between FTX. Alameda was not really evident. The extent of the link was not really evident until the whole thing fell apart. But in the course of one week, we have seen that, you know, about nine days. The second, the coin, the Scottical came out saying that the major assets of Alameda is in FTT, and the second was when Binance chief tweeted that he was going to sell about 530 million worth of FTT, which is not supposed to happen in a true crypto economic analysis because it is against his immediate self interest in the sense that if the price of FTT falls, that amount 530 or 580 million dollars would go down rapidly. So no whale in their right mind is supposed to be doing this kind of stuff, but he did it because there were other considerations first 530 million dollars is nothing for him. Second, you want to take revenge on his own SBF. So now you have this phenomenon where, you know, the sales happened. And then of course the Binance drama. Elizabeth is posted that is the intersection in her off of the two lines. We can talk about that in a minute. Offer to buy and then withdraw and then bankruptcy filing. So this has to do with mince key. I mean, okay. My thesis is that when easy money and lots of money sloshing around happens. People are no longer disciplined, including big corporations like so big corporations like Sequoia. Capital. I mean, big, you know, VCs, Sequoia capital, soft bank. Temasek, all of these guys had hundreds of millions of dollars invested in FTX FTX itself was probably playing around with that with that money. It's not just fraud, but obviously, the Alameda research group had lots of different investments, and lots of different assets that were rapidly falling in price. And if you recall, before now in the second, much before now in the second, there was a collapse of Terra Luna, plus, there was the feeling that, you know, easy money had come to a halt. So the assets that they were holding, they're rapidly falling in value. And obviously, when that happens, they do all kinds of stupid things like for example, use other people's money, which is basically the funds and exchanges to try to prop up the value of the rest of the stuff. Is a Minskian fits in with the Minskian analysis, which is, you know, how do you, how do you get supposedly sophisticated people, not doing their diligence and investing huge amounts of money in a operation that is shaky to start with. It's already got problems with respect to the price of crypto assets of Bitcoin, of Ethereum, everything fell by huge amounts in the beginning of the year. And of course, exacerbated by the Terra Luna collapse. And, you know, many other firms, in which fpx had investments, like three out of capital, some of the other organizations, economic units as miss key calls them. were cratering and, of course, FTX and SBF appeared to be a hero by writing to their rescue but it was completely in their own self interest because I think there was a tangled web of obligations and liabilities that would have come to light if they're really crashed. And of course, the aftermath of November 11. We have seen other big corporations under pressure. There is, you know, block five, Genesis, Gemini exchange, and so on. So, what happens, it's a, it's, it's, it's not, you know, there is contagion, of course, in the crypto world, and everybody in the regular centralized finance world is happily sitting there thinking there is no consensus between crypto and centralized finance, but we have seen collapses that are even more spectacular in the centralized and traditional financial world, which is what Minsky was talking about he knew nothing about crypto. But the same analysis can be applied to this. So, what of all these analysis, what is the point. What can we do, I mean is there is there something that can be done in order to to lessen the impact or to prevent such spectacular collapses. And Minsky had some prescriptions for this. You know, I don't know. Okay. So, going back to the FTX and Alameda the Minsky cycle. I had already mentioned most of this. Basically, it is a round trip from elasticity to discipline. The Minsky cycle will come from elasticity going into this discipline, which is through regulation and other ways in which the system can can be sort of counter cyclically handled. By the way, you know, any one of you guys can ask some questions or or interject. Maybe this is a good time for Elizabeth to talk about the Minsky moment in her estimation of the of the green cycle. I think she is. Oh, thanks. Sure, so I was trying to find the Minsky moment in every kind of cryptocurrency I can think of and I'm of course working with carbon currency. And I thought well one day nobody's going to want to buy carbon credits because we will have solved the entire atmospheric problem and we'll no longer be emitting carbon. It's going to be faster than we're sequestering it so I looked at these two charts and tried to figure out okay there's going to be a time when the carbon credit will be valueless just simply because you know no one's emitting carbon anymore there everybody's net zero everybody's climate neutral. And so I looked on these two charts on this webpage that I put into the chat link. And I thought I will have my question is, is this sort of what what you mean by Minsky moment. Not, not exactly, but it is more of a macro economic situation in the sense that money is free, you know money is very loose. So people would put their money into all kinds of projects, including things that are highly speculative. What that causes is rapid inflation or increase in asset values. And then the government steps in or somebody steps in to rain it back, or you get caught out with my people saying, Oh, you know, you don't have enough assets to take care of your liabilities properly, you're a Ponzi. At that point it becomes a feedback loop. And then the collapse happens. And then, according to Minsky, the Ponzi. The ones that are pure Ponzi at the beginning of the site are at the end of the elasticity cycle will disappear will be bankrupt. The ones who are speculative will move into the Ponzi area. And maybe some of the hedge assets will move into the speculative area. When the tightening happens, then, during discipline periods, then the other, the economic units become, you know, more disciplined, more of the hedge economic units appear, and so on and so forth. But his main pieces is that some of these some sometimes these cycles are create some kind of a destructive, you know, like a negative feedback loop. Mainly through the use of leverage, because when multi policy becomes very loose. That will happen anyway Mark, you have something to say. I was just thinking about, I mean how should we let your technology offers it, if properly designed the ability to maybe counteract Minsky, this I think the lesson I was taking and looking at this wasn't just, you know, the, the, the Minsky component but it was the Minsky component by the imperfect information but in, you know, in DLT, I have the opportunity for really much improved transparency and all the sort of risks aggregated into a sort of one visible, visible place if designed that way I mean because here, you know, there was also this backdoor that was sort of not known or not disclosed, not seen in, in a transparent manner that allowed for these funds to go to Alameda that allowed for this accounting to create the illusion that fueled the Ponzi so I was just sort of thinking about how this technology in this case both fostered a perfect Minsky moment but also in thinking on what lessons learned and in designing for better architecture. We could also think on how we could have mechanisms in place for better transparency across the, the stakeholders to a consortium blockchain over thank you. Yeah, I mean, the point is Minsky is not an, you know, not saying that something like he doesn't say that Ponzi is bad, for example, he, he says that that's what happens, because people drop their, they're less guarded when there's a lot of money swashing around. And that operates in every economic situation. But on the other hand, he also talks about the destructive nature of these deleveraging spirals. And further, he proposes certain ways to counter the extreme swings. I mean, you know, he recognizes that there is swings. Minsky is not all negative he's also talking about how to counter counteract these phenomena, how to reduce the resonant effects. In other words, instead of just destroying the entire financial system like almost happen during the Great Depression. These days, it's not happening so much because of some of these things. And what you're saying is correct. That is probably one of the ways in which these swings can be tamed. Right. And which we are going to go into in a slightly different, you know, so there are these antidotes that he has proposed. And I can go and look more at exactly what he means by these, you know, like for example, we can prevent and contain instability that is what we were talking about probably by using a proof of reserves, or some such technique to ensure that we can increase trust in the organization and and keeping the economic unit sort of honest that they do not go into this, you know, like doing all kinds of crazy stuff. What's happening in regular finance, right, I mean, if I am speculating on the price of silver or something. And the price of silver starts falling, I am betting that it's going to go up. And then it starts fall what do I do I, you know, I kind of borrow money and buy more silver to keep the price up. And somebody is willing to, to lend me that money. And that causes bigger and bigger problems because you're basically trying to stop a falling knife. It is a big organization like, you know, for example, we had the guilt crisis. That's also caused by leverage in the British guilt, you know, which are the sovereign bonds issued by by the English people, I mean by the UK government. And that had a kind of a, the price fell, and that caused more selling, which in turn increased, I mean decrease the price even further, and so on, but it is only when somebody with a big bazooka steps up like the Bank of England, and starts buying guilt that the price stabilized. But even then it did not really stabilize until the government that caused that crisis of confidence left. So, I suppose you're talking about proof of reserve. As one of the techniques that can be used. So, here the antidotes are two, which is one is prevent and contain instability and the other is pick up the pieces and fix financial structure after the crash, which is what happened in 2007 2008 when Fed intervened, and then was had lots of different programs to do all kinds of things with respect to being the lender or the dealer of last resort. Unfortunately, we do not have a comparable structure in the crypto markets. We do not have FTC insurance, we do not have a dealer of last resort, providing liquidity. We can do certain things like you just mentioned which is, I suppose you're talking about proof of reserve. But even that, you know, there have been in the actual implementation of that. There have been problems. I don't know whether you want to comment further on that. Mark. I mean, yeah, sure. I mean, it was, you know, it was thinking around proof of reserve but of course that the underlying reserve that the value the sentiment could always could always fall again it gets a bit into the accounting mechanisms, but also in the modeling the sort of stress testing that you see. So that at least the consumer has some awareness as to, or a bit is better informed as to what they're exactly getting into if that is a risky asset or a risky market. So that's sort of known at its onset, instead of in this case where I think people felt they were entering, you know, they were putting money in storage to centralize exchange and found that there was, you know, absconding of funds to other, that then led to the collapse of the of the underlying tokens and of course related tokens because there was the interconnectedness was also not seen to the consumer so it was just sort of thinking about how we can bolster that but it could actually diminish all all risks. Yeah, I mean, it is, it can, there can only be some kind of a counter cyclical force that prevents the, like this particular cycle where the money expands, you know, there has to be a countervailing force that acts when the amount of money increases so rapidly and so huge that there has to be something that brings it back to normal in an orderly fashion. The problem is when it's not orderly, it can cause collapse of the entire system. And that's what, you know, central banks and other, other institutions have been trying to do but in F in crypto, crypto currencies or crypto assets. So much comparable mechanism exists for intervening. After the fact, and no comparable institution of insurance exists. But I think there is some talk about that going on. Yeah, that's what I'm trying to provide. I put in the chat about it. So, so if we were to qualify all of the carbon creditors as being lifetime climate neutral, and then they also have sequester carbon that turns them into creditors instead of debtors as most people are carbon debtors. What we would do is we would be saying that no Ponzi's are allowed in the carbon credit game right now, practically everyone who's selling carbon, so called carbon credits carbon tokens are Ponzi schemes they, you know, their lifetime emitters and then they'll suddenly decide they're going to plant a tree and that would and then sell that as if they're actually haven't they haven't even offset their own emissions yet. So, I'm trying to put together a node requirements and node operators are all climate, they have climate credit, they have carbon credit there. They're carbon neutral and they have credit is in what's it called proof of stake carbon credit proof of authority proof of reserve like you said so that would be pretty much be the same thing as proof of stake if they have enough reserve that they could cover if somebody were to say well you know no I want to sell you back my carbon credit because I have become carbon neutral and so I don't need to offset my emissions anymore here's your carbon credit back, and then they'd actually be able to I don't know how would that work. And this, you know, like I said before, this is a generic macro economic sort of, you know, a theory of concept, but it's also based on empirical evidence. They taught out mince key only when there is some problem like 2007 2008 or some some some failures happening, and so on. It's so even in carbon credits. You know, the problem is a measurement problem right I mean, in the end, it's like a reserve problem. That means, how can I say, where are the standards. To say that I've actually either sequestered carbon of certain amount, or I have created a carbon sink that will last, you know, I don't know how many years but in the case of trees. We know that all the fossil fuel we are burning is really carbon locked up in the ground over millions of years. In fact, probably two or three billion years. So we are consuming that that preserve that is in the ground. And releasing the carbon to the atmosphere. So, you know, it's very clear that even the, you know, in the end it's a measurement problem just like the reserves for FTX or any other organization and there are, you know, so in the case of reserves, we have this very simple diagram, which is basically assets minus liabilities is the equal to the proof of solvency. So how do you prove the assets, how do you prove the liabilities. So it becomes an exercise in creating some kind of a Oracle, I mean chain link as this proof of reserve I didn't want to put that up here because that's not the only way to deal with it, but and plus it may have problems of its own. How do you prove the assets, you know, one of the methods is by saying that I'm going to put all the assets that I have in a bank and basically put it on some kind of a Merkel tree and all the liabilities that I have in terms of the customer accounts. And then aggregate, you know, show that one is greater than the other assets should be greater than or equal to the liability. Otherwise, you're, you're going to have problems. In the case of regular banks, we generate credit in the market assets will never be equal to liabilities because they are only required to keep a certain percentage locked up in reserves. And, you know, they generate money at scale. And actually they are protected through the use of FDIC insurance. So I'm wondering, is there is there a way to create an insurance for, you know, something similar to FDIC insurance for crypto assets. Well clearly every every token would have to be asset backed. The asset that's backing the currency is something more than just the hype. Yeah, but then the pure cryptocurrencies like Bitcoin and Ethereum do not have anything that is backing them. In fact, all these ecosystems like Ethereum is based on in the beginning on some kind of a utility token. To pay for gas or whatever for the world computer. And then, now of course it is exploded into this hundreds, thousands, 20,000 tokens that are not backed by anything. So, I don't know how we can apply these. These principles to, you know, to crypto assets or cryptocurrencies or whatever you want to call it. FDIC insurance stuff has been. Yeah, I mean, there is, Alfonso has asked is there a way to measure speculation, causing instability. Usually it is through a measure of the speed at which prices of stuff of tokens increase without any sort of underlying cause. But, you know, when tokens are generated with no backing assets, and we have a problem. The other, you know, some of the other ways in which you can look at this is to measuring depth of market, for example. You know, you know, to measure liquidity, but these are instantaneous measures. I don't know whether there can be other ways. Does anybody else have any opinion about any of this stuff or am I, you know, so the so the two things that that we seem to need are one is an insurance scheme. Such a talk in balancer protocol to create an insurance scheme using the proceeds that are thrown up from the activity in the DeFi. The other is, but even that, you know, how much depth can it have. And in terms of whether they will have infinite, you know, like FDIC insurance. You know, it's pretty, pretty guaranteed. And the other thing to notice that it doesn't get used that often. It is more of a sentiment play, meaning FDIC, the fact that there isn't FDIC insurance reassures people. And they don't just run to the bank. Every time there is a problem, try to withdraw all their money. So it serves the purpose by not being used that much. The other one is the dealer loss resort or liquidity providers who have deep, who have deep pockets or infinite in the case of central banks. Indogenous money. They have incredible amounts of liquidity which cannot be measured by ordinary people because they can just print money at will. Normally they don't. I mean, you know, most of the money in this economy is generated by commercial banks. So how can, how can those kind of structures be replicated in, or should we only be thinking of those kind of structures? Are there new ways in which we can tamp down this volatility? You know, move in the bus cycles. I have an oracle connecting Python code that searches all through all the databases, including the banks to find out what kind of assets a person really does have before their token is considered asset backed. And then it logs all the changes on the blockchains that everybody knows when somebody who owns tokens suddenly becomes insolvent and then therefore they can go ahead and do their run on the money then before it becomes a big problem. Yeah, I mean that is definitely the way the proof of reserves work with especially the ones that are proposed by chain link. I don't know how frequently one runs those things or is it a constant monitoring. Yeah, I mean I've seen all kinds of, you know, objections. All kinds of like the stablecoin guys, for example, they publish audit every month, which is kind of useless because in one month, the amount of stablecoins issued or or burnt could be huge in proportion to the size of the stablecoin, but nonetheless, this seems to reassure people for some reason. But you're, you're talking about the proof of reserve Elizabeth that have been proposed by outfits like chain link. Yeah, that is definitely there. Marcus said that. Yeah, Marcus said that there is a Chicago plan revisited, which is basically like a narrow bank sort of situation for the stablecoins right. Yeah, I mean, well here I mean it was proposing it for, you know, fully capitalized banking structure so that you're just like you said the most money is made by commercial banks and our current economy. So you could imagine you could apply this to sort of the world of a world of crypto as well and sort of making sure that those are stablecoins are are fully backed. And it also does make sure that the lending is is against the assets of that institution so they sort of become sort of service banks become more servicers of policies for for lending as the lending is ultimately fully capitalized and not fractional reserve lending. I think that is completely unworkable, at least in the current economy. If you look at the balance sheets. If you look at the money supply in the Fed, you will see that the balance sheet, you know the money generated by the commercial banks are in the order of four times or five times, something like $20 trillion because compared to what the Fed has, it's like with the reserves and everything else in the range of five to 10. So, to be then saying that you cannot generate more money than reserves becomes a problem. Right. That means there won't be any credit in the market. Why is how is that controlled by constant monitoring like the Fed, the Fed and the OCC and all these organizations audit the banks at regular intervals and the threat is that they will pull your banking license. If you're, if you're behaving like, you know, at the X behaved for example. But these are all centralized structures so how do you deal with decentralized structures. This is this is a problem. Anyway, we have come to the end of this call but I would be. And the last comment by Alfonso that that if you are a saver. You never sell your hardling. Then it becomes an option to reduce speculation because you're never going to sell never going to buy, and maybe you buy more but never sell, which means the price will keep steady. In any case, it's been a delightful hour. Although we didn't have too many attendees but we have people who are very involved in this conversation. And thanks to everyone, and we will publish this, you know, this recording for what it's worth. We're looking at different ways to reduce the risk. And hopefully there's ways to do. Thank you. And I think I'm going to end the call. Stop the share is always. Thank you. We'll talk in a new year I guess. Sure. Bye bye. Talk to you later.