Liquidity/Value Problems & Basic Chain Movements

Level 1 - NGMI

Welcome Avatar! We’re going to cover a few things. 1) a quick review on why we’re betting on digital vs. physical; 2) liquidity/value problems DeFi helps solve and 3) why significant yield/arbs will exist. The last one is probably the most complicated and is something we’ll need for a paid post in the future. That said the big picture will click immediately.

Overview of What is Happening Online

Step 1, Pause and Think: Does the average person spend more time walking around outside or more time in front of a screen/smartphone. We all know the answer. People have moved to spending more time in front of a screen. This includes: 1) televisions, 2) laptops, 3) cell phones, 4) zoom/facetime calls and 5) video games/other entertainment options. In general, this is only going to get worse.

Step 2, Where is the Attention Going: The attention is going to the internet. At this point you likely reach more people on the internet vs. in real life. Unless you’re a celebrity or well known athlete, no one is going to know you in the real world. However. If you were a mid-tier e-celebrity, you can reach hundreds of thousands of people in front of your computer.

Step 3, Where is the Money Going: The money is also going online. You see this with E-commerce eating away at brick and mortar. You see Crypto capitalization eating away slowly at legacy stores of value (ie. gold). You also see income streams for people on Only Fans surpassing individuals in cities because they cannot reach as many users (limited scale even in a stadium). This means? The individual with the most value is going to accrue more and more over time. If you want proof, look no further than Logan Paul.

Summary: You know attention is going to go more online. You know that you can reach more people online. You know that electric money is now a real way to transact. Therefore… everything is moving online and on-chain. On-Chain is the new Online (we’re just in the year 1997-1998).

Part 1 - How This Solves Liquidity Issues and Value Issues

Hopefully we have you convinced that value, attention and money is flowing online. If not then you’re probably not interested in crypto/DeFi. We’re taking a hard line stance that physical realm items are going to continue to decline Long-term vs. Digital (brick and mortar vs. E-com, Crypto vs. Fiat Physical Cash and NFTs vs. Rare Art in your home). Now we can walk through the why and how DeFi fits in.

Liquidity Issues: The first one is less dramatic. Liquidity is a major issue. If you own something expensive in the physical realm it isn’t easy to get value out of it. If you own a Lambo or an expensive art item it’s tough to borrow against it. While people will jump in and say it is easy, it really isn’t. The product decays (cars lose value over time), physical art needs protective measures and of course you have to work with a rent seeking third party intermediary as well (enjoy the fees!).

The second part of liquidity is speed. If you want to take out significant money, call it $50,000 US Token or more… This is going to require a lot of headache. You likely need a credit check, need to pay fees and have to shop around for the best possible interest rate you can find. Not an easy task at all. Instead? Use decentralized finance and you can shore up that loan in a single click if you have enough collateral. Complete game changer.

Value Issues: DeFi removes value from intermediaries and gives it to the creator and consumer. This part is “not good” for anyone that is an intermediary: banks, record labels, bookies etc. If they are no longer needed to transact the rent seeking (money they drained) is distributed to the consumer/creator.

Now before people laugh at this concept, we 100% agree that the majority of projects out there are Ponzi Schemes. We’re early in the development of DeFi which means that the protocol is taking massive amounts of the value. Over the long-term this should be less and less prevalent (Ie. both lender and borrower are happier without a third party due to lower costs).

Source: Here

As you can see, the intermediary is simply rent seeking. If the infrastructure is replaced with lines of code all the rent extracted from the center is distributed to savers/borrowers.

Part 2 - Multi-Chain and Tokenomic-Issues

Now we hopefully have you convinced that tokens allow for immediate liquidity which is significant value alone: 1) time, 2) no one is “un-bankable” and 3) reduce any physical world issues such as decay.

The next question that comes up is “why are there so many chains and pools”. Well, just like the start of any major industry you end up having a fragmented market where thousands of projects start and only a small fraction succeed.

Want to see how fragmented a big market can be? Look no further than the automobile industry: Wiki.

For those that don’t want to click the link it goes from A-Z and this is only a partial list of the companies that start with A.

What Does This All Mean: It means new coins, new ponzis and new legitimate projects will pop up (most being ponzis). They will incentivize you to jump into their new project with token rewards. Instead of trying to raise money through VCs, they attempt to issue out tokens.

Example: Since most of you are familiar with various chains and projects, you can look at McDex as an example (120% APR on BSC as this is being typed out). Then you can look at various chains and find a positive carry trade.

What you do? You simply go on every single protocol/chain you find and get the lowest funding and move it into the higher yielding. This sounds “obvious” but given how new everything is most people do not have money on all chains (L2 arbitrum, FTM, BSC, ETH, AVAX etc.)

Sure there is always going to be risk of a technical issue/hack however, by being early you can get the “early adopter rewards” and leave.

Bonus DeGens! As a quick bonus you’re probably wondering why anyone would do all this as it’s “dangerous”. Well we live in a world now where people are forced to take on more risk as it is one of the only options for a smaller player to catch up (people with less than $50,000 in crypto). Therefore? This likely goes on for a lot longer than people think.

Conclusion: Moving across chains, pools and projects will likely yield significant returns for a long time. The main issue is being “first”. If you’re first into each item you get the highest APY/APR as it declines when the pool gets bigger. Just like the auto industry, most of these projects won’t be worth anything but by being first you can be part of the “fund raising/incentivization” hype.

Final note, this is high risk and you should look at each borrow/pool from your own risk reward profile.

---

Disclaimer: None of this is to be deemed legal or financial advice in any way shape or form. You are reading opinions from an anonymous group of Wall Street and Tech Engineers in Cartoon format.