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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

#81

Post by CTDOCodebases »

throwaway_1928 wrote: post #55
CTDOCodebases wrote: post #51

Earlier quoted context omitted.

How does it make the shares worth more if they are not entitled to dividends?

Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share. Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11. His choice does not matter in the absence of taxes and other costs. If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. If he does pay out a $1 dividend but I do n…

>If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1.

>If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share.

>In both cases I have $11.

If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in the earnings report. In reality a company can release their report announcing their profit and the share price can decline so I think it's fair to say that a share price's value is largely based on speculation.

>The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors?

Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#82

Post by throwaway_1928 »

Supermancho wrote: post #77
throwaway_1928 wrote: post #73

Earlier quoted context omitted.

> The fact you read and dwell on the consequences some people suffer over it is not a problem, for other people, to solve. Unless those other people are the government. In which case it is their obligation to reasonably check predatory fraudulent activity, including ponzi schemes. And unless those other people are simply concerned citizens who bring dubious schemes to the attention of the public at large.

> Unless those other people are the government. > it is their (US government's) obligation to reasonably check predatory fraudulent activity Crypto, by-in-large, is not predatory. Most fraud checks are after the fact. Fraud can be triaged, but there is no getting around the reality that there will always be people who don't value risk properly. Again, this is not a problem for other people to solve. This is not a rea…

> Crypto, by-in-large, is not predatory.

I disagree and believe crypto is by-in-large predatory. The crypto handbook seems to be:

1. create coin

2. promote coin and get people to 'invest' in it

3. move the 'invested' money ("rug pull") into your personal account

4. disappear or do it again

> there will always be people who don't value risk properly

This is true. But we cannot compare making a wrong call on the direction of highly regulated Microsoft stock with 'investing' our money with people who are almost certainly going to steal all of it with zero consequences.

> will affect your gambling experience

You call this gambling. But the crypto creators promote their coins as investments with 'exchanges' and so on.

Financial investments and gambling are both highly regulated industries but crypto is subject to regulations from neither.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#83

Post by throwaway_1928 »

CTDOCodebases wrote: post #81
throwaway_1928 wrote: post #55

Earlier quoted context omitted.

Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share. Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11. His choice does not matter in the absence of taxes and other costs. If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. If he does pay out a $1 dividend but I do n…

>If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. >If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. >In both cases I have $11. If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in t…

> I think it's fair to say that a share price's value is largely based on speculation

I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view.

> Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.

You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#84

Post by Supermancho »

throwaway_1928 wrote: post #82
Supermancho wrote: post #77

Earlier quoted context omitted.

> Unless those other people are the government. > it is their (US government's) obligation to reasonably check predatory fraudulent activity Crypto, by-in-large, is not predatory. Most fraud checks are after the fact. Fraud can be triaged, but there is no getting around the reality that there will always be people who don't value risk properly. Again, this is not a problem for other people to solve. This is not a rea…

> Crypto, by-in-large, is not predatory. I disagree and believe crypto is by-in-large predatory. The crypto handbook seems to be: 1. create coin 2. promote coin and get people to 'invest' in it 3. move the 'invested' money ("rug pull") into your personal account 4. disappear or do it again > there will always be people who don't value risk properly This is true. But we cannot compare making a wrong call on the direct…

> Financial investments and gambling are both highly regulated industries but crypto is subject to regulations from neither.

We are not arguing about if there is fraud or not because that is not the issue at hand, nor in dispute. Again, this has nothing to do with the original point. Other people's bad choices do not affect the enjoyment of gambling. GL with whatever.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#85

Post by CTDOCodebases »

nivertech wrote: post #57
throwaway_1928 wrote: post #55

Earlier quoted context omitted.

Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share. Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11. His choice does not matter in the absence of taxes and other costs. If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. If he does pay out a $1 dividend but I do n…

Stock buyback is also equivalent to paying cash dividend (ignoring the tax issues).

This is a valid point. If a buyback has been announced then the share is worth at least what the company buying back the share has agreed to.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#86

Post by CTDOCodebases »

ViViDboarder wrote: post #63
CTDOCodebases wrote: post #33

Earlier quoted context omitted.

How much is a share of Amazon worth considering they don't pay any dividends? Isn't this the same thing?

At worst, a fraction of the value of all the companies physical assets and IP, which is significant. At best, fractional control over huge amounts of revenue that the company earns. A share isn’t just some token, it conveys ownership of a public company.

> At worst, a fraction of the value of all the companies physical assets and IP, which is significant.

This is true. While the company is operating it is at least worth assets minus liabilities.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#87

Post by CTDOCodebases »

adam_arthur wrote: post #53
CTDOCodebases wrote: post #51

Earlier quoted context omitted.

How does it make the shares worth more if they are not entitled to dividends?

Owning a share of Amazon gives you rights to future dividends, which in theory can be high if they continue to grow EPS. If I promise to pay you $100 10 years from now, is that agreement worthless because you didn't get it today? No you discount the time factor into current value. The people who got wiped out on growth tech don't understand this concept

I understand it. It's just that there is a lot of uncertainty. Ultimately I think that different people value things differently.

To some people something is worth what someone is willing to pay them for it at the current moment.

To others it's worth whatever it is in the story they have concocted in their head.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#88

Post by CTDOCodebases »

throwaway_1928 wrote: post #83
CTDOCodebases wrote: post #81

Earlier quoted context omitted.

>If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1. >If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share. >In both cases I have $11. If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in t…

> I think it's fair to say that a share price's value is largely based on speculation I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view. > Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some…

> I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view.

I think it comes down to the fact that people typically buy shares in order to make a gain at some point in the future so they have to come up with a believable story as to why their desire will play itself out. Some peoples stories simulate reality better than others so they tend to do well in the stock market. Others shape the narrative so they do well also.

Ultimately though I think something is only worth what someone else will pay for it.

The original comment I replied to was horrified that people in the crypto industry would profit off something that they believed was worthless. They didn't acknowledge that this takes place all the time throughout society and ultimately it doesn't matter what a seller thinks something is worth since they can't predict the future or know what the buyer values about whatever they are buying. I think as long as a seller doesn't intentionally mislead a buyer as to what they are purchasing then they have done no wrong.

> You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.

A high APY isn't the concern for me. It's who is offering the APY and how well is their platform engineered. Funding fees on exchanges are a lot more than 10% PA and there is no way to get a traditional loan from a bank to trade crypto on an exchange. That explains why a 10% APY for a coin pegged to the dollar is not uncommon in an environment where trade volumes are high. I would be more worried about a sustained contraction of the overall crypto market based on what I know/suspect about USDT (Tether).

As for the debacle that was UST/LUNA I think marketing a coin as "stable" when the stabilizing mechanism assumes no large outflows and no slippage is reckless at best.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#89

Post by CTDOCodebases »

s1artibartfast wrote: post #71
CTDOCodebases wrote: post #51

Earlier quoted context omitted.

How does it make the shares worth more if they are not entitled to dividends?

Two additional points Stock buybacks are one way that is theoretically equivalent to dividends. Amazon recently announced a $10 billion buyback which is about a 1% dividend for owners. [1] Also, amazon has underlying assets worth 420 billion [2], which the the stock owners own. As Amazon grows, the assets/share also grow https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-st... https://d18rn0p25nwr6d.cloudfront…

> Stock buybacks are one way that is theoretically equivalent to dividends.

I replied elsewhere but this is the true value of something. What someone else is willing to pay for it.

> Also, amazon has underlying assets worth 420 billion

I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best.

I guess companies can be taken over and broken apart for their assets like private equity firms have become known for doing so these numbers do hold some weight. Though if liabilities grow to a level where the business files for bankruptcy these numbers are irrelevant to a shareholder since they are behind the creditors.

What no one mentioned here is voting rights. While the votes of small shareholders are largely inconsequential larger voters could on things that would benefit themselves financially so indirectly this can give value to shares.

Re: Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

#90

Post by CTDOCodebases »

wefarrell wrote: post #61
CTDOCodebases wrote: post #32

Earlier quoted context omitted.

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.

Amazon stock isn’t backed by nothing but emotion. It’s backed by a company that is the largest e-commerce provider and cloud provider.

So Amazons asset minus liabilities is $420.549B - $276.766B

Divide that by the number of shares (shares outstanding for simplicity's sake) is $143.783B / 0.509B

This gives us a value of $282.48 per share.

Share price at the time of the above figures is $3259.95.

So it looks like you might be right. 8.7% of the share price is backed by real world value (assuming the figures are correct) that might be realised for the shareholder some day in the future and the other 91.3% of the share price is hopes and dreams devoid of all emotion.

Jokes aside humans cannot predict the future, value is subjective and emotion plays a part in everything we do. So who is anyone to say that something is worth nothing if there is a buyer that is willing to purchase.

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