Where is the leverage in the crypto-asset space, an example:
A developer team ICOs CollateCoin (COCO) a utility token for listicles.
✅ whitepaper +
✅ memes +
✅ hype =
$30 million worth of ETH raised.
Now, what to do with the money...
2.1/x
A developer team ICOs CollateCoin (COCO) a utility token for listicles.
✅ whitepaper +
✅ memes +
✅ hype =
$30 million worth of ETH raised.
Now, what to do with the money...
2.1/x
$30mm is substantially more than a token-team requires.
Yes, developer incentives, marketing, exchange listing fees and travel and office space all cost.
But it nets to, what, ~$1 million a year?
30 years of runway!
Plenty!
But they worry about the next war.
2.2/
Yes, developer incentives, marketing, exchange listing fees and travel and office space all cost.
But it nets to, what, ~$1 million a year?
30 years of runway!
Plenty!
But they worry about the next war.
2.2/
If cryptoasset prices elevate a marginal competitor offering a competing listicle token might raise an even larger warchest.
The COCO developer team (our heroes), still 2 years from product, might get buried by the competitor's PR before they can even get to launch.
😱
2.3/
The COCO developer team (our heroes), still 2 years from product, might get buried by the competitor's PR before they can even get to launch.
😱
2.3/
Post-ICO the COCO developer team narrowly sees itself as at risk to *higher* cryptoasset prices. They can't raise at the new values, but a marginal competitor can.
Rationally, to hedge this risk, they keep as much of their treasury as possible inside the cryptoasset stack.
2.4/
Rationally, to hedge this risk, they keep as much of their treasury as possible inside the cryptoasset stack.
2.4/
So developer teams keep their treasury in cryptoassets.
So what?
By doing so they are no longer just developer teams; they are also lenders.
(This is how the leverage hides; in plain sight)
/2.5
So what?
By doing so they are no longer just developer teams; they are also lenders.
(This is how the leverage hides; in plain sight)
/2.5
If the COCO developer team floated half of its tokens, raised $30mm worth of ETH in its ICO and only extracted $1mm for working capital, then without bringing any outside money into cryptoassets the COCO ICO added $59mm to aggregate cryptoasset value.
😶
/2.6
😶
/2.6
So a single ICO might add 10s of millions to cryptoasset valuations without bringing any new money into the ecosystem.
But there's more to it than that.
The money that the COCO team leaves in cryptoassets can then be re-deployed to fund additional ICOs.
2.7/
But there's more to it than that.
The money that the COCO team leaves in cryptoassets can then be re-deployed to fund additional ICOs.
2.7/
An ICO pulls $1mm of $30mm into fiat and reinvests the rest into the next marginal ICO.
That team raises $29mm, also extracts $1mm, and puts the rest into the ICO that follows.
That team raises $28mm...
A single $30mm ICO can ramify into $465mm of ICO funding.
🌎
🐢
🐢
🐢
2.8/
That team raises $29mm, also extracts $1mm, and puts the rest into the ICO that follows.
That team raises $28mm...
A single $30mm ICO can ramify into $465mm of ICO funding.
🌎
🐢
🐢
🐢
2.8/
If each team only floats half of its supply and each team requires $1mm in working capital then $30mm of money raised can inflate into $930mm of network value.
😳
Now *that's* leverage.
30x leverage to be precise
2.9/
😳
Now *that's* leverage.
30x leverage to be precise
2.9/
30x leverage.
So obvious once you recognize it that you can't look away.
And it doesn't even require market participants to experience some sort of profound epiphany with regards to fundamental value;
even incrementally weaker ICOs can keep layering value onto the stack.
2.10/
So obvious once you recognize it that you can't look away.
And it doesn't even require market participants to experience some sort of profound epiphany with regards to fundamental value;
even incrementally weaker ICOs can keep layering value onto the stack.
2.10/
A free lunch, right? Everyone gets richer with each project that launches; what could possibly go wrong?
😐
2.11/
😐
2.11/
The developer teams are not only developers.
They are also (unwitting) lenders.
They may even be financing their marginal competitors.
And like all good lenders they only really attune to their exposure when they realize it might not come money-good.
2.12/
They are also (unwitting) lenders.
They may even be financing their marginal competitors.
And like all good lenders they only really attune to their exposure when they realize it might not come money-good.
2.12/
Expenses are up--so many conferences to attend, exchanges charging an 💪🏻-and-a-🦶🏻 for listing--and yet the treasury funds are fibrillating.
To be conservative teams might extract 2 years of fiat rather than 1.
Rational, but the system-wide effect = credit tightening.
2.13/
To be conservative teams might extract 2 years of fiat rather than 1.
Rational, but the system-wide effect = credit tightening.
2.13/
Credit-tightening against 30x leverage + a regulatory choking off of marginal ICOs + mammoth ICOs that can't possibly justify keeping all of the money raised in cryptoassets = no wonder prices have been weak.
2.14/
2.14/
If anything one might expect weaker.
(Or perhaps the true weakness is still to come 🙊)
2.15/
(Or perhaps the true weakness is still to come 🙊)
2.15/
So what can we learn from all of this?
There is massive internally embedded leverage in cryptoassets, and it's obvious once you look at it, but what does that imply?
2.16/ to be continued
There is massive internally embedded leverage in cryptoassets, and it's obvious once you look at it, but what does that imply?
2.16/ to be continued
Continued here:
Another takeaway:
Also:
And finally, on parallels with fractional reserve banking
In case you'd like to circle back to the start:
