1/ Agree. Without the benefit of hindsight, it’s hard to distinguish network externalities from pure Ponzis. In their growth phase they sure look similar: “this thing has little intrinsic value now, but we‘ll get rich by getting new people in, who in turn will get more new users”
2/ Facebook’s a trillion dollar company primarily because everyone uses Facebook. Its early users contributed enormous value to the company. If not for outdated securities laws, it would been fair and made sense for early Facebook users to receive equity in the network.
3/ The more users and activity they brought into the network, the more equity they should have received. That would have felt very Ponzi-ish from the outside.
4/ The difference is when a Ponzi burns through the population, there’s zero terminal value. The game is zero sum. Whereas once Facebook signs everyone up, you now have a trillion dollar network. Everyone can get rich, because the network itself creates value.
5/ Web2 networks created an unimaginable amount of human wealth. Approximately zero of which went to the users, despite them being the most critical ingredient.
6/ That’s largely because of major legal and cultural aversions our society has to anything that even remotely looks like a Ponzi. These mores make sense in a 19th century economy where wealth is generated through tangible capital.
7/ But in a post-industrial economy, where substantial amount of value is created through network externalities, many things that look Ponzi-ish from the outside can generate enormous positive sum wealth for everyone involved.
8/ Just to be clear, I’m not saying that pure pyramid schemes can’t exist. But in an economy dominated by networks, knee jerk Ponzi aversion can lead to costly type II errors. Users that never capture the value they add. Networks and products that never get bootstrapped.
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1/ Over the past year DeFi has been heavily colonized by HFT emigres. A lot of us come in with an arrogant attitude that we’re much smarter than the DeFi native folks. We naturally assume that however we did things in CeFi must be better. (🙋♂️I’ve certainly been guilty of this)
2/ Unfortunately I think Serum has been a victim of this attitude. AMMs have served DeFi very well. But the HFT folks behind Solana and Serum naturally assumed that limit order books must be superior because that’s how CeFi does it.
3/ CLOBs have a lot of major advantages in terms of price discovery and capital efficiency. But they’re much less resilient than AMMs. Today’s outage shows a major downside with CLOBs.
1/ A lot of quant traders (including myself at many times) have a knee jerk instinct to believe that if a strategy is technically challenging it must mean there’s more alpha underneath.
2/ Anyone with experience will tell you this just isn’t true. Even knowing this, it’s still hard to think outside the implicit bias of hard equals lucrative.
3/ I’ve seen insanely complex strategies requiring teams of PhDs, where the alpha was competed down to next to nothing. These teams persisted picking up scraps well past the point it made any economic sense.