The Blind Men and the Digital Asset

There is an ancient parable about a group of blind men trying to understand what an elephant is. Each feels a different part of the animal, arriving to different conclusions.

The current Digital Assets regulatory situation is very similar.

In the parable, none of them is able to perceive the whole truth, since they are trying to fit the elephant into their prior concepts.

Different regulators have been taking parts of the concept of a digital asset and trying to force it into legacy regulation.

In this article I show different short sighted ways to perceive a digital asset, none of them being able to completely describe the beauty of this new asset class.

For this exercise, our elephant will be a Balancer liquidity pool. An elegant, flexible and complex concept.

1 - It's a Market Maker:

A Market Maker is responsible for providing liquidity between buyers and sellers. A Market Maker should guarantee that a buyer or seller would always be able to trade. DEXs in general are AMM (Auto Market Makers), and that is an important part of our elephant.

2 - It's an ETF:

An ETF is a basket of assets that are balanced using a predetermined logic. It's a simple way of investing in a class os assets, such as growth stocks, dividends stocks, commodities, without worrying to understand every asset in the class.

Balancer allow the creation of liquidity pools with many assets, and different weights for each. By providing liquidity in our elephant, you are exposed to all of it's composing assets, but instead of paying for re-balancing, you receive fees.

3 - It's an Exchange:

An exchange is a place where you can buy and sell assets. You can do exactly that when swapping assets using our elephant.

4 - It's a Fund:

Balancer liquidity pools can be updated by the contract owner to change the target weight of each asset. By changing the weights, our elephant is following the manager's will, and the price of the liquidity token will be impacted, similarly to shares in a fund

5 - It's a Dutch Auction:

A Dutch Auction is a sale process where prices start high and falls until someone is willing to pay for it.

There is a popular use of Balancer pools called Liquidity Bootstrap Pools. These pools gradually change the weight of the assets, resulting in a price that starts high and gradually falls.

There are many more possible interpretations to what our elephant do.

It's a contract, it's software, it's freedom of speech, it's infrastructure. It's all of that an none of that.

If regulators and legislators try to force the concept of this technology into legacy regulation, they will be trying to fit a circle into a square hole.

By doing so, they might end up destroying many of the benefits delivered by this technology.

Digital Assets are too different, and deserve regulatory clarity by a Digital Asset regulator. In Dubai there is already a Virtual Asset Regulatory Authority (VARA), the first independent Virtual Asset regulator.

In some parts of the world regulations is slowly moving to the right direction. In others it seems to be moving back, punishing good actors and leaving the public to be targeted by the bad ones.

These are some people fighting for good regulation:

Brian Armstrong , a16z crypto , Jesse Powell , Ryan Sean Adams , David Hoffman , Ryan Selkis , Kristin Smith