TetraMesa

Web3 / DeFi Trust Deep Dive

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We should understand the nature of trust in some of our newer evolving financial systems, especially as they merge or outright collide with traditional systems. Part of the whole sell for DeFi is about being able to securely transact in so-called – and unfortunately labeled – trustless environments. What “trustless” really means and enables here is permissionless execution without dependence on discretionary gatekeepers. Or rather, trust comes from sources other than the default historical authoritative nature of traditional centralized institutions within traditional finance, as enabled and regulated by government. Regardless of whatever more self-sovereign dreams of DeFi may have been or remain, this realm does not eliminate the influence of law, regulation, or government, especially once assets touch the real world. Still, DeFi reduces reliance on operational discretion of institutions, and provides a variety of new values from Global, always-on settlement to programmable money, interoperability, inclusion, and so on.

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Tech Driven Financial Systemic Risks to Watch

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Note… Nothing here are predictions. Only what I believe are plausible issues worth attention. Nothing is intended as doom and gloom. The point of identifying risks is to consider ways to mitigate or eliminate them. With that in mind, there’s some things I’ve been getting concerned with lately.

Crypto, DeFi, and AI, seem to have things in common besides being disruptive and interesting, and that’s risk beyond their spheres of influence. I’m optimistic about long-term outcomes, at the same time success usually isn’t a straight line. Risks include how individual sectors can impact wider markets. Some technologies don’t just succeed or fail internally, but reshape industry plumbing, incentives, and reflexes in the larger scale marketplaces, often faster than institutions can adapt.

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Cryptocurrency and Fiat: Independence, Interdependence

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This article is a follow-up to “How Does Fiat Currency Become Cryptocurrency?“

Crypto’s original goal: self-sovereign, independent finance. Some see it as the dream; others impossible. Reality: separate system, yet as a practical matter, is often coupled to TradFi.

It’s a key nuance from the discussion of the on-ramping processes, liquidity provision, and reserve management. Crypto intertwines with fiat for access, valuation, and compliance, but this isn’t essential. Cryptocurrencies were designed as standalone assets, valuing from scarcity, decentralization, and network effects, not fiat backing. In practice, fiat bridges to tokenized economies for adoption/integration. It’s useful to further unpack this distinction, drawing on foundational principles of blockchain technology, economic theory, and legal frameworks.

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How Does Fiat Become Cryptocurrency?

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A common disconnect I’ve heard about is how dollars seem to “magically” become crypto. If you already know financial rails, skip this article. The focus is more for retail investors or digital product managers who find themselves working more with crypto interfaces.

Spoiler Alert: There’s no magic. A fiat-to-crypto on-ramp swaps your cash for crypto; value “appears” when the crypto hits your wallet. It’s sort of like trading dollars for euros at an airport, except there’s no government backing or guaranteed redemption/liquidity. That’s it. All done. Deep dive below for a lot more!

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