Potemkin Protocols: Reality, Money & Finance

Value, Virtual, and Vaporware

The phrase "Potemkin Village" is a metaphor for a special theater. And there is no more ripe stage for this than in the pervasive ebullience of all things cutting edge.

Potemkin Village :

Grigory Potemkin was a minister and lover of the Russian Empress Catherine II. After the Russian annexation of Crimea from the Ottoman Empire and liquidation of the Zaporozhian Sich (see New Russia), Potemkin became governor of the region.

Crimea had been devastated by the war, and the Muslim Tatar inhabitants of Crimea were viewed as a potential fifth column by the Russian Empire; Potemkin's major tasks were to rebuild it and bring in Russian settlers.

In 1787, as a new war was about to break out between Russia and the Ottoman Empire, Catherine II with her court and several ambassadors made an unprecedented six-month trip to New Russia. One purpose of this trip was to impress Russia's allies prior to the war. Another purpose was to familiarize herself, supposedly directly, with her new possessions.

To help accomplish this, Potemkin set up "mobile villages" on the banks of the Dnieper River. As soon as the barge carrying the Empress and ambassadors arrived, Potemkin's men, dressed as peasants, would populate the village. Once the barge left, the village was disassembled, then rebuilt downstream overnight.”

When the Empress and her entourage visited a town, the story goes that they were greeted with a facade of a prosperity and happiness - behind the scenes, it was the Monarch’s handlers who made it so. Behind this sheen of vitality and smiling subjects was a far more grim reality.

Everything is up for grabs when it comes to what is "real" lately.

I have been gathering over the last few weeks various folios of ebullience, jam-packed with scenes of the future. Some productions will portray all of our tomorrows, changing the daily drama of modern life.  Some will close after a long summer hot with an excess of expectations over experience. Which shows will be real hits and which will fold?

We are in an age of “Potemkin Protocols” for finance, money and reality itself.

Finance - Value & Vaporware

Money - Fiat & Fraud

Reality - Virtual & Augmented


Just how valuable are businesses with problems as great as their stories?

"Funding Secured". A narrative of Financial Solvency evaporating. This kind of thing is best understood retrospectively. So little to be gained by arguing for or against it.

Recent reports from Facebook and Twitter were followed by the cracking of a dam of expectations - a looming sense that all was not quite as hoped for, again and again.

Twitter, after years of complaints, have culled accounts from its platform, with the removal of many bots and pockets of outrage to little effect. There is even talk from founder “@Jack” of removing the “like” button (no mention of “edit” however).

Facebook also worked on its promised investments in addressing content, privacy and how it may continue as a business in the long run. It contends with a massive breach of tens of millions of accounts, while it also wants to sell an all seeing eye to be used in the home. (Facebook has company - Tencent’s WhatsApp lockdown on crypto, brought on by China's vaccination narrative, has both official and unofficial stories taking place.) Various executives have moved on from both WhatsApp, Oculus and Instagram reflecting these ongoing tensions.

Despite all the current news and noise, the network effects of these platforms are pervasive and persistent entities. Nothing short of a balance sheet crisis and stubborn creditors or an act of the State is likely to interrupt their existence. The real test will be earnings when the primacy of earnings supersedes growth narratives, or enough of the public good is harmed.

Chamath Palihapitya, returned and recharged, has a warning for many in this space, for the “next Facebook” or “next” anything to come, against raising money from Peter to fund Paul, over and over again. Real growth, slower and less captivating, is what he wants more of.


Just what is a security and what is not? Default answers in crypto includes discussion of the “Howey Test”, which brings me back to less-than-official statements from SEC Corp Fin director Hinman from a few months ago.

More official statements from the SEC about ICOs hint at greater scrutiny. Mr. Market, however, has already taken the lead if one looks at what happened with a majority of ICOs and alt-coin prices over the last year. Sentiment has shifted 180 degrees, and the market cap has dropped to barely more than 180 Billlion USD in approximate aggregate value (give or take 20B USD or so) - having peaked at about 800B+ USD less than a year ago. Mr. Market is clearing an excess of schilling more than “Schelling” and eventually value emerges and is pushed live to end-users.

Many plans for crypto ETFs have been denied, primarily due to one SEC rule. Exchange giant Coinbase has dropped some of its institutional product. Remember "fat protocol", what became of this concept? Andrew Chen wrote about a 3 pronged investment strategy in crypto, based on 3 models: protocols, distributed apps (Dapps) and tools on top - hedging bets on where value will emerge and be captured.

Not all is woe. Just ask the folks still involved in Mt. Gox! Mt. Gox recent news

"A Japanese court ruled Friday to pull infamous Bitcoin exchange Mt. Gox out of bankruptcy, opening the door for at least $1 billion worth of cryptocurrency to be paid back to the company’s former customers."

Eric Meltzer's crypto China coverage offers some nice differentiation between China and other crypto markets. East and West coast are two different worlds yet again.

To my outsider eyes, these were all tests, less scattershot and bit more systematic, to find out where the "real" value lies ahead in crypto. The “devs” are front & center.

At 10 AS.* they are still working on the base-layer which everyone must interact with: money. And right now many eyes are on bridging the gap between speculative ventures’ potential and the actual financial system in place: stablecoins.

(“*A.S. is my conceit for years after Satoshi Nakamoto’s original October 2008 paper.)

Stablecoins (i.e. fiatcoins) could be the actual Crypto medium of exchange you exchange your State issued fiat for, so that you can access various goods and services of the next “Internet”, of the public blockchain (financial services, info services, etc.).

Tony Sheng hit the right nerve with this observation of “stablecoins”, a/k/a “fiatcoins”, in his piece Fiatcoins want to be aggregators

Regular readers and “tech readers” know the phrase “aggregators”. In fact Sheng says:

If a fiatcoin is successful, it aggregates user demand for the applications (financial, web, and other) of public blockchains. Users must visit the issuer to exchange fiat for fiatcoin and vice versa.

This pools demand around the issuer–demand they can monetize by directing their users to first-party applications (e.g. exchange, wallet, apps) and demand they can control by surveillance and censorship.

This move comes straight from the web2 playbook.

The tech giants print money by aggregating demand.

This strategy so well describes the business dynamics of web2 that Ben Thompson coined the term “Aggregation Theory”, which can be summed up as: the internet allows companies to directly serve users with zero marginal cost, so the winning business model is to aggregate user demand.

Viewed through this lens, the language used by Gemini in their announcement of GUSD is telling.

They aim to “build a bridge to the future of money.” With any luck, their bridge is the one that all users have to cross, just like the App Store, Amazon, and Google Search are a bridge to their use-cases of their respective platforms.

And Sheng explains what it will cost you and I for access to the public blockchain:

“The greatest costs of fiatcoins are censorship. 

Fiatcoins are easy to surveil because each new fiatcoin is born to a KYC’d owner, making it easier to run forensics on the transactions of a fiatcoin.

They also contain functions that allow the issuer to seize coins and blacklist addresses from the network.

Surveillance plus censorship places a lot of power in the hands of the issuer –more, in some ways, than any given state issuer of regular fiat.

My reaction to this latest phase: A recurring question grappling with new answers in the current Potemkin Protocol environment becomes “just what is money?” Or more rather “who decides what money is?” Who might decide what money will next be in a Stablecoin world? The “issuer” or the “State”?

If this all feels a little too rarefied or unreal, just note we have always been doing this. A common example are the giant stone wheels of Yap, whose provenance is recorded, perpetuated and trusted in - where even the owner of one stone unit resting at the bottom of the seas could still sell it to a new owner without incident as if it were in front of them.

REALITY virtually speaking:

Tensions about financial fraud or old fiat’s “full faith and credit” vs. Crypto “fear, uncertainty & doubt” are old Mr. Market’s Rhymes - these shows come and go. Now there is a new show in production going on tour: Augmented and Virtual Reality.

Scott Belsky, at the moment an Adobe Chief Product Officer, describes the scene:

“augmented reality is one of those new mediums that could be as big as if not bigger than the web. One of the areas where consumers adopt something new is when it makes something drastically easier.

When I think about augmented reality I think about instances like finding your way somewhere, finding your friends in a stadium, or going to a conference and looking around and knowing who everyone is because their LinkedIn profile is hanging over their heads”

Where does the mark lie between real and unreal? I have been looking around and noticed various explorations of this question.

A fascinating read by Dr. Ben Hunt of Epsilon Theory on the nature of "truth" in the markets, in an appropriately entitled piece, “Optical Illusion / Optical Truth”. A quote from his piece:

“an information-rich data visualization is not only the most powerful way to communicate our answers as to how the world really works, but it is also the most powerful way to design our questions as to how the world really works.”

When the very nature of visualization can be manipulated, it can impact the how we see how we think the world works and the kinds of questions to ask.

This is not an abstract academic concern. Teens are asking questions and they are debating the nature of real news vs. fake on instagram. And it’s no wonder when some of their teachers are working as influencers online to make ends meet. Not all is worrisome when it comes to the unreal vs. real - some young people are using virtual reality to connect with loved ones far away.

But it’s no surprise in an age of unreality that there are now professionals trained in negotiating a path between what is real or unreal including experts on “fake news” hunting according to Wired’s profile of Jonathan Albright. There may be plenty of demand for more future professionals in this space given the ability for an A.I. to create fake videos.

It is no wonder that we will need given the reanimation of long gone actors and notables or their rejuvenation. Or that with A.I. it can already spin up renders that would might have involved hundreds or awkward camera angles or perspectives.

Hollywood, is the home of fantasy, the unreal, and also the all too real anxiety over change. Much of this anxiety is over the rise of new platforms and technologies. Fraud hunters and therapists may experience a long running secular bull market for decades to come.

And again, it’s no wonder I’m beginning to see more new journalism venture efforts like Craig Newmark’s new tech journalism site, “The Markup”, with Propublica veterans. (Circling back to earlier thoughts about finance and money, you can include “The Block” and “TruStory” as similar journalistic efforts but focused on crypto.)

Not all are awaiting their A.I.-V.R. overlords with dread. Some “Hollywood” expats are switching sides, including ex-HBO people raising VC funding for an immersive AR gaming startup , with “native camera-first approach to augmented reality”, called Longtail Leaf. I suspect they will have company.

Even if you’re not a Hollywood stakeholder, it’s still unnerving. Here’s a link to the research paper, relevant to the fake videos I mentioned earlier, entitled, “Deep Video Portraits A.I. Artificial Intelligence Mimics Fake Movement” which describes:

“a novel approach that enables photo-realistic re-animation of portrait videos using only an input video. In contrast to existing approaches that are restricted to manipulations of facial expressions only, we are the first to transfer the full 3D head position, head rotation, face expression, eye gaze, and eye blinking from a source actor to a portrait video of a target actor. The core of our approach is a generative neural network with a novel space-time architecture.”

A video about these “Deep Video Portraits” related to this paper is shared here.

Brad Feld had observations relevant to this broader anxiety in a post, “A Major Breakdown in Our Collective Reality”. Hollywood is not alone in its anxieties. The replacement of intimate strong community bonds with “weak link affinity relationships” and the rise of the Artificial, of A.I./human interactions, is the stuff of our new anxious virtual lives. The virtual stands shoulder to shoulder with the real now.

But change must be embraced. Both Amazon and Walmart are exploring shopping with virtual reality. Amazon is using Facebook Oculus as part of its exploration but it has other tools at its disposal. And it’s got a 3-D body model subsidiary and virtual mirrors for its users. The “flywheel” could be embedded “everywhere” it seems.

Facebook’s Oculus Connect 5 released earlier this year points the way forward for the platforms stressing out “Hollywood”. All the platform companies have their VR glove-fingers in many virtual pots.A related thread is visual commerce. Facebook is also exploring integrated commerce with shopping via Instagram stories. There’s bound to be a meeting of the mediums for Instagram and Oculus.

While one interesting release from Snapchat includes sound and voice-controls for their “lenses”, the more significant development is likely shopping by image - on Amazon. Two things seem certain in this space, many “toys” will evolve into work and native commerce tools, Amazon will be most likely be involved and/or integrated.

And here’s the latest release from Snapchat - a desktop variant of their filters.

No, I haven’t forgotten Google - “Lens” is its onramp to A.I. rendered Augmented Reality. CEO Pichai, said in a keynote address last year:

"All of Google was built because we started understanding text and web pages. So the fact that computers can understand images and videos has profound implications for our core mission”.

With Lens, the intent is to talk and type less - that the camera will see and act for its users, including according to Recode:

  • Tell you what species a flower is just by viewing the flower through your phone’s camera;

  • Read a complicated Wi-Fi password through your phone’s camera and automatically log you into the network;

  • Offer you reviews and other information about the restaurant or retail store across the street, by you just flashing your camera over the physical place.

And there’s one more connecting thread which I believe will be interwined with AR and AR commerce: virtual voice interaction. Remote working tech pioneer Invision has shared that Gartner projected that by 2020 perhaps 25 percent of future conversations in customer experiences may be virtual ones, with one human and a bot on the end. Imagine shopping with VR and the customer rep you’re talking for help on finding the right outfit is a virtual person.

Not all the excitement has been just for any one potential future “platform” - banner startup Magic Leap, which has raised over 2B USD, recently had a long awaited public debut of its first devices. Early days, and one pithy quote says it, ““We’re still in the make crazy shit phase”. As exciting as it has been for them, however, Magic Leap is not alone. Brad Feld shared a potential “Holographic Display of the Future” called “Looking Glass”.

And there’s a new release, out of “stealth” from a startup. “Focals by North”, which looks like the offspring of Google Glass and Warby Parker. Fashion forward.

There is the promise of one favorite Virtual Reality favorite I noticed last year, SVRF, which has had some product management investment and assistance from VC firm FirstMark. Right now it’s in the fun news and make stuff stage. Here is SVRF founder Sophia Dominguez’s presentation about the new language emerging here.

Here’s some fun stuff from SVRF.

On a more eclectic note, there’s even a “real estate” dealing in a place called “Decentraland”.

What is real in VR could in fact be in the most far-out with NASA’s use of HoloLens AR for building spacecraft. Here’s a video on a related NASA Hololens effort.

Reality and history:

Some words of wisdom from Jim O'Shaughnessy about the future and investing:

I enclose the entire thread of his wonderful thoughts but bolded some passages.

"1/I believe that the highest probability bet you can make in your investment strategy is that human nature will remain a constant for the foreseeable future. For my book “Predicting the Markets of Tomorrow”, I analyzed nearly 200 years of data

2/and found that the rolling 20-year real rate of return to financial markets ebbs and flows with a remarkable degree of consistency. I believe this is so primarily because human beings are responsible for the economic and stock market cycles.

3/While the types of companies and industries that get us excited has and will continue to change over time, our reactions to them will remain the same—we’ll get unusually excited about the new and over-price it and be blasé about the old and under-price it.

4/Be it steamboats, railroads, telegraph and telephones, automobiles, motion pictures, radio, TV, aluminum, “space-age” technology, the first computer makers, internet stocks, nanotechnology or quantum computers, our human reactions to innovation are sure to persist.

5/Just as in the past, we will more than likely drive their valuations to unsustainable levels. Our basic human nature is probably more responsible for the long-term ebbs and flows in the market than any single economic event or innovation.

6/And since they are unlikely to change, we can confidently presume that we will make the same mistakes and errors again, again and again. We will panic in bear markets and often sell near the bottom.

7/We will become elated during bull markets and become more and more confident near the top. We pay the highest price for a widely agreed upon consensus. Yet I’ve also learned that it’s virtually impossible to forecast the ups and downs of markets.

8/The good news is, if you are investing for the long-term, you don’t have to—I’m 58 years old, but my time horizon is infinite because I want to leave money to the people I love and the charities I care about.

9/Often in investing, the best thing to do is nothing. It’s boring. It’s incredibly dull. You won’t have any great stories about your market savvy at dinner parties. But if you can simply remain dispassionate about all the emotionally charged things happening

10/around you day-to-day, you will come out ahead of virtually everyone else in the long-term. Want proof? I wrote most of this in 2006, and it is as relevant today as it was then. And will probably be equally relevant in 2026.

11/Much of life is filled with uncertainty which causes stress and worry. Remind yourself that most of these stomach-churning events are things that you have NO control over. Focus only on what you DO have control over.

12/10% of the impact of events are due to the event itself and 90% is due to how we react to it. That’s something that, if you work on it, you CAN control. Successful investing is simple to think about, but incredibly hard to actually do.

13/Finally, remember that the best investment you can make is in yourself. If you can turn these simple actions into habits, your future returns will allow you to, as @alphaarchitect puts it, compound your face off. Get after it."

And some words of warning from Rusty Guinn of Epsilon Theory:

“there is another world, a world which is at once both imaginary and real. It is the World of Abstraction.

The World of Abstraction is a world awash in narratives and memes. It has always existed alongside the World of Reality, because many of those memes are hard-wired into the human brain, or else into human cultures as patterns and heuristics.

But in only the last ten years, practically all of humanity has gained near-constant access to the megaphones of always-on news, internet-enabled mobile devices, and broad, multi-layered social media presence. The number of bi-lateral human interactions we have today is a fraction of the interactions we have in front of an audience. 

When we speak to each other, we speak to each other AND to the crowd of people watching.

The World of Abstraction is The Panopticon. A circular prison with clear glass walls, an invention of Jeremy Bentham to explore prisoner behavior under the conscious influence of the constant, silent knowledge of perfect surveillance. By everyone.”

Not all is grim, just as not all is glittering. Whether the code defines our money, our investments or some of our perceptions, we still live in the real world and these are just some of the layers riding on top of it. What we do is still up to us for the most part.

Random thoughts about the near future of this layer of reality:

Will gaming and eSports platforms with virtual assets require KYC/AML specialists?

Will the 2020s / 2030s Olympics include eSports and "Mudders" medalists?

Could crypto asset “forks” take the place of spinoffs and tracking stocks?

So much is happening.

We are in a colorful world of light and shadow.

Here are a few samples of what is unfolding in a variety of areas.

Sketch control of images

Quill: VR animation

Pushing the limits of real-time rendering.

An AR Sandbox - an appropriate metaphor for play and experimentation

A realtime rendered film in Unity.

Real-time rendering demo

Holographic multiplayer tabletop

And what happens when both man and machine can communicate with gestures between each other? Real-time sign language translation with Alexa.

It almost feels miraculous. As long as something of real value lies within. But beware.

This 2014 book about the “New Russia”, “Nothing Is True And Everything Is Possible”, seemed like a fitting way to bookend this piece.

“If the doors of perception were cleansed every thing would appear to man as it is, Infinite.” -William Blake,The Marriage of Heaven and Hell