Dr. Campbell Harvey is a Professor at Duke University where he teaches Innovation and Cryptoventures. He also teaches Decentralized Finance (DeFi): The Future of Finance on Coursera.

He is the author of the book Defi and the Future of Finance, to which Vitalik Buterin wrote the Preface and Fred Ehrsam the Foreward.

He has published papers on finance, crypto, and beyond. His most recent, An Investor’s Guide to Crypto, is available on SSRN, published June 2022.

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Listen to the Recording:

I highly recommend checking out Dr. Campbell Harvey’s course, book, and paper, linked below.

Decentralized Finance, via Coursera:

DeFi and the Future of Finance, the book.

I read the book and specifically enjoyed the coverage of many concepts we often hear about, yet might not have as good of a true understanding as we’d like (burn, mint, bonding curve, consensus mechanisms, portability, oracles, and more).

I also enjoyed learning about five of the biggest problems within centralized finance, which DeFi can help solve. The implications in solving these problems are huge - for both equality of opportunity as well as economic growth.

An Investor’s Guide to Crypto, published on SSRN: in the show, he mentions footnote 4, which includes selected projects from 20 different areas in the blockchain space, such as layer 1, layer 2, defi, privacy, NFTs, gaming, metaverse, social networks, identity, bridges, etc.

Show Notes, Key Takeaways:

• “We’re right at the beginning of this disruption”.
• On Satoshi Nakamoto’s 2008 Bitcoin Whitepaper: “Its the sort of paper that potentially changes the way things work in the world.”
• A statement made by a student who took his course: “Over the past couple of years I’m in so many conversations where people are talking about crypto, and I was just a wallflower. But after your course, I’m in the mix. I can ask questions, and I can ask good questions.”
• “Being able to see-through the incorrect and mistaken statements that we so often hear is important.”
• “What you should look at is not the price of the crypto, but the interests of the venture capitalists. And they love it right now.”
• “We need to look beyond the price movement, and figure out what problems exist, and figure out if the technology can solve the problem, while maintaining a realistic time-frame.”
• “You don’t need a degree in computer science. What you need is to be creative - to identify problems that could be solved with this space, and just jump in.”

Intros:

Dr. Campbell Harvey has been in the space since 2013. He was formerly editor of Journal of Finance.

When he got back into teaching the international finance course he thought it would be valuable to add a section on bitcoin.

He read the Satoshi white paper, and realized it was a foundational idea.

It was a vary niche idea in 2013.

He was surprised it was not published in one of the top journals – it was the type of paper that every academic strives to have. “Its the sort of paper that potentially changes the way things work in the world.”

Creating a course on crypto at Duke

Decides to devote a lecture to cryptocurrency.

Enlists a colleague (who turned out to be an undergrad student) from the University of North Carolina at Chapel Hill to help with preparing for the blockchain topics and cryptocurrency course.

The student, as a bitcoin developer, goes on to finish at Duke in 3 years, later joining startup in Silicon Valley. (The story as told in the episode is really worth a listen!)

Professor Harvey delivers his lecture on crypto and blockchain, and the students end up staying late after class, sharing the transformational impact that the lecture had.

That single lecture evolved into a course at Duke, as well as four courses on Coursera in Decentralized Finance. The book is based on the course.

Nowadays, he teaches less on traditional finance and more decentralized finance.

After taking his courses, one student expressed: “Over the past couple of years I’m in so many conversations where people are talking about crypto, and I was just a wallflower. But after your course, I’m in the mix. I can ask questions, and I can ask good questions…”

Risk

Half of the book is about risk.

You need to understand the risks. Finance is not only about expected returns, but about assessing the risks.

The material for Innovation and Cryptoventures changes so quickly -- every semester there is new material due to the fast paced nature of the crypto industry.

Blockchain Conference assignment

One semester, an assignment for the course was to attend a blockchain conference, and make note of false statement that so-called expert panelists say.

This assignment highlighted the importance of being able to determine if someone thinks they know something but they don’t really know.

Being able to see-through the incorrect and mistaken statements that we so often hear is important.

Co-authors of the book are former teaching assistants of the course.

“We’re right at the beginning of this disruption”

Recent paper, Investor’s Guide to Crypto was published in June 2022 on SSRN.

In traditional finance, if you don’t like the volatility, you can take a diversify between risky assets and stable assets. Similar principles can be applied to crypto.

Volatility should be expected in these markets.

It is a mistake to look at only bitcoin and ether.

See footnote 4 in the paper, which sketches 20 different areas in the blockchain space, such as layer 1, layer 2, defi, privacy, NFTs, gaming, metaverse, social networks, identity, bridges, etc.

The basic lessons of diversification should be taken into account.

There are a few sections on active strategies.

The paper also debunks a few valuation models - for example, coupling the valuation of bitcoin to the value of gold metal.

In 2019-2020, based on the number of Coinbase and Robinhood wallets, the number of speculators in the space increased.

Risk-on vs. Risk-off investments

• Risk-off assets: People buy safer assets like US Treasury Bonds.
• Risk-on assets: once we had a vaccine, people tended to get back into risky assets.
• Risk-on assets tend to be dumped during tumultuous times, such as March 2020 when COVID hit. The stock market dipped 35%, bitcoin dropped 55%.

Custody:

If you lose your private keys, you lose your crypto. This is a risk management challenge for people.

Fidelity and Coinbase Pro are entering into the custodial space. This increases the ability for institutional investors to enter the space.

Regulatory:

ETFs, however, have faced regulatory challenges.

Dr. Harvey has written twice to the SEC suggesting the approval of ETFs.

We don’t have a lot of regulatory guidance today. It is hilarious to think that crypto fits into the securities act of 1933. If you’re a security, you need a transfer agent, which is an algorithm in DeFi. Regulators don’t have an easy job.

If we impose regulations that are too harsh, then innovations go off-shore. If regulation is too lax, then people will be taken advantage of.

It is difficult to find a middle ground. It takes a lot of time.

We should have a safe harbor period.

Broad potentials of blockchain

1.7 billion people in the world are unbanked.

In web3, your bank is your smartphone. No transferring money from banks - you simply link your wallet.

There is no web3 without decentralized finance. You can pay for stuff, but you can also be paid.

This technology offers the promise of making the economy much more efficient.

Bankers tend to prefer to deal with larger customers, and give larger customers the best deals.

Smaller projects are thus more difficult to start-up today with traditional financing.

If we can solve this problem, we can increase investment, increase growth, and real GDP.

We eventually need to pay down our debt - the answer is growth.

We can bump growth between 5-8%.

“What you should look at is not the price of the crypto, but the interests of the venture capitalists. And they love it right now”.

Dapps and Web3 Wallets

Dapps are different - whereas something like twitter is a centralized app, something like Metamask is opensource and you can see the code on Github.

You can’t do DeFi without a decentralized app.

NFTs class:

Professor Harvey teaches a lecture on NFTs.

Prices are likely to go down on digital art.

The class on NFTs focuses on applications of NFTs that will be important in the future.

The NFT monetization model seems to be much more beneficial to artists than for traditional model with galleries.

All students have a Metamask wallet.

Students in the class create NFTs. For example: Campbell Harvey teaching how to create an NFT

There is a class token, and they get rewards for doing certain things, like asking good questions of suggesting a change in wording.

Students get a reward for visiting the Bitcoin and Ethereum mining operation at Duke. Students take a selfie in front of the miners, and post that selfie as an NFT as proof that they were there… Proof of Attendance.

Use cases for NFTs:

• Augmented Reality fashion - all the big fashion houses have NFT initiatives. At London Fashion week there was a half day on digital fashion.
  • Beyond this, the metaverse is a huge future application of NFTs.
• POAPs / certificates of completion, proof of attendance.
• Ticketing and artist / fan interaction. Fans could buy tickets, songs, or merch directly from the artist. An NFT from a show or concert could form a small community among fans. Direct interaction between community and artist.
• Identity: Eventually, you won’t need credit cards and debit cards - it could all be linked to the identity NFT.
  • University degrees, for example, would have to be non-transferrable. Its easy track on-chain if someone purchased a university degree or if it is counterfeit.

We need to look beyond the price movement, and figure out what problems exist, and figure out can the technology solve the problem, while maintaining a realistic time-frame.

Web 1, 2, and 3

• Web1: a way to access information. Only a way to consume content.
• Web2: social. Creating community like Twitter, Facebook, etc.
• Web3: the ability to transfer value. People who designed the initial browsers thought we would have digital currency, but they failed. Blockchain solves the double spend problem and makes it possible.

Crypto cycles and the internet bubble - we’re early

Even during and after the crash of the internet bubble, the internet didn’t go away. The strong firms remain. We can expect similar situations across cryptocurrency bull-bear cycles.

There will be spectacular failures, and spectacular successes.

The key thing is that we’re early. And its always an advantage to be there at this point where it’s really early.

Traditional financial institutions will likely be doing much smaller things.

You need to be the disruptor, not the disrupted. This space offers a lot of potential to be the disruptor.

You don’t need a degree in computer science. What you need is to be creative - to identify problems that could be solved with this space, and just jump in.