Crypto currently offers basically no economies of scale. I.e. with the same skills, a professional trader/investor will earn a far, far higher ROI running a smaller amount of their own money than launching a fund. /1
2/ fund management also brings it with expenses and headaches on the operational, legal, compliance, accounting, HR etc side of things. Join a fund if you want to learn, gain access to tools/platform, and moderately diversify economic exposure.
3/ launch a fund if you have the team/skills necessary (not just investing but ops, marketing etc), and want to spend 5+ years in an entrepreneurial grind to build a company.
4/ in traditional markets, the "breakeven" for a fund is generally viewed as $500m. That's the AUM needed to be sustainable and even mildly profitable generally. In crypto it's lower but a lot higher than most expect.

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More from @AriDavidPaul

5 Apr
Paradox #15: Braess's paradox - adding roads may slow down traffic. This is really two separate paradoxes. /1
2/ A. empirically, people seem to target a specific work commute time. If you relieve traffic congestion, people move further away to retain the same commute time, likely because the greater distance gives them a higher quality of life in other ways, like cheaper real estate.
3/ so you could say that adding roads doesn't do anything...but in this framing it does. It may not reduce commute times, but it's still adding value to peoples' lives. Effectively those extra roads let people get cheaper rent or prettier home surroundings.
Read 6 tweets
24 Mar
The scope of regulation over anything and everything is mindboggling. 2 years ago, BlockTower held an analyst competition where we gave away $30k of BTC in prizes for the best investment analysis submitted. We had to review state by state regulation on "lotteries", and /1
2/ prohibit participation from many countries and states. This kind of thing comes up everywhere. Want to sell an NFT? Depending on how you're doing it, it falls under dozens of local and federal regulations (mostly irrelevant to individuals.)
3/ we're going to continue seeing the centralized/decentralized bifurcation as a regulatory arbitrage. The cost savings of being an "anonymous" founding team is enormous. (worth noting though, anonymity rarely lasts). Doing anything as a regulated business basically requires
Read 7 tweets
22 Mar
Are NFTs securities? No, by default. In some specific cases, yes, depending on what they are and how they're marketed. (I'm not a lawyer, may be wrong.) /1 itsartlaw.org/2019/11/19/fra….
2/ Remember the howey test? Same test applies to NFTs. Does an artist selling a work of digital art in NFT form constitute a security? Usually no. It's not an investment in a common enterprise, and generally it's not marketed with an expectation of profit.
3/ Can NFTs be securities? Sure. If a work of digital art is marketed as an investment for profit and if that profit expectation depends a third party promoter's efforts, and if the investment itself can be interpreted as in a common enterprise, than it may be a security.
Read 4 tweets
16 Mar
Some thoughts on value accrual post-interoperability: we've seen many recent announcements of major defi dApps migrating or replicating themselves on all sorts of layer 1s and 2s. Will these naturally aggregate on a single shard/chain/rollup? Do layer1s benefit from activity?
2/ this comes back to the old "fat protocol" debates of 2017 and earlier. Does having a lot of, say, defi activity flowing through a layer 1 or 2 give the tokens of that layer value? Most assertions of "yes" rely on one of the following:
3/ fee burning (like EIP 1559) is one way of converting usage directly into platform token value. Thorchain has another direct approach with bonded rune value tied to TVL. Polkadot's parachain auctions are an indirect approach.
Read 8 tweets
15 Mar
Paradox #14 (bringing back this series, starting with an easy one): The friendship paradox - "most peoples' friends have more friends than they do." /1
2/ This statement is literally true, by virtue of the fact that some people have more friends than others, and those people with more friends are more likely to be selected as a point of comparison. Consider the person with 1 friend - they'll appear in a survey as
3/ one person's friend, weighing down the average # of friends' friends, for only one person. In contrast, consider someone with 2,000 friends. That person's 2000 friends end up appearing 2,000 separate times in the survey. The people with more friends are more likely to
Read 5 tweets
15 Mar
Quick thoughts on bitcoin risk and return - since late 2016, I've been "all-in crypto." I've had 90% of my investable assets in cryptocurrencies, bet my career on crypto in mid 2017. I basically just had enough outside of crypto (in USD and gold) to sleep easy. /1
2/ this was an extremely aggressive allocation reflecting my conviction that bitcoin and cryptocurrency more generally offered an exceptional and extremely rare asymmetric return profile. I thought a 100x+ was quite likely in 2016, making the risk of 85%+ losses tolerable.
3/ as time goes on, bitcoin and crypto generally offer weakening asymmetry imo. While BTC may still provide a 100x, for that to happen today, BTC would need to achieve a $100 trillion market cap, about 13x that of gold, and reflecting about 1/4 of total global wealth.
Read 9 tweets

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