1) I know basically nothing useful about market microstructure, but I have one theory for why HFT could hate AMM long-term. Requires a bit of an unnecessary and boring backstory in my old career.
2) I used to trade Treasuries, and Tsy futures. And trading the "basis" for a particular maturity was a very popular trade. Similar to how BTC on Bitmex tracks BTC on Coinbase pretty closely due to arbitrage, so too would, say, the 7yr bond track the futures contract for that...
3) ...maturity (CME product known as the ZN). As a basis trader, the 7yr/ZN was WILDLY popular and profitable. The single most levered up trade in the treasury market due to the liquidity and volume of the ZN. For whatever reason, this trade was my entire firm's bread and...
4) ...butter for years, from at least 2010 when I started trading to 2017 when the trade unofficially died. What was so amazing about this trade was that it was pretty much immune to event risk, so no matter what happened in the world, you could buy dips and sell pops, endlessly.
5) To nobody's surprise, this super simple trade came to be dominated by high-speed algos. When the ZNs moved, it was a speed game to hedge with the 7yrs (or vice versa). Because I didn't work at a firm with the best technology (although we were definitely up there. A game of...
6) ...few winners), we could no longer profit off this trade. In fact, the trade quickly became negative EV. The spread barely moved, and you struggled to buy this spread at the bid or sell at the offer. (Luckily for me, I soon moved on to the crypto scene.)
7) Anyways, this concept of "blindly fading" a mean-reverting spread is what initially attracted me to Uniswap. Very reminiscent of the old days. And *even better*, the strategy was automatic. It replicated my entire old career, and I didn't even have to wake up at 3am anymore.
8) But there was one super key difference to the "Uniswapper" vs my old trading strategy. I got paid for *every* trade. I no longer had to flip these spreads. I earned half my profit on the first trade, and the second half on the roundtrip back up.
9) Execution speed no longer became an issue as a Uniswap LP. I always get to blindly fade my spreads and earn my fees. So now back to my original point: without having to worry about bid-ask slippage or microwave lines for speed, I can make money blindly fading retail order...
10) ...flow, and I'm almost certain this is bad for HFT. HFT can no longer pick off my hedges because I get paid regardless! This cuts into their profits, or HFTs will kill themselves over the speed games, or something along these lines.
11) Now just waiting for big 🧠 to tell me why this entire thread is dumb and/or horribly wrong.

cc @SBF_Alameda @danrobinson @abandeali1

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More from @cyounessi1

15 Oct
Super interesting technical discussions on both sides of the AMM debate tonight(@SBF_Alameda and @KyleSamani vs @danrobinson). There are also plenty of practical reasons for Uniswap's strong PMF, though. Here's the bottom line for me, as an active Uniswap LP:
For starters, where am I going to get my own personal on-chain algo trading firm with a single transaction? I don't have time or resources to build a bespoke AMM strategy.
I also just don't really care about any of the inefficiencies. I have no other options, and I'm pretty confident that I'm going to make money off the trading fees blindly fading some of these pairs both ways.
Read 8 tweets
28 Feb
THREAD: DeFi is at risk due to ProgPOW. If you care about collateral-based systems such as Maker / Dai, Compound, dYdX, and more, please consider taking a stance on ProgPOW. My number one priority is to prevent a contentious split, not to approve / reject ProgPOW (PP). 1/10
Setup: If PP is pushed through, and there is a contentious split such that the non-PP chain carries sufficient economic weight **even temporarily**, then an enormous amount of collateral will instantly be liquidated. 2/10
For example, if the marketcap split of $ETH is 60/40, (which we saw in the case of ETH/ETC, and BTC/BCH), then a large number of Vaults and other positions will be liquidated since the average Maker collateralization ratio is currently ~300% and the threshold is 150%. 3/10
Read 10 tweets
19 Feb 19
A thread on social media platforms regarding the @5chdn drama. I mainly want to highlight that various social media platforms have vastly different characteristics, and that most people aren't aware of this. 1/10
Many crypto reddits used to be small, with high signal. The communities were awesome. r/ethereum, r/ethtrader were markedly different. I imagine r/bitcoin was the same once upon a time. As these communities grew, the quality of discourse objectively declined. 2/10
Many prominent members of the community slowly left reddit and joined other platforms such as discord and Telegram. By far the most dominant crypto platform became Twitter. There's a very simple explanation for this: social scalability 3/10
Read 11 tweets
20 Dec 18
A (very bad) history of key events for smart contracts on Ethereum and why they're exciting:
1. Create a digital token (ERC-20)
2. Create an atomic swap contract to trustlessly exchange these ERC-20 tokens
2.5 Realize that all the tokens we've created so far are worthless
3. Create a token that's actually worth something, and test out your new swapper contracts
4. Fuck up and have your application drained of 12 million Eth.
4.5 Fork Ethereum
5. Create better swappers and concatenate them into an order book to create a decentralized exchange.
6. Realize that all digital tokens are still pretty worthless.
7. Finally, create first valuable ERC-20 token by using smart contracts to lock up collateral
Read 4 tweets
28 Aug 18
Seems like this tweet got a lot of love from anti-alt traders. I think some clarifications are in order.
Liquidity is just **one** aspect of investing. A crucial, often overlooked aspect, for sure. But fundamentals still matter. And finding solid innovations in the crypto space can be hugely profitable and worth it despite less liquidity. Nascent coins are on a different time scale.
In particular, liquidity crunches hit hardest for massively premined, manipulated, or otherwise completely hot-air coins. I don't want to re-name names, but there are obviously common ones that come to mind. In any case, in the end technology and innovation reign supreme
Read 4 tweets
10 Jul 18
0/ 61 markets and $16,000 of open interest so far within 12 hours of Augur's launch. In case you're wondering "what's the big deal," let's go over some of the markets that have been created so far.
1/ The most popular market was "Will France Defeat Belgium in the 2018 FIFA World Cup Semifinals?" The odds updated as goals were scored, and trustless sports betting will likely be a killer feature.
2/ Obviously, politics is a huge area of interest. "Will Donald J. Trump be elected AND inaugurated as President of the United States for the 2021-2025 presidential term?" will also likely be a huge market.
Read 11 tweets

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