AMM and IL: Convincing Communities they shouldn't HODL.
Hodling is not a good community strategy.
It's easy to see where the strategy of "HODL" came from. Anyone who held Bitcoin from $1 to now just went x50000 on their money. That's crazy! HODL! HODL it up! Money money money!
Unfortunately the concept of hodl is not a good one when considering network growth and fairness to new users. It is only a good long-term strategy for individual users trying to get rich over the course of years.
But when we look at these communities themselves, HODL is all about deflation and supply shock. Spoiler alert: choking the supply and causing supply shocks is bad. That's what "shock" means: it has an obvious negative connotation for a very good reason. You never want you or your network/community to go into shock. It is foolish to root for such an outcome.
But Bitcoin maximalists are completely delusional so they think supply shock is a good thing. Bitcoin has had such great success over the last 13 years that they aren't going to listen to reason anytime soon. It just so happens that deflation does not allow for good network growth, because new users have to buy at inflated prices, and those inflated prices could deflate at any time, syphoning money from new users and disillusioning them from participating in this emergent economy.
The key to a healthy economy is heavy inflation in all the right places. It is not hard to allocate inflation within this context into areas where the inflation actually generates more value than the dilution of the currency itself. If you print a million dollars, but then generate two million dollars worth of value, everybody wins. Literally everyone, not just legacy users (as is the case with deflationary economics). This is why deflationary economics will eventually fail over and over again as they are replaced by inflationary ones. Bitcoin hasn't had any "competition" in this regard because AMM is such a new technology.
The Crux is AMM
Automated Market Making technology is still an extremely undervalued invention/implementation of crypto. It is the ultimate answer to supply shocks and providing infinite liquidity to the markets.
Using AMM, it is now possible to incentivize entire networks to STOP HOLDING and instead get paid to provide liquidity. This is a massive paradigm shift away from this idea that deflationary supply shock being the way to go: it isn't.
By providing massive yield in exchange for liquidity pairs, all of a sudden it becomes more profitable to NOT HOLD and get new users to enter the platform at a fair price. This becomes even more true when paired to stable coins, because stable coin liquidity sets up anchors and will cause the base asset itself to become even more stable.
Eventually hyperinflationary tokens are going to completely take over, and they are going to find ways to constantly turn their own token into a much more stable asset with exponential yields and a price that can be counted on to be exponentially more predictable than something like Bitcoin which relies on supply shocks and toxic deflation that leeches value from new users who FOMO into the current rally.
The only way hyperinflation can fail is if the money being printed can not sustain itself. We actually saw this with CUB as the price fell from $13 to 40 cents. Why did this happen? because CUB DEGENS are DEGENS. Too many people greedily stacked the den when that money should have been inside the liquidity pools. It's not Khal's fault that LEO bulls are degens and chose to "HODL" rather than actually providing liquidity and value to the network. We are actually still having the problem right now, but lo and behold supply shock will kick in eventually and the price of CUB will spike once again.
If CUB users had instead stayed in the LPs and avoided the den, the spikes and dumps would have been greatly lessened, and the APR in the den would have been much higher. Everyone would have won, but instead what we got was greed. Crypto punishes greed. Plain and simple.
Impermanent Losses
All of these decentralized exchanges are running around trying to avoid 'impermanent losses' at all costs. Again, this is greedy and stupid. Impermanent losses are amazing and there is no reason to try and avoid them. They force everyone in the network to bear the brunt of growing pains rather than putting that onus on new users who will inevitably ragequit when the token falls 90% in value during the bear market.
IL allows for new users to enter the network at a fair price without ever causing a supply shock. It becomes obvious that people in crypto don't even understand what Impermanent Losses are, which is quite embarrassing for them. If the word "arbitrage" is ever used in the explanation of IL: that person doesn't know what they are talking about (and they all do it; see above link).
Again, there is no reason to try and code around IL. All that needs to happen is that rewards for being a liquidity provider increase to match the risks being taken. There's only a problem when liquidity vanishes, which never happens because when liquidity vanishes then APY goes up and competition in the pool goes down, incentivizing other LPs to join the pool. It's a self-correcting system that is 100% superior to deflationary economics. We will see this play out during the next bull/bear market. This is AMM's time to shine.
Hive inflation
Hive is way way way ahead of the curve. We are offering inflation and yield not only on blog posts, but on development itself. The decentralized hive fund used for building out new apps is really a revolutionary thing that we don't see elsewhere (yet). I maintain that the DHF is still in the infant stages and will be upgraded multiple times over the next decade.
It's easy to go into the proposal system and be like 'WTF'. We are 'wasting money' on this this and this. However, that's not how it works. We have to take the entire system into account. Does the entire proposal system as a whole generate more value than it syphons away from the network? I think it's pretty obvious that it overwhelmingly does. The DHF doesn't actually cost us that much money. It's possible that a single funded project in the proposal system could 10x the price of Hive by itself, which would basically fund and justify the entire system until the end of our natural lives. These are the new laws of exponential economics, and they are pretty wild indeed.
But again, on Hive we see the same sentiment of deflation being a good thing, with the inflation of Hive being cut by 0.1% every certain number of blocks (currently around 7%-8% I think). If it were up to me I'd jack up Hive's inflation to at least 20% and let it sit there indefinitely. Hive can easily expand more than 20% per year, and we should be allocating yield into our own AMM market that should eventually replace the internal market (Hive/HBD).
Conclusion
A bit of a rant and all over the place, but I think the theme is solid and overarching. Inflation is good, and deflation is bad. Inflation is only not good if it becomes a drain on the network and leeches more value than it creates. With AMM, this is not the case because liquidity will always be an extremely high priority that allows new users to enter and force the old users to accept the slippage and growing pains of scaling up.
The value of Bitcoin is not that it stores value, but that in it stores security. The security that Bitcoin stores is that of a governance system that is completely minimalist in nature and is impossible to hack because there is no governance system to hack in the first place. With only 2M more Bitcoin to be mined over the next hundred years, BTC's inflation rate can be rounded down to zero already. There is no inflation to hack.
Ultimately, Automated Market Making technology has not even come close to proving to the world how fundamental it is to future growth and development. We no longer have to play this Greater Fool's Theory game where the person who bought in last is holding the smallest bag that cost the most. AMM and yield farming force 'everyone' in the network to provide liquidity to the market and accept the burdens of slippage and growth as these platforms expand (using the proper incentive of high yield to offset risk). It creates exponentially more stable systems over long periods of time, and no one seems to realize it, to the point of trying to mitigate and eliminate impermanent losses altogether. These short-sighted greedy mindsets will be revealed for what they are sooner or later.
Once again we can see how all these systems are not even in competition. How many AMM pools out there are paired to Bitcoin or Bitcoin-pegged tokens? Quite a few. Therefore the advent of AMM not only helps new projects get the liquidity they need to bootstrap the network, but also Bitcoin itself (and Eth and BNB, etc) is just getting free liquidity without having to pay for it. These are all win/win situations. The real enemy and competition here is the legacy system. Fiat must die for crypto to reign supreme. That much is obvious.
Posted Using LeoFinance Beta
That's what one will experience when into crypto the high and fall of price and it shouldn't be a surprise to any one as it is what we will definitely expect in the inflation and deflation of price. The only hope is to see the price pump up in the nearest future to make all investment in it meaningful and profitable and I believe there would be a good change in price soon.
Good change? Hive is currently $1.75 USD. It increased +8.86% in the last 24 hours.
That is an interesting view about CUB. I generally invest monthly into the Farms and later send those CUB into the kingdoms. However having more people in the LPs means the APR of the farms would also drop. Is this a good thing?
Posted Using LeoFinance Beta
But how? Nowadays most people exchange cryptocurrency to fiat, and compare the value of the cryptocurrencies to the value of the USD. Cryptocurrency and fiat money will probably coexist with each other for some time. At least in the near (and probably even in the distant) future.
Ten years after crypto goes mainstream fiat will cease to exist.
Crypto is a thousand times better than fiat.
With a thousand times more tools and a thousand times the development speed.
It only takes a little push to get the snowball rolling.
The clock is ticking on that 10yrs, and the bye-bye of fiat. I am sure glad i am able to take in these ideas that seem to so easily come to smart, open and bright minded individuals as yourself. I enjoy hearing these perspectives. Mby it is time to get a little CUB in my stack. CHEERS!!
I've talked to BTC maxis who actually believe Bitcoin will subsume all value in the world and that they will become kings of the universe only because they BELIEVE the hardest and HODL. Of course, these types tend to be extremely arrogant and they behave as if this prophecy has already come to pass.
These lunatics are in for a nasty surprise. Let's say BTC goes to ten million in today's dollars. How much of the total power generation capacity of the world would need to be harnessed to secure the Bitcoin network? 10 000 000 / 50 000 = 200. Bitcoin would use 200 times as much electricity as Argentina today or as much as the entire world. Would the rest of humanity put up with 50% of all electrical power being used to secure a PoW network to have an opportunity to be financially enslaved to a tiny group Bitcoin whales who'd be multi-trillionaires at that point? What an utterly preposterous notion! Bitcoin would be declared illegal in all major economies that would be the end of it.
It is really as simple as that. China has outlawed Bitcoin. All it takes is the US and the EU doing the same and the monetary value and the hash rate of BTC will be sent tumbling down to a place it will never recover from.
BTC dominance is in long-term decline. The rest of the space will grow at an accelerating rate while Bitcoin will stagnate having fulfilled its potential much sooner than it will reach a market cap 200 times larger than today or even close. The endgame remains to be seen.
Posted Using LeoFinance Beta
This is really a great way to look at things. I have never been great at the HODLing part. Unless you are in a good staking asset, then HODLing just doesn't make since if you want to expand your wealth, but on the flip side, moving it around allot can also lose you money, lol. But I agree AMM is the way! Most of my assets outside of Hive are all in AMM contracts earning that sweet yield. At this point, the only thing I use BTC for is to move my monthly bill money from Hive to my Cash App to sell.
The buy/sell markets are no longer the only option, with the yield markets going to absorb a lot of the tokens. I think what is underrated also in regards to the AMMs, is that it satisfies that "holder mentality" to a high degree, by softening the taking it to market with a return. People feel like they are holding still, even though it is exposed. I think there is some kind of mindhack going on in there somewhere.
First, I agree with your assessment of these explanations. Seems to be a case of the blind leading the blind. So since these explanations are "provably" false, can you explain what actually happens?
Take an example:
$10k stable and $10k ETH at $5000 for ease of numbers. So 10k HBD and 2 ETH in a pool. The price of ETH goes to $6000. I come in with $6000 HBD and swap it for 1 ETH. Now the pool has 16k HBD and 1 ETH. What happens next inside the pool?
It is obviously out of balance. How does it rebalance? Say a new wanna-be liquidity provider wants to add to the pool. What is the ratio of HBD to ETH that he/she has to put in?
I don't know the answer to these questions. That's why I'm asking you... lol
Posted Using LeoFinance Beta
I will write a quick post right now explaining how this works.
CUB price action will be used in the AMM section of economics textbooks in the future.
Perfectly explained :)
Posted Using LeoFinance Beta
Imagine a Liquidity Pool where you get a 50% APR or more paid in HIVE. Sign me in.
AMM is awesome. Cutting out the middle man and giving common folk the possibility to participate in financial markets, while choosing which currencies you want to be exposed to (this to me is the most important aspect of making good decisions about whether becoming part of liquidity pool or not) and understanding that big gains come with big volatility and the possibility of the dreaded Impermanent Loss, which is self correcting and not permanent, as implied by its name.
You need to educate yourself to make good decisions though, and greedy folk will always go after the highest APR which isn't always the best move, especially if you want some long term stable profit, it's quite the opposite most of the time.
Great points you've made about the benefits of AMMs.
Not indefinitely, because inevitably every system's growth rate slows down, but I believe we can/would be able to sustain a higher inflation rate for a longer period of time. Splinterlands explosion shows why.
There is of course the argument that Hive should remain a governance token only, and the blogging rewards should be moved at the second layer only. A proposal I would agree with if we'd have a second layer communities + own token and reward pool distribution that is way less centralized compared to what we have with tribes/outposts now.
Agree with this 100%
I don’t disagree, but I am unsure I understand this:
This I understand and think it’s beautiful.
This is so true…
It is an essential concept in the evolution of investing from buy and hold ponzi like system to DeFi where all participants make money now, not later. DeFi is the future.
You always make good points that I see few others making. I learn a lot from you.
Sorry this could have been a generic copy past comment, just wanted to tell you that.
This is literally the first time I’ve heard someone say “supply shock isn’t good”. To be fair I mostly just watch a few bitcoin price analysis guys (and now sometimes that crypto zodiac woman for fun).