From the Fault Line No.1
Onchain Derivatives, Insurance for Stablecoin Flows, The High Price of Validating Online, Indigenous Banking Primitives
Hi Fam š
Back in school, every impending writing deadline caused much anguish. I put more work behind the different tricks to cajole me to write word-by-word than my essays. When I graduated, I swore Iād never write for work.
Fast forward a few years, somehow I started angel investing out of necessity. As I didnāt know anything about economics, finance, and investing, I studied the greats and noticed an inseparable connection between writing and being a good investor. I wrote because I had to LARP.
By the time I remembered writing off writing, I accepted stress as a necessary ingredient.
Enough banter. On with the newsletter.
Fault Zones
š” The House that Ledig Built | cryptowanderer | Ledig x LAVA Writing
This week I tried to explain perps to my full-time artist housemate. I rambled about the history of derivativesāfowards, futures, options, swaps etcāthen forwarded this 43 minutes of delight over TG.
Because nothing seemed to click, out of desperation, I showed him a message a friend sent.
āHyperliquid lets anyone (minus Americans) trade EWY-USDC and KR200-USDC even when markets are closed.ā My housemate probably didnāt get it. But I hope my last comment at least made him curious.
Hyperliquid leans into a decentralized exchange to enable an accessible financial system thatās not owned by one company; Ledig (pronounced Le-deej) leans into onchain derivatives to enable transparent prices and functional local markets.
I dream of a day when a decentralized exchange, like Hyperliquid, will one day āhouse all of financeā. Yet, when I look at derivatives from emerging markets, the path there seems to be anything but straight. The immediate, on-the-ground demand is to hedge FX risk, and Ledig is doing that with one foot in the streets and another in theory. Theyāve built a market for on-chain call options and āare selling call options today to people who need to sell some of the risk associated with holding Naira.ā
Ledig is a bet that the crooked roads shall become straight and the rough ways smooth as market demands are met, one at a time.
āļø Banking Insurance in the Stablecoin Age | Giannis Antetokounmpo, Farzam Ehsani, Yoseph Ayele, Sam Broner
Iāve recently been asking LLMs to help me understand terms that would have repulsed me five years ago.
Negotiable certificate of deposit (NCD)? Repurchase agreements (repos)? Fidelity insurance? Surety bonds? Deposit insurance? Trade credit insurance? On and on.
A friend once said finance takes simple concepts and explains them using complicated terms.
Growing up in Greece, Giannis got burned so bad that he went to (what seemed to others) absurd lengths to maximize protection. He spread $250k across 50 accounts. Then he worked with a wealth manager to derisk his actions. He brute forced diversification.
Finance is best learned through experiences, not lectures.
Iād wager that Giannis wouldnāt misdiagnose the problem like the South African regulators. Not only will he agree that crypto != capital flight, based on his experiences, heād say compared to fiat, stablecoins are an inferior way to protect your wealth.
Though crypto has better collateralization on the asset side, on the flow side, we have a glaring holeāan insurance gap between fiat and stablecoins. Not even Stripe has figured this out, yet.
Weāll eventually figure out how to insure stablecoins, but until then, my mountain of terms awaits me.
š Anything That Can Be Measured.. | Avi Patel | Kled.ai
Kled went viral this week on Nigerian X after they removed the app from the Nigerian App Store and temporarily IP banned the whole region. Nigeriaās fraud rate was 94-95% compared to other markets who had <10% fraud rates.
I refuse to take sides as itās never worth dying on any hill on your second newsletter.
This did take me back to two conversations.
The first conversation I had was with the founder of a protocol. He had an extraordinary number of Nigerians who, compared to the financial value they contributed to the protocol, were disproportionately active in their Discord. This intrigued him enough to reach out to better understand the context on what drove Nigerians beyond expectations of a phat airdrop.
The other conversation was with an operator of a company that issued crypto cards. One responsibility he had was to spot illicit activities. One of the oddest things he found was that a large percentage of people who issued their cards through their company did so through Kenyan identification documents. However, barely any transactions happened in Kenya. Typically, the holders of these Kenyan-KYCād cards made large purchases of real estate and jewelry in the Middle East. His most reasonable hypothesis was that Kenyans are selling their identities online.
In both cases, these activities didnāt cross the line and werenāt flagged as illicit activities. But they did draw enough attention for the people involved to closely monitor them.
Drawing the line between whatās legal and illegal is much clearer when it involves a single jurisdiction. But when the same thing happens on the internet, across jurisdictions, that line is barely visible and the cost of verification (even with AI helping) skyrockets.
The simplest option, then, is to pull the plug.
š§© Indigenous Banking Primitives | M-KOPA, Helios Investment Partners, OkHi
Random people on the internet told me I should read George Ayittey. I picked up Africa Unchained. The book extinguished all confidence I had that I could read anything.
TL;DR. Hippos are being replaced by Cheetahs. Africaās future lies in learning about indigenous African institutions that existed centuries before colonization and putting this knowledge to use when creating present day institutions.
Iām not sure how many gaps still remain in the stack for there to be an explosion of robust financial institutions, but seeing data-native primitives based on African realities such as M-KOPA and OkHi surviving, succeeding, and slowly coming together in the face of insurmountable odds rivets me.
These building blocks will either build new institutions from the ground up or complement existing institutions, and because of them future African financial institutions will be built differently and (fingers crossed) be even greater than their Global North counterparts.
Iām honored that I have the opportunity to invest into such dynamic and untrodden markets.
š¤¦šæ Nigeria Remittance Dollar Ban | Technext
Per our resident Nigerian Ryan, The Protean:
Iāll ask a founder. Itās not something that has directly affected me yet, and I think whatever effects/pushback will manifest later this month.
But, like Iāve previously shared, the difference between the CBN rate and black market rate/true rate is negligible for a consumer until you hit >$1,000āwhich is unlikely because remittance/family support tends to be <$300 for most families Iāve interacted with. I think people who want to move larger funds will go through their Aza men/Whatsapp [OTC] group chats.
Iāll be monitoring the situation. š
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Adam Foroughi: Highest insight-to-minute ratio among David Senra podcast episodes. The dumpster fire of regulating prediction markets. A VIBE. Physically settled derivatives for compute.
Whatās Next
I started with a blank page, clueless what the output will read like, and each word I wrote inched me closer to an inflection point. When I hit it, all my uncertainty converted to confidence, confidence that I would be able to ship something.
Until I settle into a cadence, apologies in advance as I learn to calibrate. I aim to ship these every Tuesday.
If you found this interesting and know someone else who would, please forward it to them. Iād really appreciate it!
