Thread by @Melt_Dem

1/ quick thread on capital markets and their participants

who participates in in capital markets? finance pro's and traders are focused on optimizing the opportunity cost of capital and (1) preserving principal while (2) optimizing growth

you usually start with a goal in mind

2/ understanding the opportunity cost of capital is an important exercise, and one that changes constantly.

if you have 100 bitcoin, your opportunity cost of capital could be 8% income from lending it. or it could be the 20,000% APY you could earn by wrapping it and farming.

3/ opportunity cost of capital is a fancy way of saying "making your money work in the best way possible"

crypto is a $300B market. a lot of ppl who are fundamentally long (holding assets) want to make money while waiting for "number go up"

financialization is inevitable

4/ crypto credit markets have been around forever - you can get leverage against your 100 bitcoin from desks, exchanges, etc. the first form of leverage was trade
leverage. in the last few years, more borrow capacity coming online.

wrote about it here: medium.com/coinshares/und…

5/ yield farming is a pretty clever way to keep ppl fundamentally long an asset by having them lock it up and hold it. so selling and taking profit becomes more "expensive" than pooling and earning yield.

for traders, it's a great way to minimize opportunity cost of being long

6/ most ppl use this framework - opportunity cost of capital analysis + risk / reward in their behavior - even if not explicit or quantified

it's a useful frame for anyone who is fundamentally long BTC, ETH, or other highly liquid assets

helps w/ understanding market behavior

7/ if you're interested in learning more, @jillruthcarlson and i did two episodes on these topics

first - understanding financial relativity (risk free rate, market rate, etc) and the art of performance in investing - medium.com/what-grinds-my…

8/ and second, understanding liquidity and concepts like market depth, liquidity premia, and how trading firms economize cash - effectively, how they manage the opportunity cost of holding liquid assets like dollars

medium.com/what-grinds-my…

9/ markets are just systems. these systems have consistent patterns.behavior in markets is predictably irrational.

understanding these systems and their mechanics is a good investment of time, especially if u plan to participate in some way, shape, or form. DYOR and stay SAFU!