# cole_haus

1117Joined May 2018

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Matt Levine suggests that the key problem is accepting your own stock as collateral:

Now let’s add one more crypto element. If you are a crypto exchange, you might issue your own crypto token. FTX issues a token called FTT. The attributes of this token are, like, it entitles you to some discounts and stuff, but the main attribute is that FTX periodically uses a portion of its profits to buy back FTT tokens. This makes FTT kind of like stock in FTX: The higher FTX’s profits are, the higher the price of FTT will be. 8 It is not actually stock in FTX — in fact FTX is a company and has stock and venture capitalists bought it, etc. — but it is a lot like stock in FTX. FTT is a bet on FTX’s future profits.

But it is also a crypto token, which means that a customer can come to you and post $100 worth of FTT as collateral and borrow$50 worth of Bitcoin, or dollars, or whatever, against that collateral, just as they would with any other token. Or something; you might set the margin requirements higher or lower, letting customers borrow 25% or 50% or 95% of the value of their FTT token collateral.

If you think of the token as “more or less stock,” and you think of a crypto exchange as a securities broker-dealer, this is completely insane. If you go to an investment bank and say “lend me $1 billion, and I will post$2 billion of your stock as collateral,” you are messing with very dark magic and they will say no. 9 The problem with this is that it is wrong-way risk. (It is also, at least sometimes, illegal.) If people start to worry about the investment bank’s financial health, its stock will go down, which means that its collateral will be less valuable, which means that its financial health will get worse, which means that its stock will go down, etc. It is a death spiral. In general it should not be possible to bankrupt an investment bank by shorting its stock. If one of the bank’s main assets is its own stock — is a leveraged bet on its own stock — then it is easy to bankrupt it by shorting its stock.

I haven't had a chance to look at this in detail but it may be interesting at some point to compare this with my earlier attempt: Uncertainty and sensitivity analyses of GiveWell's cost-effectiveness analyses

Note that there have been some independent uncertainty and sensitivity analyses in the past:

Also, I think there's a third way that this drawback might not apply

Yeah, I thought about that and meant it to be included (somewhat sloppily) in the "closely aligned" proviso.

Or like shifting your beliefs and arguments in worse ways to match the incentives on the Forum?

I think things like upvotes and comments here provide multiple incentive gradients which seem possibly harmful. For example, I think based on a vague gestalt impression that the Forum tends to:

• Encourage confidence and simplicity over nuance at some margin less than the IMO optimal
• Disproportionately reward critiques and "drama" of a certain sort
• Discourage highly technical content
• Encourage familiar content and content areas

Many of these claimed problems are very understandable and seem hard to avoid in this kind of setting. People like things they're familiar with (looseley: https://en.wikipedia.org/wiki/Mere-exposure_effect); understanding and evaluating highly technical content either demands more time from readers or outright limits the audience size; if you don't have the expertise to evaluate and contextualize claims, confident claims seems more informative than cautious ones; etc.

Obviously, my claims here are pretty subjective and fuzzy and others could disagree.

This maybe could be assimilated under "opportunity cost", but I think a major potential downside is skewed incentives. To avoid that drawback you'd either have to believe that posters mostly aren't influenced by the mechanics of the Forum or that the mechanics of the Forum are closely aligned with the good.

Nondogmatic Social Discounting seems very loosely related. Could be an entry point for further investigations, references, etc.

The long-run social discount rate has an enormous effect on the value of climate mitigation, infrastructure projects, and other long-term public policies. Its value is however highly contested, in part because of normative disagreements about social time preferences. I develop a theory of "nondogmatic" social planners, who are insecure in their current normative judgments and entertain the possibility that they may change. Although each nondogmatic planner advocates an idiosyncratic theory of intertemporal social welfare, all such planners agree on the long-run social discount rate. Nondogmatism thus goes some way toward resolving normative disagreements, especially for long-term public projects.

I think this post unhelpfully mixes general, systemic criticisms around innovation, public goods and IP (which I'm very interested in and sympathetic to) with the "news hook"—COVID vaccines. It strikes me as incredibly unlikely that we'll determine and shift to a better solution in the current crisis. I think the most likely outcome of action here would be to shift us out of the local maximum but not into the global maximum. I think a proposal of an alternative system, an analysis of its cost and benefits relative to the status quo , and a plan for how to get there from here would receive a very different reception.

Somewhat related:

The Limitations of Decentralized World Redistribution: An Optimal Taxation Approach

A centralized scheme of world redistribution that maximizes a border-neutral social welfare function, subject to the disincentive effects it would create, generates a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast, an optimal decentralized (i.e., with no cross-country transfers) redistribution has a miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution.

Actual foreign aid is vastly lower than the transfers under the simulated world income tax, suggesting that voluntary world transfers—subject to a free-rider problem—produces an outcome that is consistent with rich countries such as the United States either placing a much lower value on the welfare of foreigners, or else expecting that a very significant fraction of cross-border transfers is wasted. The product of the welfare weight and one minus the share of transfers that are wasted constitutes the implicit weight that the United States assigns to foreigners. We calculate that value to be as low as 1/2000 of the value put on the welfare of an American, suggesting that U.S. policy is consistent with social preferences that place essentially no value on the welfare of the citizens of the poorest countries, or that implicitly assumes that essentially all transfers are wasted.