MEV as a topic has had a decently large following in crypto since last year when it really started to come out of the dark; however, of course, MEV has been around for a lot longer than that. There is its long history in crypto, but also, as an abstracted concept, its much longer history in traditional finance. Given that history, the intellectually stimulating discussions around MEV, and the alluring monetary rewards, there have been several thoughtful research papers, posts, podcasts, and threads authored on the subject. I have found repositories like these helpful in aggregating such reading material. Now with all this out there, why should I offer a written piece as well? After all, it would be inefficient to summarize one of those arguments when the authors in this space tend to have a solid grasp of the subject and some impressive qualifications. That being said, I’d like to talk about MEV as it is seen from a supply chain analysis standpoint, hopefully offering something more unique than the average MEV piece. I believe that understanding MEV through this lens unlocks some interesting future scenarios and key questions, which as an investor in the space, can be valuable to constructing theses.

Two of the biggest tech buzzwords are in that title — cloud and blockchain. Apologies, I don’t mean to start the piece off with a lame hook, but while people have drawn comparisons between the two in the past, I am of the opinion that some potentially strong parallels have yet to be explored. Cloud infrastructure, as a simplistic concept that entails a lot of complexities beneath it, has been instrumental to taking software, technology, and the economy to where we are today. Even with the immense progress witnessed, and perhaps manifested by the stock prices of the big 3 (Amazon, Microsoft, Google), I believe we still have quite a way to go in this technological era.

What can you learn from a person who built one of the largest, most innovative, and dominant companies in American history? Frankly, way too much to cover in one written piece like this; however, after spending the afternoon reading through each and every one of Jeff Bezos’ annual shareholder letters, I could not help but share some snippets (sentences, paragraphs, events) that stood out. Below, you’ll find pieces of wisdom and advice from each of his letters spanning the years 1997 to 2020 (his last one).

Original Date of Writing - 06/30/22

Emerging from a deep read of Ray Dalio’s Principles for Dealing with the Changing World Order (specifically Part I), I couldn’t help but draw connections to what might be one of the timeliest combinations of long-term trends: the ending stretch of the long-term U.S. debt cycle and the rise of programmable store of value assets (namely Bitcoin and Ethereum \*to date\*). The rise of BTC / ETH in the coming years / decades has a strong probability of coinciding with the accelerating devaluation of U.S. currency and debt, tremendously increasing its appeal as the backbone of the next monetary system.

In August of 2020, Ali Yahya authored a great thread on what he termed the “network flywheel”. Given that blockchains are open and permissionless, they cannot really create defensibility the way traditional companies do (via the privileged access to some resource or the pseudo-ownership over one side of the network (Ben Thompson & super aggregators)). However, they can create defensibility through the proliferation of a vibrant community, set of miners / validators, contributors, and some investors / speculators. Overall, Yahya details the construction of the following network flywheel, which is paramount to a blockchain’s success:

The figure above captivated me while reading The Dao of Capital, a poignant name for a reader in the crypto space (and no, it is not about DAOs). The image is inspired by one shown in the book, which is subsequently devised from the original ideas of Eugen von Böhm-Bawerk, a notable Austrian economist and later Minister of Finance. It is used to illustrate his metaphor of a tree’s growth as representative of an economy. A crosscut analysis of a large tree trunk reveals several rings in a pattern of concentric circles. Every ring represents a year of the tree’s growth and resource allocation. The key concept here is that the tree in Figure 2 above will be weaker than the tree in Figure 1.

The lego stack / tower has been a captivating framework amongst those in DeFi. The basic notion is that several DeFi protocols can be combined in the form of a stack to provide different financial services. At the center of these combinations is the principle of composability, which dictates that protocols’ interoperable nature allows them to combine seamlessly. With the ease of protocol composability, product innovation can materialize via the combination of lego blocks.

In late 2008, an anonymous figure by the alias of Satoshi Nakamoto published the first Bitcoin whitepaper.\[i] While it would take some years for this paper, and its subject Bitcoin, to become mainstream, the seeds of a workable digital currency were sown. In Bitcoin, the world finally had a trustless, P2P, digital currency that worked. However, as the years passed by and activity on the Bitcoin blockchain grew, the thesis of Bitcoin fulfilling its intended destiny as a global online currency began to crack. Simply put, Bitcoin could not handle high transaction throughput and it was too volatile to serve as a medium of exchange. In 2014, a superior form of digital currency emerged from the Bitcoin community: the stablecoin, a digital token that is representative of a real-life currency unit. From 2014 up to today, the use of stablecoins has increased exponentially and parties ranging from financial regulators to banks to consumers are beginning to feel the effects of an innovative technology that most have yet to fully understand. While stablecoin technology can be frightening, and does come with a new set of risks, its potential for impact is significant, especially in the case of the global economy and society at large. This brings me to the purpose of this post, which is twofold. Firstly, this post will detail an argument for the utility of stablecoins, their benefits, and how those benefits stand to be greater than the drawbacks. Secondly, this post introduces a discussion around potential regulatory approaches to centrally issued stablecoins and proposes a high-level regulatory framework that addresses stablecoins in a thoughtful and innovation-friendly way.