Thanks this is really helpful information. In your experience, is it a waste of time taking magnesium oxide for sleep?
356 karma · joined June 18, 2018
1) review the processes and controls which operate the business to check they were operating correctly for the period under review
2) interview the various key stakeholders to assess competence and get representations
3) perform substantive testing over the collateral balance for the whole period. Eg daily bank reconciliations. Get third party confirmations for EVERYTHING.
4) perform a contingent liabilities review and a legal review.
5) see if there are any related party transactions
6) do a going concern assessment
The key thing would be to check existence, completeness and valuation of collateral and existence and completeness of liabilities (issued tokens).
Depending on what the assets are that would entail different procedures. For tether I would want to see their whole CP portfolio to perform a thorough credit risk and systemic risk assessment. Do some modelling to understand valuation implications under various scenarios.
Is worth noting that it's not feasible to do this on a monthly basis because it's so onerous. Hence why probably they just do monthly attestations. I would expect that the legal entity which issues the tokens and holds the collateral is audited at least once a year.
Never knew my audit knowledge would ever be useful/interesting :)
Cheers
With an audit, the auditors get a representation from management that they will provide the truth etc. The auditors would also get third party evidence eg. from the bank providing the audit client's account. For important things you would always get third party evidence from banks, custodians, etc or even just go and check to see if physical things exist!
With an attestation or limited/negative assurance engagement, there's no third party evidence. Instead, the auditors just rely on what they are given and whether it looks reasonable. The auditors would state in their "report" that only limited evidence was gathered and not enough to form the basis of an opinion.
Basically, limited / negative assurance is not really that useful in most circumstances.
Regarding fraud - auditors are not expected to find/uncover fraud under any type of engagement, which is a common misconception.
The biggest audit firms won't go any where near tether, and this alone, tells you quite a bit :)
An attestation offers considerably less assurance than an audit.
An audit is the most comprehensive type of assurance. Often called positive assurance. A clean audit opinion means the auditor collected sufficient and appropriate evidence to form an opinion on the financial statements (or reserves in tether/usdc case).
On the other hand, an attestation or review is a form of negative assurance where auditors state that nothing has come to their attention to indicate that subject matters or financial statements contain a material misstatement. In this type of assurance, auditors do not give an opinion; they simply say that financial statements look "reasonable".
Unlike positive assurance, auditors are not required to obtain sufficient and appropriate evidence to form an opinion. Instead, they only need to review if there are any problems with financial statements or subject matters.
Cryptocurrencies like BTC, ETH and whatever else are not "money" in the sense that we generally understand. This money is either a credit on a commercial bank or a credit on a central bank. These entities are responsible for managing the liquidity and solvency of their balance sheet such that the credit you hold retains value (Yes, I know there is inflation but that's an orthogonal concern, I would argue). There is a governance and legal framework underpinning how money works in this "mundane World". Everything in the mundane world is a legal agreement. Financial agreements are always someone's liability and that's a good thing because someone is always accountable if something goes wrong.
Cryptocurrency behaves more like some kind of synthetic commodity. By that I mean that it inherently has no value and has no use for anything other than being a "token". When cryptocurrency is created, it has no issuer. There's no accepted legal framework or explicit governance framework for holding people accountable if something goes wrong (other than code is law) and things go wrong all the time. There are rug pulls, exchange rate crashes and project failures are ten a penny etc... and this is all happening while the crypto world is in a mega bull market! What happens when the next bear market comes around? All the projects that _seem_ viable now will suddenly become unviable. All the debt positions collateralised with sketchy crypto will unwind en masse. I suspect the tokens for many projects out there will trade close to zero. People who invested in various projects from algo stablecoins to lending protocols will suddenly find that they hold worthless tokens with zero recourse. By this point the insiders would have exited into BTC/ETH/fiat ready to start the next round of "projects".
Maybe this is OK. I mean, it is what it is and clearly some people are fine with that. I think we can do better though. That's why I'm interested in credit based monetary systems because reputation is a key part, so participants are accountable for their actions. This is fundamental for any significant real world adoption. Furthermore, credit based instruments do have intrinsic value which is a function of issuer credit risk. Such instruments are more stable than "synthetic commodities" and have more utility for real world uses.
Having said all that. I work in the crypto world and quite enjoy it. I just don't think it's as good as some would have you believe.
> I think the system described is interesting, but for regular human commerce purposes, I think the downsides of it (managing IOUs from many different parties, needing to have a trust-path between users that could steal from you, needing to keep a node online always or trust your money to someone else who does so) make it less useful than cryptocurrencies. Having a common currency between many different parties is much easier to work with than trying to figure out a workable way to value IOUs from many different parties. Needing an established trust-path between users seems like a large obstacle in the internet age where I might suddenly want to transact with anyone on the planet.
You are right, these are disadvantages but other than "trust paths" the complexity can be mitigated with:
1. Market makers who buy IOUs at a discount and swap them for _their_ IOU which can be more trusted. Essentially you want a little bit of centralisation around parties which are known to always make good on their liabilities. These parties could be fully automated (think like Ethereum DAO) and transparent. In some ways these market makers are like banks of today but instead of lending their credit into existence, like banks do, they require people to buy it (usually) at a premium.
2. Insurance or a credit derivatives market so people can hedge against counterparts defaults.
3. If everyone agrees on a common numeraire and wallets are sophisticated to show an aggregate balance in that numeraire taking into account credit risk then that could remove much of the complexity for users. Integrated with market makers, you could "auto swap" IOUs to issuers which you prefer. Wallets can also provide a credit risk break down on all counterparts. Agree this is more complicated than current notions of money.
4. Securitisation markets. Package up IOUs into tranches. Traders can speculate on various levels of credit quality.
5. Sensible reputation management. Non-invasive performance tracking of debtors. Did they meet margin requirements? Did they meet all coupon payments? Etc. Can also take into account degree of co-operation with other users, for example do they accommodate restructuring and help others meet their liabilities?
I don't like crypto because there's essentially zero accountability for issuers and that kind of environment is optimal for scammers. Crypto behaves like synthetic equity/commodity instruments with no accountable issuers. In contrast, with a credit based system, issuers are responsible for their issued liabilities and are expected to make good on them. In crypto, no-one thinks in terms of liabilities and so you get ridiculous projects like "Synthentix" who are collateralising a USD Stablecoins with their own issued tokens. For anyone with a basic understanding of financial risk and accounting, their approach is mad.
A credit based system is fairer because anyone can issue credit and the onus in on issuers to ensure they have the necessary reputation for others to accept their credit. Furthermore, credit-like instruments are natural Stablecoins - providing all agree on a numeraire, the value of credit is a function of credit risk which can be successfully managed in most cases.
Yes, I think you have the right idea. This is a credit based system, which, I think is fairer because anyone can issue credit denominated in some numeraire and it holds its value over time as long as the issuer can be trusted to “redeem” the credit. The issue with this system is that bootstrapping it is difficult and it’s quite complicated because everyone now needs to become a credit risk/reputation expert!
Here are the opening paras from "what is money":
> The fundamental theories on which the modern science of political economy is based are these:
> That under primitive conditions men lived and live by barter;
> That as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable, and which therefore, everyone will take in exchange for the things he produces or the services he renders and which each in turn can equally pass on to others in exchange for whatever he may want;
> That this commodity thus becomes a "medium of exchange and measure of value."
> That a sale is the exchange of a commodity for this intermediate commodity which is called "money;"
> That many different commodities have at various times and places served as this medium of exchange,—cattle, iron, salt, shells, dried cod, tobacco, sugar, nails, etc.;
> That gradually the metals, gold, silver, copper, and more especially the first two, came to be regarded as being by their inherent qualities more suitable for this purpose than any other commodities and these metals early became by common consent the only medium of exchange;
> That a certain fixed weight of one of these metals of a known fineness became a standard of value, and to guarantee this weight and quality it became incumbent on governments to issue pieces of metal stamped with their peculiar sign, the forging of which was punishable with severe penalties;
> That Emperors, Kings, Princes and their advisers vied with each other in the middle ages in swindling the people by debasing their coins, so that those who thought that they were obtaining a certain weight of gold or silver for their produce were, in reality, getting less, and that this situation produced serious evils among which were a depreciation of the value of money and a consequent rise of prices in proportion as the coinage became more and more debased in quality or light in weight;
> That to economize the use of the metals and to prevent their constant transport a machinery called "credit" has grown up in modern days, by means of which, instead of handing over a certain weight of metal at each transaction, a promise to do so is given, which under favorable circumstances has the same value as the metal itself. Credit is called a substitute for gold.
> So universal is the belief in these theories among economists that they have grown to be considered almost as axioms which hardly require proof, and nothing is more noticeable in economic works than the scant historical evidence on which they rest, and the absence of critical examination of their worth.
[1] https://www.newmoneyhub.com/www/money/mitchell-innes/what-is...
[2] https://www.newmoneyhub.com/www/money/mitchell-innes/the-cre...
If you want to learn more about HRV, the Whoop Blog [1] and Whoop podcasts [2] are great resources.
[1] https://www.whoop.com/thelocker/
[2] https://www.whoop.com/thelocker/whoop-podcast-all-episodes/
HRV is influenced by the autonomic nervous system which has two elements; parasympathetic and sympathetic.
Parasympathetic controls the “rest and digest” side of things and sympathetic controls “flight or fight”. If you are stressed then your sympathetic system is overly engaged and this manifests as a low HRV.
If I overtrain then I get a low HRV because the sympathetic system is overly engaged. Work stress and other things like poor diet will negatively impact HRV. On the other hand, rest, meditation and relaxation will cause it to increase as you engage the parasympathetic system.
A high HRV is indicative of readiness to deal with whatever is thrown at you and you can think of it as resilience which you can build (or lose) over time.
It’s a fairly personal measure and it’s generally not necessary to compare with other people as everyone is different and because many factors affect HRV but what you want to look for are trends in HRV. Upwards means you are recovering/de-stressing. Downwards trend is the opposite.
How do you measure it? Most wearables allow you to measure it. I have a garmin watch which can. Apple Watch also can do it. Most accurate approach would be to use a heart rate strap but that’s probably overkill.
Measure your HRV in the morning at the same time in the same position. After a week of readings you’ll get a baseline and can see how things change from there.
It really is a useful thing to track HRV because your body deals with a lot of daily stress and sometimes you are just not aware of it because it feels like normal or the signals are difficult to interpret.
Good luck!
You can improve them with the below:
* Start monitoring your heart rate variability (HRV). You can use HRV to help you understand the triggers for your stress. There’s loads of articles on the web about it. I monitor HRV through the night with Oura ring. Low usually means you are stressed or not recovered.
* Try to go to bed at the same time and wake up at the same time every day. This is incredibly important and really works.
* If you struggle sleeping, use blue light blocking glasses and try to not use screens which emit blue light after sundown. Also try to get exposure to morning light everyday.
* Don’t eat at least 3 hours before bed!!
* Have your last alcoholic drink 3-4 hours before bed. Don’t drink a lot or cut it out entirely.
* Ensure you remain hydrated throughout the day
* If you can, take cold showers
* Try to meditate for 10-15 mins a day
* Make sure you start relaxing a few hours before bed
* Very important: Try to only eat whole foods. No sugar. No refined carbs. Lots of vegetables. Food has a massive impact on stress levels.
* Eating food you are intolerant to will increase your stress levels. Keep a rough diary of what you eat. If something makes you feel a bit off then make a note and try to narrow down what good it was. Once you know what it is... stop eating that food. You can gradually reintroduce with experiments.
* Exercise is good for stress reduction and resilience. Go running or cycling but.... This is very important: you NEED to monitor your heart rate. If you are not fit or new to exercise then you don’t want to go over 140 bpm. Eg I’ve been running since I was 10 and 80% of my runs are done at 145bpm. I rarely go over 170 bpm because it stresses the body a lot. If you are out of breath then you need to stop or walk. If you keep doing this you will get faster as the same HR (if you care!).
* Don’t read or watch the news.
* Go and sit in a park. Green spaces like parks help to reduce stress. Good luck dude!
For crypto (read blockchain with PoW, PoS), other than censorship resistance - which most people don't actually care about because they are lucky enough not to need it - it doesn't really offer anything useful. Most crypto projects are Rube Goldberg machines whereby the operators of these companies are re-hashing all the same things our we've done with money before. Of course they are doing well at the moment because it's morphed into a get rich quick scheme. If there was no easy money to be made there would be little interest in it, just like there was back in 2010 when I started looking at Bitcoin.
Enterprise blockchain struggles because there's no actual need for blockchain elements like chains of provenance and smart contracts if the participants are fully identified and already have business relationships. "Blockchain" is a direct substitute for trusted third parties and good legal agreements and should only ever be used in circumstances where all other options are exhausted because the technology comes with so many bad trade-offs. Doesn't scale, very complicated, difficult to manage upgrades and versions, customers find it hard to understand, etc...
I think another point to note is that Bitcoin (and Crypto/DeFi in general) is really just a censorship resistant Casino, and I say this having worked in blockchain and crypto for the last 6 years. As such, the massive electricity usage is all the more egregious.
On the other hand. Banks actually add a lot of value whether we care to admit it or not. They provide a working payment network. They provide credit when you need it etc. Yes, the banking infrastructure probably uses a lot of electricity too - somehow those mainframes need to be powered but I'd like to think we can all agree that society benefits from this. Where as, with Bitcoin, only a small few benefit but the cost of running the infrastructure is so high.
Maybe a better comparison is how much energy the gold industry uses vs bitcoin mining?
I guess my point was that the coins typically had intrinsic value and nominal value. The intrinsic value usually varied considerably depending on what the coin was made from. So you may end up with two coins with a nominal value of, say, 10 but their intrinsic value varies considerably. People accept the coin at the nominal value because the nominal value is greater than the intrinsic value. They accept the coin at the nominal value because the issuer of it stands behind it. It can be remedied for goods and services, or it is redeemed by paying taxes to the government.
> There's also the phenomenon of coin clipping and shaving. Citing examples of monetary debasement doesn't prove that gold or coins have no intrinsic value. To the contrary, if there was no intrinsic value there would be no need to debase them. Just because someone has 'gotten away with it' doesn't mean it is a valid policy. These events illustrate economic mismanagement.
Oh... I'm not saying coins don't have any intrinsic value - that would be silly. Of course they have intrinsic value. I'm sure if you read my post again then you'll see that's not what I was getting at. Certainly, if the price of precious metal continues to rise then people would clip the coins. If the price of precious metal rises above the nominal value of the coin then people would just take the coins out of circulation entirely because the metal is more valuable than the value the coin was issued at. But I don't think any of this really matters that much. National currencies were debased in the past not because the metal content of the coins diminished but because the solvency of the issuer was brought into question.
> Nor do I accept your premise that price deflation is exclusively harmful. Technological advances, increases in productivity are deflationary. We all benefit from greater productivity. Consumers enjoy lower prices. Artificially suppressing deflation robs consumers of the benefits of increased productivity.
Yes, deflation as a result of technical improvements is clearly a good thing. I was more talking in terms of monetary policy. Eg. linking money supply to a fixed stock of gold, for example, is not a good idea.
> Putting all of that to the side, the argument that deflation must be managed (by a central bank) is an argument for price fixing. This discards the entire premise of decentralized price discovery, in lieu of omnipotent technocracy.
I agree with you. Central banks distort markets, and that's kind of what they are supposed to do in the name of "stability". They can set any interest rate they like. They can print as much money as they like. They can redeem as much money as they like. Clearly the whole point is to manipulate the market of money! Do I think it's a good thing? No. I'd much prefer a world with no central banks!
Cheers
> Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans. [0]
You said:
> Borrowing does not create money in FRB, since all loans are deposits
Loans are not deposits. Loans sit on the asset side of the balance sheet and represent an IOU from the borrower to the bank. Deposits sit on the liability side of the balance sheet and represent an IOU from the bank to the deposit holder - the borrower in this case. Banks are literally in the business of swapping IOUs... Our IOUs which are not widely accepted for their IOUs which are widely accepted.
Furthermore, commercial banks make absolutely zero promises to redeem their IOUs for base money or central bank issued money, or anything else for that matter. Read the terms and conditions of your bank account to see for yourself! If the bank creates too many bad loans, then the value of their IOUs fall to take this into account.
Lastly, Central banks were not created to bail out commercial banks. The first central bank (the Bank of England) was created by the Government at the time to fund the on-going war with France. The government gave the Bank of England monopoly rights over currency issue in return for financing the war - i.e. giving them a whole bunch of IOUs on the Bank of England to pay soldiers and factories because the credit risk of the government at the time was considered quite poor.
[0] https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
For crypto, other than censorship resistance - which most people don't actually care about because they are lucky enough not to need it - it doesn't really offer anything useful. Most crypto projects are Rube Goldberg machines whereby the operators of these companies are re-hashing all the same things our ancestors did with money. Of course they are doing well at the moment because it's morphed into a get rich quick scheme. If there was no easy money to be made there would be little interest in it, just like there was back in 2010 when I started looking at Bitcoin.
Enterprise blockchain struggles because there's no actual need for blockchain elements like chains of provenance and smart contracts if the participants are fully identified and already have business relationships. "Blockchain" is a direct substitute for trusted third parties and good legal agreements and should only ever be used in circumstances where all other options are exhausted because the technology comes with so many bad trade-offs. Doesn't scale, very complicated, difficult to manage upgrades and versions, customers find it hard to understand, etc...
I used to be an advocate of Austrian economics until I worked as a bank auditor and really got to understand operationally how they work. Now, I feel the Austrian economist movement has done the world a great disservice and it’s a crying shame because there’s nothing wrong or insidious about banking.
DR Loan 100 CR deposit 100
The “double coincidence of wants” stylised by Adam smith is most likely nonsense. Do we really believe that people didn’t trade if they didn’t have what each other wanted? What would really happen is that one would be in debt to the other and that debt would be repaid at some point in the future.
It was only until recent times eg 1900s US that Gold and silver became a “medium of exchange”. That experiment has of course ended because it didn’t work particularly well -> deflation. In the past governments set some amount of precious metal as the unit of account but the issued coins were usually made of something else and were of different weights and sizes even for the same denomination of coin. The coins had a nominal value which was always greater then the intrinsic value of the coin (otherwise if the nominal value was the same or less than intrinsic value then people would melt the coins into bullion). These coins were an acknowledgement of indebtedness of the government. They held value because people needed to use them to pay taxes.
Banks did not evolve from “gold warehouses”. Instead banks always have been and continue to be market makers for IOUs or debt/credit.
If silver coins only had intrinsic value then the metal content and weight of them would be obviously of high importance. A 15g coin would be worth less than a 20g coin. But then these “coins” are not really money. Instead, they are just a commodity.
Whilst there were points in history when coins were made uniform and of a specific grade of precious metal and stamped with a government seal (eg in the US in the early 1900s) those times didn’t last for a very long time because such a monetary system doesn’t work particularly well as deflation inevitably results.
Regarding the unit of account. I can set a unit of account whereby one pound = 15g of silver (let’s call it a £) but the coins which I issue and circulate in the economy don’t have to be made from silver and don’t even need to be convertible to silver. This is how most governments operated coinage in the past. The unit of account is necessary because there must be a numeraire to measure prices, just like there is one for measuring distance or weight. So... a coin which represents £1 may contain only 5g of silver or even no silver and the rest be tin or some other alloy and this coin would not be convertible to 15g of silver.
You are probably confused because people think that the medium of exchange also needs to be the unit of account (and a store of value) but typically that wasnt the case for most monetary systems of the past.
> If Donovan's observation were accurate, how can he explain humanity's long history with monetary metals. Gold and silver are still regarded by some as the only legitimate forms of money.
I'm not sure how true that -- money is precious metals -- has been throughout history. For example, if you look at coins from the past, they are all different weights and mostly made of greatly differing ratios of various metals and alloys. There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. Furthermore, the nominal value of the coins were typically higher than the intrinsic value of the coin, even for coins made from gold and silver. If the coins has a nominal value equal to or lower than the intrinsic value of the coin, then people would melt them down into bullion. So the assertion that the unit of account was a gold coin of a particular weight seems as unlikely as it is illogical. Instead, the coins typically represented a debt of the issuer valued at the nominal value of the coin. Even still, most people didn't even use coins. Kings would withdraw all coins from circulation to re-mint them and commerce would continue as usual because most people just used credit ledgers to transact with each other. Ergo, money usually always has been and will continue to be credit/debt. Gold is not money... it's a commodity, albeit a valuable one :)
From what I've read, it seems we only recently (since early modern times) developed an obsession with precious metals as money. Of course, we tried a gold standard but it ends up in deflation and misery for all involved so I don't suspect we will go back to it.
Bitcoin is an equity based currency. If you have some Bitcoin you "own" it much like you would own a physical thing, like a lump of gold. And indeed, you are right, to implement a permissionless equity based currency, you probably need something like proof of work to ensure that there is an objective ordering of transactions.
However....! You can also build a credit based currency, whereby anyone can issue IOUs which are agreements between a debtor and a creditor. In this regard you don't "own" an IOU but you are a participant in an agreement which is an IOU. That might be pedantic but it's a difference from an equity based money system. For a credit based system you don't need proof of work or an objective ordering of transactions as any transaction is just a bilateral agreement between two parties. You could make the IOUs bearer instruments by introducing some blockchain elements (unilateral ledger updates) but ultimately there isn't much point in this because you have to trust the issuer. The difficulty with this type of system is that it's tough to bootstrap it - how do you measure reputation in such a system? How do you determine who's credit is good and who's credit is bad?
I think it would be exciting to see more research into distributed credit based monetary systems. Interestingly, our current monetary system is basically a pure credit system and that in this system we can view different types of credit as having a position in a money hierarchy. At the top you have central bank credit, next bank credit, next company credit, next credit issued by individuals. When an issuer's credit can be trusted enough such that people can use it as a medium of exchange (it can be endorsed from one party to another) then it _becomes_ money. That's quite cool. You can build a whole distributed monetary system from an endogenous money supply!
If you want to learn more about the modern monetary system I would recommend doing Perry Mehrling's - "Economics of money and banking" course. It's on Cousera but some of the lecture notes are available here [0]. Thoroughly recommend it! Cheers
It seems the FED did increase base money supply - it's balance sheet size went up by around 3 trillion dollars at the start of 2020 - and bank deposits have subsequently increased quite a lot (M1 and M2 gone up) and this is probably due to the stimulus measures because either way the money ends up in someone's bank account. I think also some of it is probably due to risk averse businesses maxing out their credit lines to get them through the lockdowns... so we'll see an increase in M1/M2 there as well.
So whilst the first part of my original comment was wrong because of the incorrect definitions and reasoning, I think the second part accidentally remains true, in that we should, in theory, start to see inflation increase and from that point you would expect the FED to start removing excess reserves from the system and tightening things up a bit.