Earlier this week I wrote a long-overdue postmortem on OpenBazaar, the cryptocurrency-powered e-commerce marketplace that folded in January. What follows is a eulogy of sorts.

Skeptics might wonder why I suggested, in my interview with OpenBazaar co-founder Brian Hoffman, that someone might want to dust off the open-source code and have another go at building a peer-to-peer version of eBay. Or at least, why would anyone other than a criminal want to build a marketplace where anyone can take part and no product or service can be banned? 

I’ll give two examples that illustrate the need for such a service. Those who scoff at the first may be convinced by the second, and vice versa.

You’re reading Money Reimagined, a weekly look at the technological, economic and social events and trends that are redefining our relationship with money and transforming the global financial system. Subscribe to get the full newsletter here. Michael Casey is away. This week's main column is written by Executive Editor Marc Hochstein.

In March, Dr. Seuss Enterprises, the organization that owns the rights to the late Theodor Geisel’s works, announced it would cease publishing six of his 60 books because they contained illustrations depicting racial stereotypes. To be clear: This was absolutely the organization’s prerogative, and the claims in some corners that a beloved children’s author had been “canceled” were overblown. 

Far more concerning was the decision by eBay to stop used-book sellers from listing the half-dozen books in question on its platform. 

Because these discontinued books, published from the 1930s to the 1970s, were now collector’s items, they were more likely to end up sitting in Mylar bags or behind museum glass than corrupting impressionable minds. eBay nevertheless decided that protecting its brand from any association with offensive drawings was a higher priority than letting a few small-business owners make a buck or two during the coronavirus-induced recession

Again: eBay’s house, eBay’s rules. I am not a lawyer, but to the best of my understanding the First Amendment to the U.S. Constitution doesn’t guarantee vendors the right to use an internet platform, however dominant it may be in its market. (As of May 2020, eBay ranked third in U.S. e-commerce sales, behind Amazon and Walmart, with a 4.5% market share.) 

Yet, had OpenBazaar still been around then, the booksellers might have had another way to monetize the musty old volumes collecting dust on their shelves at a time when the coronavirus pandemic was likely discouraging garage sales

No one would have been hurt.

Sexless in Texas

Perhaps you think eBay took the high road by refusing to facilitate resales of out-of-print books that reflect the prejudices of their day, and that there’s no good reason to help anyone circumvent such enlightened corporate censorship. 

If so, consider another, older example.

In 2016, when Sen. Ted Cruz was vying for the Republican presidential nomination, the Texas Republican was mocked for having once defended a Texas law that criminalized the sale of, er, marital aids. 

Nine years earlier, as the state’s solicitor general, Cruz had responded to a lawsuit challenging the law’s constitutionality by arguing, among other things, that “there is no substantive-due-process right to stimulate one’s genitals for non-medical purposes unrelated to procreation or outside of an interpersonal relationship.” Unconvinced by his brief, an appeals court struck down the law in 2008 (the year Satoshi Nakamoto published the Bitcoin white paper). 

But what if the ban, which most readers would probably consider archaic and intrusive, had stood? 

Neither bricks-and-mortar nor online retailers would have been able to sell these products to Texans without risk of prosecution. Yet, OpenBazaar would have given randy residents of the Lone Star State another way to obtain their sex toys. Granted, this would have fallen under the “illicit uses” category.

But, again, no one would have been hurt.

The P2P frontier

Both of these examples may be outliers, but they speak to a broader principle. 

In the old world of physical stores and face-to-face business dealings, trade is almost always censorship-resistant by default. You hand banknotes to the baker or the butcher or the barber, she gives you a brioche or a brisket or a buzzcut. No third party gets to second-guess or overrule your choices. As commerce moves online, more and more transactions are funneled through ever-more-powerful intermediaries.

“Electronic P2P markets at scale are still unexplored lands,” said Tim Pastoor, an independent researcher on peer-to-peer identity and reputation systems. “Sure, people have been transacting P2P since the dawn of time, but digitally and at scale is another one of those magical nuts that hasn’t fully been cracked yet.”

Pastoor sees a practical economic benefit to cracking that nut. 

“It would be cheaper for both buyer and seller if the middleman is eliminated from the process,” he said. “Think eBay, Amazon or even Netflix or Spotify, or ordering a pizza from your local shop, but without the centralized infrastructure between the buyer and seller, that always comes with some sort of fee for the upkeep of the infra[structure] and for the business building and maintaining it to operate.”

Costs aside, the Dr. Seuss example shows the veto power of intermediaries becomes a problem when they block innocuous transactions. Those incredulous that I question eBay’s offensive-materials policy should consider how they would react if the company’s executives instead enforced Ted Cruz’s views on morality. 

Bitcoin restored censorship resistance to payments in the digital realm. OpenBazaar did the same for commerce in general but found little traction. Still, it was a valiant effort. I hope someone picks up where Hoffman’s team left off. –Marc Hochstein

Off The Charts: DeFi Grows, So Does Front-Running

Missing values for daily MEV appear in this chart as interpolated dotted lines that connect the plot points immediately preceding and succeeding the missing value.
(Shuai Hao)

Miner/Maximal Extractable Value (MEV) has been a hot topic in the Ethereum community over the past few months due to the increasingly disruptive strategies Ethereum miners are using to capture it. According to data from Dune Analytics and Flashbots, a cumulative $765 million in additional miner revenue has been generated from different MEV tactics since Jan. 1, 2020. 

Ethereum miners extract MEV by ordering transactions within blocks. The ability to order transactions enables miners to front-run trades on decentralized exchanges (DEX), take advantage of price arbitrage across DEXs, and liquidate positions at the most optimal times on decentralized lending apps. Bots are commonly programmed to identify these profit opportunities within the decentralized finance (DeFi) ecosystem of Ethereum and exploit them by paying off miners to manipulate transaction order. 

As seen in the chart, MEV tends to follow trade volume on decentralized exchanges. This is because growing liquidity and trade sizes on DEXs lead to more profitable arbitrage and front running opportunities.

Critics of MEV tactics believe the process of extracting additional value through transaction ordering threatens the integrity of the Ethereum network. While price arbitrage and liquidation are beneficial for the usability of DeFi, MEV is controversial because of the negative effects it simultaneously has on the Ethereum ecosystem. Front-running consists of stealing basis points from other transactions, by buying before the pending transaction and then selling the asset for a profit after the other transaction confirms. Furthermore, front-running bots are associated with creating a slower and more costly Ethereum network. MEV can also cause transactions to fail for gas fee and slippage errors.

While daily MEV revenue has cooled considerably from its peak of $5 million reached in May during the height of the crypto bull market, MEV remains a source of contention and debate on Ethereum that is only expected to become more heated as the DeFi ecosystem continues to mature. –Teddy Oosterbaan

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