One of the interesting elements of crypto/digital currency that doesn't get talked about enough is the auditability of having everything being digital.
Part of the 2008 GFC story that isn't as widely talked about was that a lot of the problems were not just that a lot of bad mortgages had been handed out (they had), but that it was all buried in giant paper contracts so no one know how bad (or not bad) it was.
A lot of the traders that made the most money in 2008/9 were actually buying mortgage-backed securities (MBS) that were trading too low because people were afraid things were even worse than they were.
If something is worth 70 cents on the dollar, buying it at 40 cents on the dollar is still a great trade.
It's kind of crazy that if those contracts had existed in an auditable, digital format that someone could have literally written and run a Python script in a few minutes that would have told you what it took years for people eventually figure out.
This never really gets talked about publicly, but a lot of the issue was just shitty accounting.
It was interesting how well the on-chain DEX/DeFi ecosystem handled the recent sell-off.

A lot of people got blown out but no one was unsure about their position.

It was pretty easy to know if you got blown out or not in real-time.
[Insert all appropriate disclaimers about uses of leverage, lack of regulation, it's wild wild west, etc. Just find the audibility angle an underappreciated component}
Should also note that this doesn't necessarily require a public blockchain, could be done via CBDC or any similar digital currency.

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More from @TaylorPearsonMe

5 Jun
One interesting thing with the Kelly Criterion is that it sort of necessarily shows you the importance of diversification.

Even with insanely good odds, you never bet a huge amount of your bankroll
(I did a short explanation of Kelly here if you're unfamiliar)

Here's an insane example:

You have a bet which pays 100 to 1 and you are 80% sure that you are correct, how much should you bet?

(Try to pick a % of your assets/bankroll in your head)
Read 8 tweets
1 Jun
I think understanding basic game theory concepts like the prisoner's dilemma is really useful, but it leaves at least two important concepts out:

1. Reputation

2. Context Dependence.
The gist of the prisoner's dilemma that [[Robert Axelrod]] showed was that by getting people to engage in iterated prisoner's dilemmas instead of one off, you promote cooperative
(If you're unfamiliar with the example, I wrote a short explanation) behavior.taylorpearson.me/interestingtim…
Read 14 tweets
19 May
I've never found a way to articulate it cleanly, but this is a really important point from Taleb's work (and others) that goes underappreciated.

If an environment is becoming more fat tailed, we would actually expect less variance in the short-term.
It's got a Minsky-esque quality to it that more stability can actually suggest greater future instability.
If you remove all the stressors from an environment by delaying risk, you not only make the eventual collapse worse, you make people less prepared for it.

Read 4 tweets
14 May
Just posted a summary and my notes from John Galls' wonderful book Systemantics, a wonderful (and funny) book on how systems work

Some of my favorite lines....

taylorpearson.me/bookreview/sys…
SYSTEMS IN GENERAL WORK POORLY OR NOT AT ALL More technically stated: COMPLICATED SYSTEMS SELDOM EXCEED FIVE PERCENT EFFICIENCY
SYSTEMS TEND TO MALFUNCTION CONSPICUOUSLY JUST AFTER THEIR GREATEST TRIUMPH

Toynbee explains this effect by pointing out the strong tendency to apply a previously-successful strategy to the new challenge....
Read 28 tweets
26 Apr
The rapid sell-off in Bitcoin last week is a good example of how exogenous market factors can trigger endogenous market structure factors leading to a cascading sell-off.

This phenomenon is an important part of markets and (IMO) underappreciated.
In the case of Bitcoin, Phase 1 of the sell of was that there was a large hashrate drop which triggered a wave of selling.

However, that also forced a lot of overlevered players to cover their levered long positions (or they got liquidated), causing a second leg down.
I think this is important because the common understanding of price movements is that they are reflective of investors saying "I have updated my beliefs about the future value of this asset and am buying/selling based on that."
Read 12 tweets
23 Apr
I’ve been (rental) house hunting for the last couple of months. I don’t really know anything about real estate investing, but I’ve been trying to read up (John T. Reed’s Best Practices for the Intelligent Real Estate Investor is my favorite so far).
It’s been interesting seeing the market and how homes are priced.

Factors which the market seems to price really efficiently include:
-Square footage
-Neighborhood
-Amenities/Finishes
-View
However, there are a lot of factors that (in my experience) have very high quality of life implications and basically don’t seem priced in at all.
Read 19 tweets

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