Digital Money and Decentralised Finance

Aims

Our society is evolving towards digital payments and the elimination of physical cash. Digital alternatives to cash require trade-offs between various properties including unforgeability, traceability, divisibility, transferability without intermediaries, privacy, redeemability, control over the money supply and many more, often in conflict with each other. Since the 1980s, cryptographers have proposed a variety of clever technical solutions addressing some of these issues but it is only with the appearance of Bitcoin, blockchain and a plethora of copycat cryptocurrencies that a new asset class has now emerged, worth in excess of two trillion dollars (although plagued by extreme volatility). Meanwhile, most major countries have been planning the introduction of Central Bank Digital Currencies in an attempt to retain control. This seminar-style interactive module encourages the students to understand what's happening, what the underlying problems and opportunities are (technical, social and economic) and where we should go from here. We are at a historical turning point where an enterprising candidate might disrupt the status quo and truly make a difference.

Syllabus

1. Understanding money: from gold standard to digital cash
2. Intro to the Decentralised Finance (DeFi) ecosystem: Bitcoin, blockchain, wallets, smart contracts
3. Stablecoins and Central Bank Digital Currencies
4. Decentralised Autonomous Organisations and Automated Market Makers
5. Yield Farming, Perpetual Futures and Maximal Extractable Value
6. Web3, Non Fungible Tokens
7. Cryptocurrency crashes; crimes facilitated by cryptocurrencies
8. New areas of development. Where from here?

The module is structured as a reading club with a high degree of interactivity. Aside from the first and last session, which are treated differently, the regular two-hour sessions have the following structure (not necessarily in this order).

• Two half-hour debates on each of two papers
• Two rapid-fire presentations on open questions previously assigned by the lecturers.
• Half an hour of presentation by the lecturers.
• About ten minutes of buffer that can account for switchover time or be absorbed into the lecturers' presentation.

The first session is scene-setting by the lecturers, with no student presentations. The last session has no paper debates, only one rapid-fire presentation on an open question from each of the students.

Objectives

On completion of this module, students will gain an in-depth understanding of digital money alternatives as well as many modern applications and components of Decentralised Finance. By comparing DeFi with current processes in traditional banking, students will be able to discuss the merits and limitations of these new technologies as well as to identify potential new areas of development.

Through having to write, present and defend very brief extended abstracts, the students will improve their communication skills and in particular the ability to distil and convey the most important points forcefully and concisely.

Assessment

The module is an interactive reading club. Each student produces four output triplets throughout the course. Each output triplet consists of three parts: a 1200-word essay, a 200-word extended abstract and a 7-minute presentation.

The essay and abstract must be submitted in advance, using the LaTeX templates provided. The abstract must consist of full sentences, not bullet points, and must fit on a single slide. During the presentation, the slide with the abstract will be projected on screen as the only visual aid; the essay will not be accessible to either presenter or audience. Reading out the slide verbatim will obviously not count as a great presentation. Presenters must be able to expand and defend their ideas live, and answer questions from lecturers and audience.

The essays, the abstracts and the presentations are graded separately, each out of 10, and assigned weights of 60%, 20%, 20%, respectively, within the triplet.

In a regular 2-hour session (all but the first and last) there will be two paper slots and two investigation slots, plus a lecturer slot, described next.

Each paper slot (30 min) involves a “supporter” and a “dissenter” for the paper, each contributing one output triplet, and then a panel Q&A where all the other participants quiz the supporter and dissenter.

Each investigation slot (10 min) involves a single student contributing an output triplet on a given theme.

Roles, papers and themes are assigned by the lecturers the previous week.

In the first session there will be no student presentations, only lecturer-led exploration. In the last session there will be 12 investigation slots and no paper slots.

Overall, each student will be supporter once, dissenter once and investigator twice, for a total of 4 output triplets. The output triplets of the last session will be weighed twice as much as the others, i.e. 40% each, while the others 20% each.

Attendance is required at all sessions. Missing a session in which the candidate was due to present will result in the loss of the corresponding presentation marks, while the written work will still have to be submitted and will be marked as usual. Missing a session in which the candidate was not due to present will result in the loss of 3%.

Recommended reading

There isn't a textbook covering all the material in this course. The following textbook, also adopted by R47 Distributed Ledger Technologies (also freely available online), is a thorough introduction to Bitcoin and Blockchain, but we will complement it with research papers and industry white papers for each lecture.

Narayanan, A. , Bonneau, J., Felten, E., Miller, A. and Goldfeder, S. (2016). Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press.
(2016 Draft available here: https://d28rh4a8wq0iu5.cloudfront.net/bitcointech/readings/princeton_bitcoin_book.pdf)