Thread by @MattPirkowski

I'd like to explore a concept to which I've previously alluded, but haven't yet outlined in detail:

The Relativistically Adaptive Market Protocol

i.e. the RAMP.

It's an idea that incorporates lessons from complex systems and ecological adaptation into financial markets.

The fundamental goal: reduce overall volatility and attractiveness to parasitic actors, while enabling participants whose trades actually boost long term signal, and therefore healthy systemic growth.

But before we get to the protocol itself, we should unpack The Big Lie...

The Big Lie often touted by those who make a living skimming off the top of markets is that doing so provides "price discovery".

And that's true, to a point...

Specifically, it's true so long as:

- The trade (signal) carries real information about the processes underlying the asset.

- There remains a time symmetry between such signals and the "frame rate" at which trades are executed.

When either is false, things get hairy...

We then see the price signal represent the degree to which the asset it subject to market-layer positive feedback, either up or down, rather than reflective of any underlying reality.

"Flash crashes" are a perfect example of this, wherein algorithms begin to "orbit" one another.

Two or more algorithms, if sufficiently capitalized, can easily send the price of an underlying asset to zero, despite the fact that nothing has changed with respect to the real-world processes to which that ticker symbol refers.

Yet fundamentally, this isn't just the algos...

As we see right now, humans are quite susceptible to the same kinds of volatile feedback mechanisms, both on the way up ("bubbles"), and on the way down ("crashes").

So why don't we hear more about strategies for reigning in this volatility?

Primarily because volatility benefits those who make a living extracting capital from volatile markets, across all scales, from the day trader to the Goldman Sachs trading desks.

We're told that if we want the benefits of markets, we simply have to deal with insane volatility.

But what if that were also a lie?

The more I've studied these systems, the more I believe it *is* a lie.

We *can* have the benefits of markets while also making them more resilient to parasitic speculation.

But to do so, we require better protocols...

And that's where RAMP enters the picture.

Fundamentally, a RAMP-like protocol seeks to:

- Incentivize participation by those with high quality information.

- Resist the positive feedback introduced by parasitic speculation.

- Increase long term market health / resilience.

First, the R.

Relativistic.

As in, applying relativistic principles to market dynamics...

As it stands, the very concept of "discovery" implies a singular fixed-point attractor to which price theoretically converges.

Thus we are told that trading faster is always better...

...as in theory this simply provides "better price discovery" and "more liquidity".

Except it also encourages market participants to spend more time paying attention to market dynamics than to the underlying phenomenon the market is supposed to represent.

How to deal with this?

Our present solution is:

- Yay upside volatility!
- "Circuit breaker" on downside volatility.

But they're fundamentally linked, and in fact reinforce one another.

Thus we must cut the Gordian knot of self-referential positive feedback...

Enter relativistic trading windows...

Such a protocol would essentially establish a tradeoff between trading volume and the time interval between viable trading windows for any authorized market participant.

When the incentive arises to pile into upside, or induce downside crashes, the protocol stretches time.

Similarly, because of the volume-time (mass-speed) transformation, attempting to place very large orders would induce the same temporal dilation.

Thus one must be confident in their bets across time in proportion to *both* their magnitude and frequency.

Such a protocol encourages *higher signal to noise ratio of every trade*, conforming with the best of the market benefits advocated by Hayek and other Austrians, and absent centralized controls other than the protocol itself.

This is better for all who seek healthy growth...

...as it necessitates not "price discovery", but "fidelity of price representation" insofar as it discourages the tendency of self-referential market dynamics to decouple from the underlying assets / real-world processes they're supposed to represent.

But won't parasites learn?

Of course! And that's fine. Parasites evolved for a reason, and they have their role to play. But that doesn't mean that we should encourage them!

The protocol must itself take an adversarial stance.

It must Adapt, which brings us to the A in RAMP...

In fact, we already have learning models that do something similar, and they are called Generative Adversarial Networks (GAN).

GANs involve multiple learning nets that react to one another, and whose reactions inform the learning process of their mutual adversary...

Y'know, kind of like a virus, or a parasite, and its host.

So in theory the RAMP protocol itself could identify / classify parasitic behavior within the market and parameterize its Relativistic tuning accordingly.

The more you try to parasitize, the more it fights you...

However, the more you provide high quality signals with your trades, the more you are given relativistic leniency. You can trade more, faster, presuming your track record *across time* provides a high quality signal relative to the actual long-term trajectory of a given asset.

Thus we transform markets into tools capable of generating long term wealth with less volatility, higher trust, and more resilience.

We transform them from sources of social pathology into highly adaptive social brains.

This is what advocates of Austrian economics should want.

This is what non-hypocrites who advocate for market principles should want.

But most importantly, this is what anyone who hopes to avoid much more heavy-handed centralized controls should want.

Because if we don't improve our market protocols, that's where we're headed.

If this sounds interesting to you, and you'd like to further explore / model / build such a protocol, or are aware of extant experiments like this, please let me know.

If the above is wrong, I'd like to know.

But I suspect it's precisely the kind of trading protocol we require.

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