1/ There's a lot of debate and speculation on crypto Twitter about how Alameda managed to lose so much money. But this may give a false impression of ambiguity in other aspects
There's one thing that's unambiguously and indisputably true. SBF and Alameda committed fraud. Period.
2/ For anyone who's been close to the chaos, this will seem so obviously true that it may seem laughable that I even have to make a thread to drive the point home. Not a single credible voice in the industry would tell that this wasn't naked, malicious and criminal fraud
Nov 11, 2022 • 23 tweets • 4 min read
1/ Very rough and speculative sketch of what I increasingly think happened at FTX as more info comes out…
The central question is where did the money go? Yes malfeasance and fraud is necessary, but at one point in the cycle cash actually has to go out the door
2/ At 3AC we knew it went to losses on leveraged long positions. At Lehman it went to bad mortgages. At Enron it went to boondoggle mega projects.
Some FTX money obviously went to seed rounds in bad or illiquid projects. But AFAICT nowhere near enough to explain the hole.
Oct 14, 2022 • 10 tweets • 2 min read
1/ IMO settling with the Mango exploiter was the correct move. It's very unlikely the exploiter would have been criminally prosecuted, even if they were doxxed.
To understand why, it's important to distinguish "computer fraud" from "securities fraud".
2/ The vast majority of hackers (crypto or otherwise) are prosecuted under the Computer Fraud and Abuse Act. Computer fraud is very easy to prosecute, and US Attorneys are very comfortable bringing cases, having a clear template for prosecution.
Sep 4, 2022 • 12 tweets • 3 min read
1/ The economics of BSC are really interesting. Anyone trying to build meaningful value accrual in an L1/L2should pay attention
Yes, BSC fills up a lot of blockspace. (About double Ethereum and the rollups combined) But IMO the key driver of BSC is the high floor price for gas
2/ For years, and even today, the default fee model for L1s is a totally free and unrestricted market for gas. This is the model that Ethereum uses. There's no meaningful floor price for gas, and prices keep falling until supply clears.
Sep 2, 2022 • 7 tweets • 2 min read
1/ Toy model showing that MEV extraction from ordinary users will be slightly worse in post-Merge PoS compared to PoW...
2/ Two simplifying assumptions...
First the value of MEV scales with the divergence between on-chain prices and real-time prices at CEXs (this is basically true for CEX-DEX arbitrage, and increasingly true for other MEV which is more stat-arb driven)
Aug 30, 2022 • 12 tweets • 3 min read
1/ IMO there's essentially no way to make the economics of an on-chain order book sustainable. At least in a general purpose chain
IMO the only solution is an order book specific appchain with application aware pricing. A general purpose chain can't profitably host an order book
2/ The issue comes down to order books requiring a tremendous stream of "rebalancing activity" by specialists to create efficient markets and provide reliable liquidity to organic users.
In modern TradFi, the ratio of HFT messaging to organic activity is at least 25:1
Jul 27, 2022 • 7 tweets • 2 min read
1/ For entertainment’s sake let’s assume Chandler Guo’s ETHPOW fork gets any traction… Some fun consequences to imagine when forking a chain with active DeFi activity. (ETC was well before any real on-chain applications)
2/ First consequence. USDC and USDT on the ETHPOW chain is immediately worthless after the fork, because it won’t be recognized by the Circle/Tether. DAI is more complicated, but similar story because DAI is largely backed by USDC.
Jul 2, 2022 • 14 tweets • 3 min read
1/ Been thinking about value accrual models for L1 tokens…
An L1 is essentially a business that sells the product of blockspace. For investors trying to value L1 tokens, the question is how much value can the chain extract from consumer demand for that blockspace
2/ Note this is a different question than what’s the best model for end-users
Of course you need a product that attracts consumers. But business is filled with examples where the best monetization model is not the most consumer friendly model. Eg SaaS vs shrink-wrapped software
Jun 8, 2022 • 12 tweets • 2 min read
1/ Recently the SEC proposed replacing wholesale PFOF with an open auction on a per order basis.
This is very non-intuitive, but paradoxically could lead to substantially worse price improvement for retail users. Or even eliminate it entirely.
2/ First, let’s take a step back and ask why PFOF wholesalers can offer better prices compared to public markets like NASDAQ.
The reason is because that order flow is “non-toxic”. In other words retail stock traders aren’t very good, and therefore are very easy to trade against
May 9, 2022 • 4 tweets • 1 min read
1/ Fascinating little phenomenon happening in the Uniswap UST/USDC pool right now... The price in the pool is basically "stuck" at $0.952, despite the actual market price being $0.93. 2/ The reason is because the pool price has reached the end of any meaningful concentrated liquidity. There's not enough liquidity below $0.95 to justify the gas cost of selling below this price.
*But* you can't add more liquidity without taking an instant loss.
Apr 22, 2022 • 7 tweets • 2 min read
1/ It seems pretty likely we’re about to experience a Cambrian explosion of algo stablecoins.
It might be a really interesting time to build protocols mimicking CDO instruments from TradFi.
2/ You’d start by constructing a pool from a diversified set of yield earning algo stables. The protocol would then slice that pool into a series of tranches with the classic “waterfall loss” model.
Apr 8, 2022 • 12 tweets • 3 min read
1/ This research from @0xfbifemboy is a real glass half-full/half-empty results for concentrated liquidity.
The short summary is that contrary to folk wisdom, simply moving setting your UniV3 ranges correctly is not a source of alpha.
2/ Not a single wallet seems to generate sustained alpha. Regardless of how actively a wallet manages their LP position, everyone in the pool seems to get the same, mostly mediocre returns after IL. There is no silver bullet. (Besides JIT...)
Mar 14, 2022 • 11 tweets • 3 min read
1/ Why I'm not interested in price oracle AMMs as a long-term solution.
(Even if they may be the right approach...)
2/ An interesting question is what is the role of an AMM when you have a trusted, reliable, accurate on-chain price oracle that's resistant to manipulation and front-running?
(A big if, but for now let's hand wave it away for now)
Feb 20, 2022 • 5 tweets • 1 min read
1/ Could wallet software prevent OpenSea type exploits by explicitly telling the user what the tx they’re signing will do to their tokens/NFTs?
Unfortunately, no. As any MEV searcher who’s interacted with salmonella tokens will tell you. Things aren’t that easy…
2/ The way a wallet works is by taking the proposed tx and applying it to a local fork of the chain starting from the most recent block.
The problem is the state of the chain is not guaranteed to be the same by the time your tx is actually mined.
Jan 28, 2022 • 14 tweets • 3 min read
1/ There's a misconception that a Flashbots-like open market for MEV eliminates the profit advantage from integrating searchers with validators. That as long as there's an open market for MEV, searchers will no longer need to run captive validators.
2/ There's an effect known as the Winner's Curse. In a game of rivalrous private information, winning a Dutch Auction (like Flashbots) always comes with -EV adverse selection costs. Essentially competing in an auction means fading your opponents' alpha.
1/ Don’t understand how people can say that recent market moves show the crypto inflation hedge narrative is dead.
Over the past 6 months, BTC price has moved eerily in line with CPI breakevens. Both peaked in mid-November and have crashed since. 2/ The “Bitcoin has failed to hedge inflation” thesis is confusing headline inflation numbers with long-term market expectations.
Yes, the recent CPI print was high. But that was already baked into market expectations given that CPI breakevens have precipitpusly *fallen*
Dec 21, 2021 • 8 tweets • 2 min read
1/ Been thinking a lot about the relationship between web2 and web3. Feels a lot like the first vs. second industrial revolutions.
The second industrial revolution wasn't successful because it rejected the first. It was a force multiplier on stacked *on top* of the first
2/ The first IR built up the raw technical capacity for hyper-scalability with regards to physical production. The problem was that capability and know-how remained siloed in a few hyper-productive manufacturing hubs, primarily around Manchester.
Dec 14, 2021 • 10 tweets • 2 min read
1/ After many months of hard work, the @CrocSwap team is excited to finally announce the project we've been working on behind the scenes. The wait is over.
2/ CrocSwap is a new DEX protocol developed from the ground up, and the first truly open source concentrated liquidity AMM. Some key features that we think you might be interested in...
Dec 5, 2021 • 10 tweets • 2 min read
1/ This goes against orthodox wisdom but...
I strongly believe that the market is now seriously undervaluing dApps (defi, metaverse, etc.) relative to chains (L1s, L2s, bridges, etc.).
There are pretty close analogs to the original Internet boom.
2/ A very under-appreciated fact: by market float, the 90s dot com bubble was essentially a telecom bubble.
Not that investors ignored web properties. But much more capital and risk appetite ended up chasing the underlying infrastructure.
Dec 2, 2021 • 7 tweets • 2 min read
1/ A possible solution for front-end exploits like BadgerDAO: Whitelist (the hash of) any official web frontend in an on-chain registry.
2/ Practically this looks a lot like ENS (maybe even it's part of ENS itself).
Anytime the project updates the web frontend, it takes the SHA256 of the statically hosted web content. That whitelist hash is then pushed on-chain.
Nov 18, 2021 • 11 tweets • 2 min read
1/ The most common mistake I see with V3 LP strategies is to forget about open out-of-range positions long stretches.
Even pro dex traders seem to implicitly assume out-of-range LP positions can be safely and "costlessly" left alone.
This is wrong...
rekt.news/uniswap-v3-lp-…2/ The price of ETH today is $4100. Pretend you have a UniV3 LP open on the ETH/USDC pool on the range [$4200, $4300].
Congratulations your LP position is stuck out of range. The position is 100% ETH collateral, and you're not currently earning any yield.