I found the conversation around valuation the most interesting. Especially how the crypto valuation world has spilled over in to the stock market. It’s been my theory that traditional valuation methods are dying in certain areas because they rely on rational markets, and when you have a bunch of retail investors, the markets become irrational and harder to value/predict.
Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
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Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#32DeFi/crypto detractors will say "but there's nothing backing it" which is not entirely crazy. After all you could just print out bits of paper and exchange them for money, so long as someone is willing to play that game with you. Blockchain is no different, it's just a clever way to record who has what. So why do people put billions in crypto but not in random bits of paper such as Pokemon cards? Liquidity. This is t…
Well put.
The financial system largely exist for the purpose of wealth extraction.
Sure, companies use the share market to initially raise capital but what is the true value of Amazon stock considering they don't issue dividends?
Even with a stock that issues dividends how do know that it will happen for years to come?
It's all speculation backed by nothing but emotion.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#33> SBF: Well, okay. So you've got this boxes and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously. It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care.
How much is a share of Amazon worth considering they don't pay any dividends? Isn't this the same thing?
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#34It's a Ponzi scheme. He doesn't even seem to push back against the "Ponzi" phrasing. Also -- this is merely a footnote -- his Ponzi scheme is currently the 3rd-largest political donation source in the USA. https://www.opensecrets.org/outsidespending/summ.php?GoToPag... https://www.nbcnews.com/politics/2022-election/-crypto-cash-...
Regulatory capture by a Ponzi scheme was just added to my "list of things that could legitimately destroy the USA from within."
Did Bernie Madoff ever do this? I feel like he did, but maybe not so effectively or at such scale.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#35Earlier quoted context omitted.
While the analogy is correct, a key difference is that startups are illiquid by definition. Founders can't just cash out and are thus incentivized by build something of value. With protocols, there is no incentive to build something of value. Instead, the incentive is to building something that looks valuable on the surface to generate liquidity and cash out at the best point.
"What are secondaries?"
Secondaries are rare until series A or later.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#36It's a Ponzi scheme. He doesn't even seem to push back against the "Ponzi" phrasing. Also -- this is merely a footnote -- his Ponzi scheme is currently the 3rd-largest political donation source in the USA. https://www.opensecrets.org/outsidespending/summ.php?GoToPag... https://www.nbcnews.com/politics/2022-election/-crypto-cash-...
Calling it a Ponzi scheme is uninteresting and not really the point here. Was GameStop a Ponzi scheme when the stock price soared?
I think the interesting part here is the relation to bitcoin and a new theory on how to price things. It’s traditionally been assumed that the price of an asset is related to the underlying value it has or the value it generates (eg cash flow). SBF is pointing out that’s not a complete method of pricing assets in today’s world. You also have to factor in “collective agreements”.
Bitcoin is the clearest example of an asset price that is driven by collective agreement. The collective agreement is enshrined in code and algorithms.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#37Subjective theory of value + Speculation + Unregulated markets = Ponzi schemes
Is it "unregulated markets" that make all the difference somehow? Aren't $tsla, $zm, $coin ponzis as well?
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#38He is not really describing yield-farming here, he is describing what kind of price action happens when anyone can create a global, liquid, unregulated with just a computer as a tool. In the US, people can get 100-500$ just by creating a new bank account and deposting money into it. Some people do that, but then immedietly remove the funds once the bonus is paid out. In reality, yield farming is just that, except in…
To my knowledge, credit card / bank signup bonus are not marketed / packaged as asset classes.
Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no?
To me, that’s the source of the astonishment in the podcast. If what we’re talking about is built on non-sustainable foundations, fine. Call it that. But that’s the opposite of an investment opportunity.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#39Earlier quoted context omitted.
Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump and dump schemes, while others are pyramid schemes. Others are just standard issue fraud. Others are just middlemen skimming of the top. Stop glossing over the diversity in the industry. https://twitter.com/patdennis/status/1518637225789042688
What I don't like about this terminology is that I associate these "schemes" with a malicious actor. Someone trying to scam you. But often that's not the case with these crypto projects. Often, nobody is explicitly trying to scam anyone, but everyone looks out for themselves first and wants to make money, which inevitably results in other people losing money if they are too late. If a traditional startup is valued at…
You need to be able to see true malice through Hanlon's razor. Not every bad thing is just a stupid person, sometimes (often) it actually is people doing bad things on purpose.
Even if someone is so stupid that they design a Stablecoin backed by leverage that fails if the market goes down 20%, that is malice by negligence, because that stupid person should know that they do not have the capabilities to produce what they are promoting to people. If they are doing harm to society they must be stopped; motive is really not important.
Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned
#40Aren't automatic market makers with yield farming a thing outside crypto? Let's say Uniswap but with USD and GBP. Are those Ponzi schemes as well?