Purpose-Driven Monetary Policy

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To put everything described in the Gini book and this website into perspective, below is a summary of an epic months-long debate that I had with several members of another major blockchain project community. Several colleagues and I were heavily invested in and deeply passionate about that project. My sadness after discovering that project’s broken crypto monetary policy was the source of my comments during this debate.1

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Our Project’s Purpose. Somebody in our community recently said that early investors in this project deserve to control the ecosystem because they invested first and took early risks. That would be true if we were talking about a for-profit corporation like Apple or Goldman Sachs, but that’s not how this project has been presented to the world. This project is not intended to be a for-profit corporation; it’s intended to be a trust-less socioeconomic platform and crypto-economy for humanity, upon which many smart-contract-based socioeconomic tools and institutions can be built.2 That’s why I’ve invested in this project; profit considerations are purely secondary to that primary purpose.

Lucky Birth & Geography Should Not Create a Crypto Aristocracy. Every violent revolution in human history has been caused by oppressed people rising up against the tyranny of inherited, concentrated aristocratic wealth and power. That tyranny is always rooted in poorly designed economic systems and incentive structures. If we assume that it’s OK to accept a despotic level of economic/political control over this ecosystem (over the long-run) simply because the early investors were born in the right place at the right time, then we are ignorant of history and ignorant of the inevitable catastrophic consequences of oligarchic/aristocratic domination of an economy.

Prioritizing Purpose Over Profit Does Not Eliminate Profit. I am a capitalist, an investor, a corporate executive in the FinTech industry, a published book author in the field of International Political Economy, among other things that give me “capitalist street cred,” but I also understand how to distinguish between profit and purpose, just like Adam Smith did. So, of course I understand that investors in any project should receive a positive return on their investment, but that’s not the primary purpose of a public cryptocurrency; and we can be certain the early investors know that. But let’s define “profit” here to make sure everybody can see just how “communist” we are for daring to prioritize purpose over profit. . . .

How Much Profit Have the Whales Already Received? [At this point in the debate, I presented all the calculations to substantiate the following astronomical ROI figures that the early investors received. Those calculations are omitted here to avoid publicly revealing any particular investors and stakeholders in that project. Now my debate with them continues below. . . .]

Earliest Investors’ ROI: 39,000%
Avg Profit for All Early Investors: 34,000%

And if we performed these calculations earlier this year at peak prices, the ROIs would be ~3x higher.

Connecting Reality to Purpose. Given the following facts . . .

  • The primary purpose of this project is to build a trust-less socioeconomic platform for humanity.
  • The primary purpose (by definition) of every project should be given a higher priority than all other factors.
  • The whales have already received at least 34,000% profit (unrealized); and some have received over 100,000%, depending on when and how much crypto they’ve already sold. That’s already more profit than most investors ever get in their wildest dreams.

Are We Being “Communist” or Threatening the Sanctity of Capitalism? Is anybody in this community going to claim that capitalism is being threatened because many of us in the community want the team to prioritize the purpose of this project above profit motives? Is anybody in this community going to claim that investors are being injured merely because we want to gradually reduce the concentration of wealth/power of the whales over a gradual period of time after they’ve already received at least a 34,000% profit (as of this moment), which will most certainly exceed 1,000,000% profit by the time they actually liquidate their crypto positions according to the rational framework I presented previously?

Do We All Understand Economic History & the Fundamental Purpose of This Project? If anybody in this community still believes that the whale debate is about communism vs. capitalism or thinks that the risks I described previously are unrealistic or over-exaggerated in any way, then they have never actually read Adam Smith’s Wealth of Nations or his Theory of Moral Sentiments (or any other serious economist), they know nothing about economic history, and they have no meaningful understanding of the catastrophic consequences of allowing an oligarchy to own and/or control an entire economy. . . .

Reviewing Our Goals as a Community. In life and in business, whenever we establish priorities about how to spend our scarce time and resources, we must make trade-offs based on the goals we want to achieve. IMHO, the highest priority and primary goal should be to earn and preserve the trust of every human on Earth today who is evaluating this project’s actual level of wealth/power/network decentralization. Why should that be our highest priority (excluding the obvious technical priorities)? Because every serious student or scholar of Political Economy knows that this crypto economy is doomed over the long-run if it’s controlled by a relatively small number of whales that can control all the decision-making processes. Anybody who does not grasp these realities is either focused on short-term speculation or they have no meaningful economic and geopolitical education.

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Broken Monetary Policies Destroy Community Enthusiasm. The excerpts above represent only a tiny fraction of the 100s of man-hours that went into that debate. In return, I was attacked by the crypto whales and/or their trolling cronies and the core team ignored the concerns of hundreds of us in that community who were previously deeply passionate about that project. In fact, I was the most “liked” contributor in that community and many of us were deeply involved in several projects based on that technology until we realized how unnecessarily concentrated their crypto money supply actually is.

Purpose-Driven, Economically Sustainable Capitalism. It should be clear based on everything presented in the Gini book and this website that the Gini team is not opposed to investors who want a profitable return on their investment. We are not opposed to the core Smithian principles of free-market capitalism. In fact, the entire purpose of our previous book was to prevent capitalism from completely collapsing. However, we are absolutely opposed to launching a public blockchain on an oligarchic foundation, controlled by whales seeking perpetually increasing profits of 100,000% to 1,000,000% and beyond, which will inevitably create perpetual volatility, perpetually broken incentive structures, perpetual wealth and power inequities. . . .

In one of my many debates, I said:

This Is Supposed to be a Trust-Less System, but How Can We Trust Anonymous Whales? I’m sure they’re all nice and trustworthy mammals, but one of the most important goals of this project is to achieve a trust-less economic system that does not require faith in fallible human nature or unknown whale intentions. I’m not questioning anybody’s intentions, but these anonymous whales currently thwart the spirit and intent of that goal. At this moment, it appears that these whales represent an even greater potential threat to this ecosystem than the Federal Reserve is to USD today because the Fed is at least theoretically accountable to the will of the American people indirectly through the election of the president and members of Congress, who appoint the Fed Chairperson. However, these unelected, anonymous whales are protected and entrenched by anonymity and contract law, which supersedes all other mechanisms of democratic governance.

In response, a community member said:

This argument seems to contradict itself in the first sentence: “This Project Is Supposed to be a Trust-Less System, but How can we trust anonymous whales?” — That’s the point, we don’t have to. It’s trust-less; whales or no whales. Their “unknown” intentions don’t matter unless they all collude.

That person made several other comments, all of which revolved around the idea that the whales have good intentions because nobody would want to hurt the value of their own crypto holdings. My response below to his comments may help others to understand why his comments demonstrate a deep misunderstanding of human incentives within economic and political systems, and in particular, the problems within the all crypto markets today. (See the Decentralized Gini Exchange page for numerous examples.)

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There are no paradoxes in life. What humans perceive as a paradox is actually just a collision with our own ignorance. In this case, there is no contradiction [in my statement] if you truly understand my point: A system can be intended to be trust-less, but a flaw in the system’s implementation can thwart its actual trustworthiness. More specifically:

  1. The technical integrity and trustworthiness of a blockchain is undermined when the 50%+1 attack risk exists (and it does in this case).
  2. The integrity and trustworthiness of a crypto market and corresponding economy is undermined when the concentration of crypto wealth gives whales enough power to manipulate the market (as proven in the whale manipulation charts).
  3. The integrity and trustworthiness of a blockchain’s political governance (i.e., technical development decisions, project voting, PR strategies, minting rewards algorithms, allocation of scarce team resources, crisis management strategies, regulatory and government relations strategies . . . ) is undermined when a non-trivial portion of the community has reasonable doubts about the long-term viability of the project and/or the integrity of its crypto market due to the preceding two vulnerabilities.

Thus, on every meaningful level—technical, market, and political—a high concentration of wealth in any economic/market system completely undermines the integrity of that system. In response to these points, there are two general good-faith responses:

  1. “We trust the team and whales; so, don’t worry, be happy and enjoy the ride.”

OR

  1. “We love the team, but the high crypto concentration has many unintended long-term consequences that represent real risks to the viability of our project and community; therefore, we should take these concerns seriously and do everything possible to resolve these problems ASAP.”

The people who take your position have chosen the first option. I’ve lived long enough to know that option just kicks the can down the road. So, I choose the second option. [That community member then said the following.]

“Having a lot of money doesn’t let you ‘control’ the economy.”

Yes, it certainly does. Have you ever worked on Wall Street? In Canary Wharf in London? Have you ever lived in the U.A.E., Saudi Arabia, Mexico, Russia, DRC, or any country in which the financial system is blatantly dominated and controlled by whales? Did you see how less than 10 people who substantially controlled over 70% of all the wealth within the American economy were able to dictate to over 300 million Americans that their taxes would be used to bailout the banks in 2008? How did they get that power and leverage over the entire ecosystem? They controlled the wealth because they controlled the laws that govern the way the system works; that’s the nexus of politics and economics. Controlling the flow of capital and wealth within a consortium of banks and/or as a consortium of whales certainly does give you the power to control an entire economy.

Market Failures. In fact, in this case we already see the whales manipulating the crypto market quite frequently with their sell- and buy-walls, bear raids, pump-and-dump attacks, and other illicit strategies executed to manipulate the market. . . . These are market failures, not the mechanics of a free market. Market failures are fundamentally spawned by dysfunctional monetary and regulatory policies. In crypto markets, these market failures are the direct result of extremely high concentrations of crypto wealth in the hands of a few, which is the direct result of poorly executed ICOs and monetary policies.

The people who have debated against my position on this issue have ignored many aspects of economics and politics in the real world, including the past decade of crypto politics in the real world. I’ve already written extensively in many threads about these dynamics so I’m not going to repeat them anymore.

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Conclusion. The Gini Foundation was born from our frustration with all other major cryptocurrency project teams today who are, respectfully, philosophically blinded by the libertarian fantasy of pure free markets. This is why we wrote the Gini book and why we are building the Gini School of Economics, the Gini Decentralized Cryptocurrency Exchange, the Community Governance System, and the corresponding Gini BlockGrid. If you believe in the principles expressed in this article, please consider participating in the Gini ecosystem.


Notes:

[1] I have edited these excerpts only to remove personal and organizational names to save them from unnecessary public attacks. I still wish that project and their team great success in all their endeavors.

[2] After a while I realized that this was my interpretation of the project’s purpose based on many of the comments made by that project’s founders, but the reality turned out to be substantially different. This is why the Gini team decided to shift our time and resources to building Gini instead.


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