Thread by @thiccyth0t

I made a Dune dashboard on @Uniswap that has caused a stir among prominent members in #DeFi

It's disturbingly revealed those who think they have invented perpetual motion

📕 A story 📕 about a chart, a cookie, hubris, social proofing, and the future of DeFi

👇 1/

THE CHART 📉

Last month, I did an analysis on order flow toxicity around the Uniswap V3 ETH/USDC pools.

Uniswap V3 LPs on ETH/USDC have lost an estimated

💵💵💵 $100 Million Dollars 💵💵💵

AFTER fees on top of their original LP holdings.

dune.com/thiccythot/uni…

2/

LPs in AMMs profit when

Fees > Impermanent Loss (IL)

and lose money when

Fees < Impermanent Loss

Impermanent loss is the DeFi term for the adverse selection that occurs when providing liquidity passively.

The chart 📈 says that LP fees < IL this year by ~$100M.

3/

What does the chart 📈 measure profit?

It measures the "markout" of every trade for ETH/USDC pools on Uni V3.

The markout is the unrealized 💰PnL💰 of a trade using a price in the future.

For example the 5m markout = the unrealized PnL 5 minutes after the trade occurs.

4/

This is a commonly used measure in tradfi for hft 🤖market makers🤖, where I previously worked.

It measures the execution quality across many time horizons.

markouts estimate our realized PnL because finding exact entry and exit of every LP and trade is tedious.

5/

Here's how to interpret this chart 📈:

LP unrealized PnL after 5 mins: -$21M
LP unrealized PnL after 1 hour: -$56M
LP unrealized PnL after 1 day: -$97M
LP unrealized PnL after 7 days: -$92M

6/

@0xShitTrader interpreted this chart in that retail should not participate in passive liquidity providing on CPAMMs due large losses.

I am personally neutral to that view, though I understand where it coming from. LPs in ETH/USDC are down bad YTD.

https://twitter.com/0xShitTrader/status/1579510561267929089

7/

THE COOKIE 🍪

@teo_leibowitz, @xin__wan, and @AustinAdams10 of Uniswap's Venture and Research arms sent a scathing thread saying that my analysis "took the cookie 🍪" on chart crime vs @Uniswap, claiming that it was wrong in every dimension.

https://twitter.com/teo_leibowitz/status/1587527337117188101

8/

Uniswap's team claimed that I was not counting fees in my analysis, and that @Uniswap's ETH/USDC pool was actually profitable by $150M since inception🤯

A truly mind boggling difference.

Their query: dune.com/queries/1493066

https://twitter.com/teo_leibowitz/status/1587527343723409408

9/

@0xShitTrader discovered that Uniswap had a bug in their query that was throwing out all LP buys, over HALF of all of the LP trades 😐

https://twitter.com/0xShitTrader/status/1587844736156684291

10/

When correcting for the bug, their analysis looked identical to the original chart 📉, showing almost 💵$100M💵 in losses to LPs marked to 1 day.

https://twitter.com/0xShitTrader/status/1587844737943453696

11/

This was brought up to their team immediately.

It has been over ⚠️5 days⚠️ since and they have not retracted their statements, compelling me to write this thread to prevent misinformation.

It is important to me to share the truth about the state of the DeFi world 🌎

12/

I don't mean to wax poetic in the next few tweets, but the fact that the @Uniswap team thinks it was reasonable that 💵$150M💵 in profit was made providing passive liquidity in the ETH/USDC pool is simply astounding to me🤯

13/

HFT desks with insanely fast connectivity infrastructure with armies of PhD quants competing in a market 50x the size of crypto would be happy to make half as much of that profit.

How could a passive liquidity provider with no information even come close?

14/

The confirmation bias of the @Uniswap team is clear

They believe that the realities of financial markets simply don't apply to them

They truly think that they have invented perpetual motion, a posthistory money printing machine with no alpha generation required

15/

This misinformation and lack of truth from @Uniswap has spread like a virus among venerated members of the #DeFi community who trust the Uniswap brand and who haven't dug into the data themselves.

Social proofing is a dangerous beast 👀

16/

https://twitter.com/guil_lambert/status/1587630549698592768

Other naive lemmings have followed them off of the cliff, claiming that they, too, have solved the problem of financial alchemy, turning lead into gold

"Execution quality doesn't matter"
"with brownian motion assumptions, fees should be 0..."

17/

https://twitter.com/Bob_Baxley/status/1588886801363898368

The truth is simply this. Capital is overallocated to providing liquidity in the ETH/USDC pools.

This is not a knock on AMMs or the Uniswap team. That is just the reality of the current state of the world.

18/

I'm not pointing this out to play negative sum status games or to beat my chest and shill my own protocol.

DeFi is in an existential crisis and we as a community need to be intellectually honest to ourselves about what we've accomplished.

19/

AMMs are an amazing tool for stable swaps and for bootstrapping liquidity on long-tail assets

Rivaling CeFi technology and execution quality for highly liquid symbols is something we as a community are still trying to solve. It may not ever be possible

20/

There is simply too much capital on-chain looking for yield. This results in almost every opportunity yielding in negative risk premiums, Uniswap pools non-withstanding.

21/

There is over $70B+ of stablecoins sitting on ETH looking for productive use cases.

There are not enough productive use cases for this capital, especially in an environment where risk free rates are over 4%

22/

Switching costs for liquidity is high.

Most of the capital hasn't woken up to the stark reality that #DeFi is a teenager going through puberty confused about its own identity.

We are sitting on a blessing of capital that most of the #DeFi community is taking for granted.

23/

#DeFi is racing against time trying to convince this capital to stay.

Innovation, creativity, and real productive use cases are necessary for the ecosystem to survive.

We cannot rest on our laurels because DeFi is nowhere near a sustainable end state.

24/

A good friend of mine recently talked to me about the difference between precision and accuracy that I think encapsulates #DeFi's existential problem.

25/

Precision is the ability to hit the target.

the inflow of capital and talent into the space has been remarkable.

talented builders have gathered in the space to solve big problems that will help the world that could execute anything that it puts its minds to.

26/

Accuracy is making sure you're aiming the right target.

What problem is DeFi actually trying to solve?

In the last cycle, the world needed a growth narrative (aka unregulated casino) for a historic injection of liquidity.

27/

We as a community need to abandon the promises of financial alchemy and perpetual motion machines of the last cycle and focus on long term sustainable sources of innovation that DeFi can actually solve.

28/

I hope this can be a wakeup call to the builders of the space.

Many of us have been incredibly lucky to amass capital and build through the bear market.

Let's make sure we're aiming at the right target because we owe it to society to make it a better place.

END THREAD

29/

I want to add that this is not meant to FUD Uniswap or imply that it is not safe for retail.

Things will always be over allocated or under allocated.

I just view it as a societal good to share accurate information about the state of the world.

30/

@haydenzadams and the @Uniswap team are truly innovative and I look to them as leaders in DeFi.

I hope this message allows them to reflect on their responsibility to the DeFi community and their focus on aiming their resources in the right direction to help the world.

31/