Hello EOS friends, a commentary about the state of affairs of traditional finance and how defi will change the world.
Ten years ago I was a quant on the trading floor at Harvard’s endowment (a place where one washes their hands BEFORE peeing). On the eve of the collapse of Bear Stearns, I remember one trade in particular on the CDX.IG index tranche (a synthetic CDO basket of 100 credit default swaps, and combined with an equity tranche position was DV01 neutral, so a type of carry trade) that was sized at $1,000,000,000.00 notional exposure. Our eyes set upon the P&L on that total position which was down by $100,000,000.00. The desk was stunned for many moons with nothing to do but wait for it to hopefully come back.
Two comments. First, this memory triggers thoughts of a traditional banking system that relies on trust above all else, and when shit hit the fan the trust evaporated and nobody would trade with anyone or honor their commitments; positions in CDO’s broke down when trust broke down. Second, at that time Basel II was in fashion and banks were allowed to self report their risk to regulators with so-called internal models. Managers in those banks under reported risk as they sought to maximize short term personal incentives like year-end bonuses. Lack of transparency is a cancer in the status quo of traditional finance. In response regulators switched to basel III which basically set a blind flat RBC limit across all banks regardless of their actual risk exposures, an economic dead weight loss, super inefficient; a non-solution.
When I see the word defi I understand it to mean trustless and transparent. VIGOR stablecoin at https://vigor.ai is building the most essential fundamental first building block on top of which will rest all of distributed finance. VIGOR is our decentralized stablecoin on the EOS blockchain. We understand there exists a responsibility, a burden even, to invent and engineer this with the thoroughness it deserves. We hope you will read our whitepaper and join us. We are building this as an open source project organized as a DAC (decentralized autonomous community) inviting the community to come build with us. Accept no imitation or cheap knock-off….. Join us…
Written by stuffedshirt, AndrewPBryan (Vigor.ai)
member client: https://vigor.ai
- Original Medium Post here