Light Pools
bitcoin · cryptocurrency · markets

Bitcoin has inscriptions and will soon have runes, protocols for bitcoin-native digital artifacts and tokens.

However, these assets still suffer from a lack of decentralized trading venues.

Assets on other chains are commonly traded using automatic market makers, or AMMs. AMMs pool assets and use simple formulae to dynamically price swaps between assets.

They are efficient from an on-chain transaction cost perspective, but they are still on-chain, requiring additional transaction overhead compared to that required for the swaps themselves.

They also produce inefficient prices, since AMM prices can only change as a result of on-chain activities: deposits, withdrawals, and executions, which are costly.

Bitcoin lacks the Turing-complete smart contracts necessary for implementing AMMs. Fortunately, there is an alternative which is more efficient, both from a transaction cost and pricing perspective.

The idea behind light pools is simple. Users who wish to offer swaps between Bitcoin-native assets, like rare sats, inscriptions, or runes, run nodes which quote prices for swaps.

These quotes are signed messages, gossiped between other light pool nodes. Quotes must include BIP-322 signatures of the UTXOs that contains the asset offered in trade. Requiring signed quotes eliminates spam, since quotes can be rate-limited on a per-UTXO basis. Additionally, when UTXOs are spent, corresponding offers can be dropped.

When a market taker wants to accept the quote of a market maker, they use the information in the quote to construct a PSBT which includes their signatures, and broadcast it to the network. These messages can also be gossiped by the network, and rate-limited based on the taker's UTXOs. The maker receives this message, possibly asyncronously, countersigns, and broadcasts it to the Bitcoin network to be mined.

These PSBTs and transactions are not vulnerable to mempool sniping, since signatures commit to all inputs and outputs.

Light pools require more implementation work than an AMM. Someone will need to write an implementation of the gossip network, quote message format, and PSBT construction and finalization. However, these are all done with a little bit of elbow grease, and don't require tilting at the quixotic open-research-problem windmills that plague much of cryptocurrency. (And Bitcoin, to be fair.)

The user experience of light pools should be quite good. Users can run their own node to accumulate an order book, or rely on a third party. Prices can update in real time, between blocks, without any on-chain activity.

Little work has been done on decentralized asset trading on Bitcoin, simply because the market cap of Bitcoin-native assets was small. With rare sats, inscriptions, and soon runes, the table is set and the time is ripe, and light pools seem like a promising avenue to explore.

Competitive Governance
markets · governance

I've been thinking about competitive governance, trying to dissect what, exactly, its desirable properties might be, and how to achive them. It strikes me that there are two separate desriable properties that governments have under competition, which, for lack of a better word, I'll call incentives and constraints.

Good incentives encourage governments to do useful things. Whereas constraints prevent them from doing harmful things, or cause governments to cease to exist if the do harmful things, or at least limit the harm that they can do.

Investable Desiderata
computers · cryptocurrency · internet · markets

There are a lot of things that I wish would happen, but don't have the time to actually do myself. I complain about such things all the time to basically anyone who will listen. Such efforts are all well and good, and sometimes actually pay off, but additionally, I'd like to materially support people who might actually do these things.

This post, which I'll try to keep up-to-date, if I remember, documents the projects which I wish some talented go-getter would take on, and in which I would invest money in if given the opportunity.

If you are one of these aforementioned go-getters, email me!

The Terrestrial Dividend
markets · politics

Tax the land, pay the people.

The Terrestrial Dividend consists of a tax and a dividend. Revenue is generated with a tax on the unimproved value of land and distributed as a cash dividend to all citizens.


If You're in Favor of Wealth Redistribution

If you are in favor of wealth redistribution, you should want to raise as much money as possible, as fairly as possible, and get as much as possible into the hands of those who need it.

The Terrestrial Dividend accomplishes all of these goals.

If You are Against Wealth Redistribution

If you are not in favor of wealth redistribution, you should want revenue generation to be as efficient as possible, and to minimize the negative economic impact of distribution. Additionally, you should want wealth redistribution to be done in such a way that if it is harmful, incentives align to reduce it.

The Terrestrial Dividend accomplishes all of these goals.

The Terrestrial Tax

The Terrestrial Tax is economically efficient. The supply of land is fixed, so a tax on the unimproved value of land does not prevent the production of more land. A tax on widgets, on the other hand, reduces the incentive to produce widgets.

The Terrestrial Tax is progressive. Land is owned by the wealthy, so the wealthy would pay a much greater share of the tax. Due to the fixed supply of land, the tax cannot be passed on to tenants.

The Terrestrial Tax respects privacy. The government does not need to know who owns what land, or what they are doing with it. The tax can be collected with anonymous payments, and only in the case of non-payment must the government involve itself.

The Terrestrial Tax cannot be avoided. It is impossible to hide land or disguise use of land.

The Terrestrial Tax encourages productive economic activity. Since the tax is levied on the unimproved value of land, under-utilized land is a liability, and will be brought into productive use or sold, not held as a speculative asset.

The Terrestrial Tax is simple. Income, sales, value-added, and corporate taxes require enormously complex and err-prone reporting. The details of these taxes are the source of endless political litigation. Under the Terrestrial Tax, the only complexity is in fairly valuing the unimproved value of land, clearly an easier task.

The Terrestrial Tax is legible. The negative effects of a too-low or too-high tax rate can be observed and the rate corrected.

The Terrestrial Dividend

The Terrestrial Dividend is beneficial. Cash is more useful in all circumstances than in-kind payments of the same value. The people who need help will get the most benefit possible.

The Terrestrial Dividend is fair. All citizens receive equal-sized cash payments. There is no need to exclude certain recipients, since the wealthy will already pay more tax than they receive as dividend.

The Terrestrial Dividend is efficient. Cash payments avoid the overhead of defining the details of and administering in-kind benefits.

The Terrestrial Dividend is what people want. People prefer cash over in-kind benefits of the same value.

The Terrestrial Dividend is unobtrusive. It is not means tested, nor does it require an application. The poor are the least equipped to fill out applications and submit documentation of income, so this ensures that even the very worst off have the best chance of receiving benefits.

The Terrestrial Dividend is legible. The negative effects of a too-low or too-high dividend can be observed and the amount corrected.


The Terrestrial Tax and Dividend are good policies on their own, but even better together due to aligning incentives.

If you want to increase the amount of the dividend, you should want to increase the value of all land, so that the dividend can be increased.

If you want to reduce the amount of the tax, you should want to increase the value of all land, so the tax rate can be reduced without reducing the divided.

Under the Terrestrial Dividend, everyone should care about reducing government overhead and waste, because it comes out of their own pockets.

Also, everyone should care about removing bad policies and implementing good ones, because they increase the value of all land and make everyone better off.

Tax the land, pay the people.

Lightning Mints
cryptocurrency · internet · computers · markets

Federated blind mints have attractive privacy, scaling, and security properties that are highly complementary to those of Bitcoin and the Lightning Network.

I originally became interested in blind mints while thinking about Lightning Network wallet usability issues. When Lightning works, it is fantastic, but keeping a node running and managing a wallet present a number of challenges, such as channel unavailability due to force closes, the unpredictability of the on-chain fee environment, the complexity of channel backup, and the involved and often subtle need to manage liquidity.

All of these problems are tractable for a skilled node operator, but may not be soluble in the context of self-hosted wallets operated by non-technical users, hereafter normies. If this is the case, then normies may have no choice but to use hosted Lightning wallets, compromising their privacy and exposing them to custodial risk.

Chaumian mints, also known as Chaumian banks, or blind mints, offer a compelling solution to these problems, particularly when operation is federated. Chaumian mints, through the use of blind signatures, have extremely appealing privacy properties. The mint operators do not know the number of users, their identities, account balances, or transaction histories. Additionally, mint transactions are cheap and can be performed at unlimited scale.

Mint implementations, typified by eCash, have hitherto been centralized, and thus, like all centralized, custodial services, expose users to custodial risk in the form of operator absquatulation and mismanagement. To fix this, mint operation can be federated, with all operations performed by a quorum of nodes controlled by different parties.

Despite these interesting properties, Chaumian mints have largely been forgotten. This post gives an excellent overview of the phenomenon. I believe that Chaumian mints are currently severely underrated in general, and in particular deserve consideration as a potential avenue for improving custodial Lightning Network wallets.

Compared to a naïve hosted Lightning Network wallet, a service operated as a federated Chaumian mint offers excellent privacy, usability, security, and scaling.

Privacy: Privacy leaks from a Lightning mint come in two forms, internal and external, when a mint operator or an outside actor, respectively, observes sensitive information.

Blind signatures protect against internal privacy leaks, making them a strict improvement in that respect over custodial Lightning wallets.

When compared to a single-user Lightning network wallet, Lightning mints also protect against external privacy leaks. If the activity of a single-user Lightning Network wallet can be observed, which is possible but non-trivial, all such activity is preemptively that of the owner of the wallet. However, similar to a standard custodial Lightning Network wallet, any observable Lightning Network activity of a Lightning mint is the aggregate activity of its users, who thus form an anonymity set. If the number of users, and thus the anonymity set size, is large, external privacy leaks are also prevented.

Usability: Compared to a self-managed Lightning Network wallet, and similar to a standard custodial Lightning Network wallet, Lightning mint wallets offer superior usability. A user need not be concerned with the details of node operation or channel management, and can deposit to and withdraw from their account with standard Lightning Network invoices.

Security: The security of a Lightning mint is weaker than that of a self-hosted wallet. A quorum of federation members can abscond with funds. However, compared to a standard custodial Lightning Network wallet, security is greatly improved. Additionally, federation members might be located in different jurisdictions, making the mint robust to regulatory interference. Furthermore, members might be entities with online reputations, such as anonymous Bitcoin Twitter users with an established history of productive shitposting, providing further assurances against mismanagement and fraud.

Scaling: Mint operations are extremely lightweight, similar to Lightning Network transactions, so scaling properties are similar to the Lightning Network itself. Additionally, users need not manage their own channels, so a well-capitalized federation can open channels efficiently, lowering the per-transaction channel management overhead.

Interoperability and market dynamics: Additionally, my hope is that such systems will be developed with a standardized protocol for communication between wallet interfaces and mint backends. This would allow users to use different backends with the same local wallet interface, encouraging competition in the market.

For more discussion of Chaumian mints and their applicability to Bitcoin, see Elsirion, the author, is also at work on MiniMint, a federated Chaumian mint with Bitcoin and eventually Lightning Network support.

To close with a bit of speculation, I believe that Chaumian mints were never of particular interest or importance because they were limited to interoperating with the fiat currencies of the time. With the ascendance of Bitcoin, mints now have access to a powerful, decentralized, and uncensorable currency , made economical and fast by the Lightning Network.

I believe this layering of Chaumian mints on top of Bitcoin and the Lightning Network will, in the fullness of time, be demonstrated to be enormously powerful, and make Chaumian mints themselves worthy of renewed study and consideration.

Sex Sells

As an unrepentant degenerate and fan of microeconomics, it should come as no surprise that I find the online sexual economy endlessly fascinating.

Most of what happens there isn't surprising to me, with the exception of pricing for online sexual services, which is much higher than I would have expected.

As an example, take private, one-on-one cam shows. Browsing, the going rate seems to be between $2.50 and $5.00 per minute, or $150 to $300 per hour.

This is mysterious to me.

Looking at ads on, offline prostitutes seem to charge $300 an hour. This isn't the amount advertised for a one hour session, but the marginal difference in price between a one hour and two hour session, and thus a reasonable estimate of the hourly rate, when preparation and travel are factored out.

Given that private cam shows are legal, can be done at home, and require minimal equipment; while offline prostitution is physically dangerous, illegal, unpleasant1, and highly taboo, it seems strange that they are priced roughly the same.

A priori, I would have expected a price difference of 10× or more, like $300 per hour offline and $30 per hour on cam.

read more…

Equitable Auction

The PS5 was released about a week ago, and, predictably, it is impossible to get one. All retailers, online and IRL, are sold out. Of course, consoles are available on Ebay at ruinous prices, so at least the scalpers are doing well.

Economists, of course, are wringing their hands and mumbling about Vickrey auctions. What Sony should do, they mutter, is to hold a daily auction for PS5s, and let the market decide the price.

The economists are, of course, quite right. If Sony auctioned off PS5s there would be no lines, no scalpers, and no uncertainty. You could put in a bid at the price that you wanted to pay, and then simply wait until demand had died down for your bid to be filled. As a bonus, Sony would make more money for producing something that people wanted to buy, and more capital to ramp up production.

Unfortunately, the economists don't get their say here, because of their arch enemy, non-economists. Non-economists, or, normal people, as they are otherwise known, as far as I can tell, don't understand that there is such a thing as an inescapable trade-off. They want everyone to get a PS5, everyone to pay MSRP for it, there to be no scalpers, nobody to ever make a profit from demand exceeding supply, and all things to be fair, based on confused and self-contradictory conceptions of unfairness.

So, companies can't hold auctions for scarce goods, and have to set an MSRP, produce whatever they can, and hope for the best.

I wonder though, if there might be some way for a company to hold an auction for their products, but in a way that would be perceived as fair.

Here is one possible setup for such an auction, using Sony as the example company, and the PS5 as the example product:

Essentially, any time someone pays over MSRP for a PS5, they ensure that eventually, someone will get a PS5 for less than MSRP. If someone rich or impatient buys a PS5 for $1000, two less impatient people can eventually buy PS5s for $250.

I think, perhaps, this would be perceived as fair. But, with real people, you never know.


From Scott Alexander on the Amish health care system:

The Muslims claim Mohammed was the last of the prophets, and that after his death God stopped advising earthly religions. But sometimes modern faiths will make a decision so inspired that it could only have come from divine revelation. This is how I feel about the Amish belief that health insurance companies are evil, and that good Christians must have no traffic with them.

The post is about the advantages of the Amish health care system, which seems to have much lower costs and equal effectiveness when compared to conventional American health insurance centered health care.

The post is gripping (well, at least if you're interested in why American health care is so expensive), so I recommend reading it. But briefly, the Amish seem to have much lower costs with the same quality of care due to:

I wonder if much of this could be replicated with, not an insurance plan, but, something else… an "uninsurance plan":

I suspect that such a plan would be very cheap, to make a number up, perhaps no more than $10 per month. If it were only $10 per month, and members got an HSA, they might want to join just for that. And, if they got insurance-negotiated rates when paying out-of-pocket while being uninsured, the would almost certainly be willing to pay for it.

Such an uninsurance plan would encourage consumers to plan ahead, shop around, and save for medical expenses in their HSA, maybe giving them health care approaching that of the Pennsylvania Dutch.

VXX is a dangerous chimeric creature; it is structured like a bond, trades like a stock, follows VIX futures and decays like an option. Handle with care.

And, currently being algo traded by a program written in Excel VBA.

Strange times indeed.