Official Response to “Bancor Is Flawed”

Not sure about the book, but Adam Smith's barter hypothesis is largely debunked [1].

[1] https://www.theatlantic.com/business/archive/2016/02/barter-...

> With Bancor, there is no need for two opposite wants to exist at the same time in order for the price discovery (through actual trading) to function

I don't understand. If everyone wants to buy, nobody will trade and price discovery will not occur. Can someone please help me understand this?

The ICO scene right now is insane. Definitely bubble-ish behavior.

I'm flabbergasted by these ICOs and the monetary values associated to them. But that's just the tip of the iceberg really.

Then I think "well, let's see what this startup getting founded wants to produce". And then invariably it's some super "high concept" ultra-virtual "product" that is directly related to ethereum itself.

It's not a new google, facebook, uber or dyson. No it's a protocol that "enables built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains" or sometimes "an open source messaging platform and mobile browser to interact with decentralized applications that run on the Ethereum Network" or even "a new exchange that facilitates secure trades between people from bank accounts to CryptoCurrency".

I'm a coder, I think I have a good general knowledge of how a blockchain works, I even have a passing knowledge of what those smart contracts are and how they're implemented (not enough to, say, implement them correctly myself but definitely more than 99.99% of the general population). Then I read about those innovative products and I'm simply drowning in a see of virtual concepts built on top of other virtual concepts. A concept of a concept of a concept.

See this for instance: https://www.youtube.com/watch?v=P8EoAvWfFnY (avoid the comments at all possible cost).

I've watched the video, perused their website and I'm still not clear at all about:

#1 who needs this? #2 why do they need it? #3 how will bancor make money from this? #4 why do they need $144M to do it? #5 what prevents anybody else from just using the same algorithm and providing the same service at a lower cost?

The video even ends with the CEO admitting "we're only beginning to discover the different use cases". Well, looks like you have over a hundred million dollars to finish your homework now.

It's true for that bancor project, it's also true of https://status.im/ and a few other big ICOs I've seen in the past few weeks. Projects coming out of nowhere and raising a ridiculous amount of money. And then I google for those projects to see what others think about them and 99% of the hits are only talking about... the ridiculous amount of money they raised and nothing else.

I'm not saying that I'm certain that ethereum and those ICOs are scams but I think the ethereum community should work a lot harder to better explain what they're building exactly, because I'm pretentious enough to believe that I'm not dumber than all of those folks who've just collectively pumped millions in those ICOs. I'm willing to bet that many of those people are not betting on the products (or even that they understand those products), rather they see the insane valuations of cryptocurrencies and they want a piece of that.

If there was a bad response to a critic, this will be it. While Sirer's post was a bit terse, this response doesn't earn brownie points by going the same route.

First, they start off as many "responses" in crypto currency seem to start that is - saying this is all FUD and the critic should stop spreading FUD. They also take the Trump route, not a great choice of words - "fake news".

Where I lost them was when they equated themselves as being so important to crypto currency space that critiquing them can be used to tag the whole space as being a giant ponzi scheme.

On still persisting, I found their clarification on "asynchronous price discovery" very funny. The point of a market making algo is to "make the market" ie they have to act as counter parties to each trade irrespective of whether there is a buyer or a seller (ie not a price matching algo). The price discovery in that process happens on how the market making algo is written.

Though I guess being programmers and writing a document for programmers they had to go with a technical term. But with someone who understands economics on their team, they should have done away with it.

All said, the most important part of a market making algo is not to provide liquidity or smooth prices. As Sirer put it, smoothing prices is a bad idea. If something is volatile it is because the market deems it to be so. Going against the market is not good.

I hope these guys watch this video carefully to understand how trading works: https://www.youtube.com/watch?v=RLySXTIBS3c