A lot of the rah-rah boosterism of "decentralization" is coming from VCs that saw how much money there is to be made by ignoring laws and regulations for long enough. Airbnb and Uber are the most brazen examples of this.
What's left unsaid of course is that the only interest deep-pocketed investors have in dismantling elements of the financial system (MC/Visa dominance, KYC/AML checks, suspicious transactions disclosure rules), is so they can replace it with a system that they personally have an equity stake in.
I think this is the expected cycle of business long term.
1. Entrepreneur notices an opportunity to avoid overzealous regulations and provide better value to customers
2. Everyone wants a piece of the action, bad actors start to move in and updated regulation is required
3. New regulations get out of hand and start to become extremely costly to comply with (see banks)
4. New entrepreneur comes along with a novel way of avoiding said regulations, providing better value to customers again. Repeat.
At any given point in time the industry is either in cowboy crypto mode, or crusty overregulated bank mode. Both have drawbacks, and it’s just a pendulum that swings back and forth.
I work in fintech. I'm not sure what bank regulations you think are overzealous. To give an example, banks can legally keep you from accessing your data. Whether by blocking your screen scraping or providing an API with poor coverage.
You understand I imagine that the regulations don't use the word "unsophisticated" and as such it's a red herring. We have these (few) regulations because banks and their consumers are not entering into a business arrangement on similar footing. I'm not "too big to fail". I don't get a bailout.
Banks love to collude with one another or engage in predatory behavior, and when we repealed the Glass-Steagall act in 1999 it took less than a decade for the subprime mortgage crisis to rear its ugly head. Allowing banks to also act as securities firms will continue to show us these "once in a lifetime" economic recessions every decade or so. And would you look at that? It's been over a decade since the subprime mortgage crisis, yet here we are back in the same glut.
Crypto doesn't solve any of that. It solved double spending. Most of the "exchanges" that people are using are mixing banking and securities, and when crypto blows out there is nothing left to catch most of the retail investors that shoulder that cost. There already are so many examples that listing them is prohibitive, but I'll remind everyone that Mt Gox handled 70% of all Bitcoin transactions at the time and lost 6% of the entire Bitcoin circulation at the time to hacks. No FDIC insurance, do not pass go, do not collect $200. Laissez faire becomes laissez tomber.
I wish people were honest about why they like crypto -- it's a speculative asset in a time when most people can't afford appreciating assets, and it doesn't require an ID if you avoid exchanges so you can buy contraband. The drawbacks are someone can code a button that is difficult to inspect and if you press it your entire wallet is drained with no recourse. Haven't even touched on the energy or silicon expenditures for a system with laughably tiny adoption
You're missing the point entirely. It's not as if the regulatory landscape is only decided by regulators. The fact that we have balance in regulations is because other people push back on regulators (legislators, lobbyists, etc). This is a good balancing act, that should result in reasonably optimal regulations.
But it doesn't mean the moral hazard doesn't exist.
A definition of "adoption" would also help here. Are we counting the zero-sum game speculators as "adopters", or are we counting something like flows enabling the legally compliant exchange of goods and services in the real world?
So a “poor” but highly knowledgeable financial planner making “only” $180k a year can’t invest in their friend’s startup because the regulators deem it too risky. But some random dentist can?
There are financial criteria, or professional criteria to reach accredited investor status. In particular, any investment professional that has passed the Series 7 exam (or a few others) is an accredited investor.
That regulation seems sensible to me, and not overzealous.
The dentist can weather the poor investment. Knowledge does not make you financially solvent. It just improves your gambling odds as it relates to equity investment.
Super off topic, but the wealth gap is exacerbated by not taxing the wealthiest at a high enough rate, not regulations against capital market participation in highly speculative ventures. To argue that accredited investor regulations are the problem is no different than arguing for lottery tickets or penny stocks as an investment strategy for low income citizens.
Lotteries are super regulated though, it's (no matter the country) an utter nightmare, even stuff like a school's trinket raffle. The reason is a shitload of people making "easy profits" by frauding people.
The wealth gap isn't going to shrink by making it easy for startups (or "startups") that can't convince rich strangers (or friends and family, or crowdfunding platforms) they're worth investing in to convince larger numbers of less rich strangers to do it instead.
Most companies funded by professionals go bust and the risk adjusted returns to VC as an asset class aren't that great: the funds that have spectacular returns being balanced out by those that lose their LPs money. And few unicorns are going to be spending their effort pitching average earners for $2k cheques. Why would we expect the average joe to invest better than the pros with less capital to diversify, no board seats and substantially worse dealflow?
You're not going to find a welcoming crowd here criticizing startups on Y-Combinator news, a site written by Paul Graham and a site catering to a startup accelator's usual audience.
This isn't necessarily a bad thing. It's probably good to stop strangling the economy for a bit once bad actors disappear. Moreover, in many cases the regulators themselves are corrupt (e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash), so the regulation may not be delivering the intended value and taking another swing at it in a decade may not be the worst thing. Further still, in a few cases, the regulation may actually not make sense any more due to some change in the landscape--it might be similarly good to back off the regulation, see what problems arise, and address them accordingly (i.e., control loop).
I cannot think of a single previous business cycle that was driven by this dynamic. Can you give some historical examples? This strategy seems unique to the most recent generation of capitalists (sharing economy, crypto stuff, etc).
The 2008 bubble was largely driven by the deregulation of financial instruments (and non-regulation of new instruments) in the late 1990 and early 2000.
Lehman Brothers didn't know, Barclay's acquired them for pennies. Same with Bear Sterns (JP Morgan acquired) and Merrill Lynch (BofA acquired).
Also quantitative easing began as a result of the massive loss of trust between banks as a result of the crisis. Every central bank in countries with big financial centers had to follow a similar playbook.
The concept of visa/mastercard was also largely unregulated at the time they launched. Take a look at the history of visa article on wikipeida https://en.wikipedia.org/wiki/Visa_Inc.#History
Visa was not the first, and other tries to do a credit/charge before them were much worse or limited in scope. This is similar today to what is happening in web3/crypto. If you don't think the ingenuity of humans will get us somewhere productive with these technologies, then I don't know what to say to you.
Quotes from the article about the launch of visa:
> In the weeks leading up to the launch of BankAmericard, BofA had saturated Fresno mailboxes with an initial mass mailing (or "drop", as they came to be called) of 65,000 unsolicited credit cards
> By March 1959, drops began in San Francisco and Sacramento; by June, BofA was dropping cards in Los Angeles; by October, the entire state of California had been saturated with over 2 million credit cards and BankAmericard was being accepted by 20,000 merchants.[18] However, the program was riddled with problems, as Williams (who had never worked in a bank's loan department) had been too earnest and trusting in his belief in the basic goodness of the bank's customers, and he resigned in December 1959. Twenty-two percent of accounts were delinquent, not the 4% expected, and police departments around the state were confronted by numerous incidents of the brand new crime of credit card fraud.[19] Both politicians and journalists joined the general uproar against Bank of America and its newfangled credit card, especially when it was pointed out that the cardholder agreement held customers liable for all charges, even those resulting from fraud.
The Cold Start Problem, by Andrew Chen, devotes a chapter to this as a case study. I don’t recall it covering these negative aspects, which are obviously important to consider. Still a great book for startup growth ideas though.
> This is similar today to what is happening in web3/crypto. If you don't think the ingenuity of humans will get us somewhere productive with these technologies, then I don't know what to say to you.
They won't, because they achieve nothing that can't already be accomplished with proven technologies. Axie Infinity could easily be built using regular plain old databases, but they built in on the blockchain using a terrible bridge architecture and as a result had $600 million stole. Such innovation.
"As all tech industry observers are aware, the twin pillars of a successful startup are cost shifting (i.e. user generated labor) and regulatory arbitrage (i.e. tax avoidance)."
What's left unsaid of course is that the only interest deep-pocketed investors have in dismantling elements of the financial system (MC/Visa dominance, KYC/AML checks, suspicious transactions disclosure rules), is so they can replace it with a system that they personally have an equity stake in.