Former Federal Reserve economist Gordon Liao: Why I left the Fed to join Uniswap

Gordon Liao is an economist at the International Finance Division of the Federal Reserve Board in the United States, where he provides policy advice and conducts research on financial market frictions and digital innovation. Recently, he left the Federal Reserve to join leading research at the decentralized exchange protocol Uniswap and shared his reasons on Twitter:

Why I Left the Fed for Uniswap

Gordon Liao said he comes from a background in traditional and centralized finance, and he is most excited about those who have the potential to create better, safer, and more accessible financial systems in the future.

Gordon Liao said, "At the Fed, I was shocked by how much the world economy relies on so few intermediaries, with 24 primary dealers participating in all Treasury auctions, 8 U.S. GSIBs providing global dollar liquidity, and a single bank, BNY Mellon, handling all third-party repo clearing."

He noted that while these powerful financial organizations move trillions of dollars daily when everything is running smoothly, post-GFC balance sheet frictions and increased asset holdings following the global financial crisis have led to frequent issues in the current financial architecture.

Even in the main arteries of the financial system, financial frictions are significant. For example, periodic or episodic spikes in funding rates, the largest of which was in September 2019, led to the premature end of the last Fed tightening cycle.Related information

Financial frictions are not just market plumbing issues; they are significant enough that economists have created an entire subfield: intermediary asset pricing, to study frictions in intermediary finance.Related information

How will Web3 and DeFi improve the problems of old financial intermediaries? He believes it is by making finance intermediary-free, composable, and more transparent. He highlights four key points:

• DeFi is transparent, with everyone able to audit smart contracts and transaction history. This level of transparency will encourage innovation and reduce long-term risks.
• Web3 reduces economic centralization of power and single points of failure. As a former FICC trader, Gordon Liao is still shocked by the frequency with which a few dealers dominate the largest rate markets.
• Web3 breaks down borders to reduce isolation and achieve a truly efficient global financial system.
• The transparency of blockchain transactions can ultimately reduce money laundering risks, facilitating the secure flow and exchange of global value.