Andreas Park PRO
Professor of Finance at UofT
Instructors: Andreas Park & Zissis Poulos
Rotman – MBA
A tumultuous 12 months
The NFT Boom
The NFT Boom & Crash
The Terra Implosion
UST Stablecoin
LUNA (cryptocurrency of the TERRA network)
A timeline
May 7: selling pressure on UST from Curve withdrawals
May 12: LUNA and UST at $0.01
June 27: Three Arrows Capital ordered to liquidate
June 12: Celsius Network suspends withdrawals
July 13: Celsius files for Chapter 11
July 6: Voyager Digital files for Chapter 11
July 4: Vault suspends withdrawals
Three Arrows Capital lost >60% of value and faces numerous margin calls that they did not react to
The Aftermath:
is crypto dead or dying?
Cryptomarket Crash
bitcoin
ETH
-70%
-60%
Consequences of the Crash?
Some Questions
Are blockchains no longer used?
transactions on Ethereum flat
Is crypto-investing dead?
crypto market follows traditional market
Is crypto trading dead?
trading volume on exchanges lower but steady
Are markets dead?
no meaningful net outflows from exchanges
Other consequences?
Challenges
Source: Cambridge Bitcoin Energy Consumption Index https://cbeci.org/
Usage
Network | DApps | Dollarvolume |
---|---|---|
Ethereum | 3,500 | $40-50B |
Solana | 100 | $2.5B |
Binance Smart Chain | 250 | $3B |
Avalanche | 400 | <$.5B |
EOS | 300 | <$100M |
Algorand | 12 | <$20M |
Ethereum Challenge 1: Environment
transactions per second | T per 12 hours (business day) | |
---|---|---|
Bitcoin | 7 | 302,400 |
Ethereum | 30 | 1,296,000 |
Algorand | 2000 | 86,400,000 |
Conflux | 4000 | 172,800,000 |
Athereum | 5000 | 216,000,000 |
Payments Canada ACSS | 648 | 28,000,000 |
US retail | 7639 | 330,000,000 |
Canada number of equity trades | 46 | 2,000,000 |
Orders on Canadian equity markets | 3588 | 155,000,000 |
Tweaks: lighting network (BTC) or side chains, SegWit, blocksize possible, but there are limits
microtransactions, IoT, and other smart contract use cases place very high demands
Ethereum Challenge 2: Throughput
Ethereum Challenge 2: Throughput
Source: Etherscan w re-scaling
Ethereum Challenge 3: State Size
Source: Ycharts
Major Ethereum Tech Upgrade: The Merge
scheduled date: September 13
Hacks, Thefts, and Exploits
Common Reasons: hacks, faulty code, tricking a protocol
5-minute version:
What is a blockchain?
blockchain=
an infrastructure for digital resource transfers
5-minute version:
What is a cryptocurrency?
cryptocurrency =
internal payment mechanism to pay for operation of a blockchain
5-minute version:
What is Decentralized Finance?
decentralized finance =
provision of financial services without the necessary involvement of a traditional financial intermediary based on blockchain technology
in practice: new financial infrastructure that will be a common resource
payments
stocks, bonds, and options
swaps, CDS, MBS, CDOs
insurance contracts
\(\vdots\)
Source: Harvey, Ramachandran, and Santoro (2020)
FinTech
DeFi
innovation vs. salesmanship
main focus
Silos vs Common Infrastructures
Change ledger entry locally
Sue's bank transfers from Sue's account to Bob's bank's account
Bob's bank transfers from its account to Bob's account
Sue's bank transfers from Sue's account to its own account
Bob's bank transfers from its account to Bob's account
Central Bank
Central bank transfers from Sue's bank's account to Bob's bank's account
Sue's bank transfers from Sue's account to its own account
Bob's bank transfers from its account to Bob's account
use the Swift network of correspondent banks
very complex
many parties
lots of frictions and points of failure
very expensive
How does it all work and why?
Future of Crypto: Regulators
United States
Most relevant case for FIs: Tornado Cash
Need for Regulation
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
By Andreas Park
This is the slide deck that I use for a quick introduction to the Decentralized Finance class.