Tag: Finance

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Finance Startups

Day 152 and Running The Play

I’m going to put $5,000 into liquidity mining and yield farming to fuck around and, hopefully, find out.

If the last year has been about laying out the primitives of decentralized finance, this summer is going to be the Layer 2 land grab and I need to learn how to stake some claims. I don’t have a clue if it is going to work but I need to start learning how to play the game by tossing the ball around. I doubt I’m going to be whatever the equivalent of a professional player but I want to learn some muscle memory. You can’t very well buy an NFL team without having ever handled a football can you? Yes I am torturing a metaphor.

On a personal psychological note, I wanted to start with a $1,000 but then I realized the difference between losing $1,000 and $5,000 isn’t material to me (which blows my mind but such is the compounded benefit of my various privileges). However, the difference between 10xing $1,000 to $10,000 and 10xing $5,000 to $50,000 is extremely material to me. $50,000 is a a material seed stage check for a company that I may want to place a long bet on.

That is roughly the cost of my medical care for an entire year (not including drugs which roughly doubles it). That is a down payment on a parcel of land to develop over the coming decades. This is a moment to learn and leverage for the benefit of my future self and family if shit goes well. And if it doesn’t no big deal. The real money is better managed than me deciding I want to toss around a ball

My Chaos thesis says it’s time to run the play on the future more generally. It’s hard to argue that I can make good puts on a chaotic future without fully experiencing some of it myself in visceral fashion. I fully expect to lose all of it trying to liquidity mine and yield farm on my own but if I don’t well then I’ve proved something to myself about the future of capital.

I need to remind myself that this isn’t representative of how I allocate capital in a diversified portfolio to preserve my future security nor is it how I’d allocate capital even in a seed stage private venture stage portfolio. But it is a worthwhile amount to put on a 100% risk basis to learn how the fuck the future of capital allocation might work.

Honestly $5,000 is a pretty cheap tuition for a fancy credentialed college class so this seems like a good deal. I will write my way through the learnings and call it an independent study.

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Finance Startups

Day 149 and Optimizing for Outcome

I came across a thread today by Sahil Bloom on human goal setting and the mental models we manipulate. He introduced me to Goodhart’s Law

When a measure becomes a target, it ceases to be a good measure. If a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure loses its value as a measure! Goodhart’s Law is states “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” But the concept was popularized by anthropologist Marilyn Strathern. She generalized the thinking and called it Goodhart’s Law. “When a measure becomes a target, it ceases to be a good measure.”

I am fascinated by this tendency humans have of fixating on the things we think symbolize progress instead of the actual outcome. Sahil names a number of instances in which this has led to bad business outcomes. CEOs managing to short-term stock goals has been one that has long frustrated me.

Startup land is immune from this tendency either. I’ve seen product teams fixate on OKRs such that they never miss a single metric but fail to launch their product on time. Or a venture capitalist will toss out something like an ARR goal for a Series A only to have a founder chase that number for a year and still not get funded when they hit it. We think these goals are the goals in and of themselves. But really launching the product on time and closing the series A are the only thing that matters. As long as we hit our goals who cares what metrics we used?

This is of course set against the classic “what gets measured get managed” which is an apocryphal quote from business theorist Peter Drucker. It may in fact be total bullshit. It may be that measurement actually hinders management. Said rather well by Simon Caulkin

Measures set up incentives that drive people’s behaviour. And woe to the organisation when that behaviour is at odds with its purpose.

Lest you worry this is just a business problem when I was single in my twenties I made a spreadsheet of the various gentlemen I was dating. I felt like I needed a way to make the process more efficient so I starting weighting categories of characteristics that was most important to me. I like intelligent men so I started listing their college degrees. I liked men who were into quantitative thinking so I started noting if they worked in banking or academics. And well you can imagine how this took a turn for the worst. Instead of meeting smart men that likes to look at the world through numbers I met a lot of bankers that went to Harvard. I was optimizing for the wrong outcome.

Next time someone tells you that some metrics or goal is the only thing that matters stop and question if it makes sense for the long term objectives. I’m not saying bankers from Harvard aren’t smart but I’m also not saying that all smart men are bankers from Harvard. And that turns out to be a pretty crucial difference.

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Finance

Day 145 and HODL

If I like something I want to commit. I don’t get folks who get panicked at bumps in the road. Hype cycles for cryptocurrency trading have been unappealing to me. I’ve never been one to watch things like FOREX trades so why would I want to do it but with Bitcoin? Like I have fantasies about being a trader but I am absolutely not. If I believe in an opportunity I am not a short term thinker or investor. I want to see where it goes.

The real excitement to me in crypto is the potential to impact larger more broad based systems. Changes that occur over time and with significant collaboration are more interesting than any narrative blip. A libertarian monetary policy implications was obviously particularly exciting. As business person the potential to change the middle man fee structure that makes financialization and banking a scourge was equally appealing. As a technologist the possibility of building applications on an entire new protocol is enticing.

The bigger picture is the only thing that matters. Go in the right direction over time and ignore the noise. That’s why we’ve slowly moved up our allocation into Bitcoin over the years. And that’s why I’m excited for my husband Alex to be working as the new COO for Hiro.

Any angle you take on the big picture implications for building new systems is an opportunity for innovation and wealth creation. That’s why I’m HODL. HODL is a mindset. Sure it came out of a misspelling of “hold” when someone was drunk but who can’t relate to the desire to really commit to a bigger vision? Participation in the creation of something bigger is the ultimate HODL value. Hold on for dear life or just hold on. Either way you are in for the long haul.

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Finance

Day 140 and Gaming The System

I’m extremely envious of people who enjoy explicit rule based games. People who find points structures exciting have a tactical advantage in our current moment. In America financialization, the trend of financial services generating wealth instead of making goods or selling services, dominates our economy. Gamers make the best traders and bankers in post industrial capitalism because they love gaming the rules.

I’ve never been the sort to scour rules looking for exploits in individual levels. I’m a gut player that wraps their head around the basic directions of a system and moves to be aligned for final bosses or big game or infinite play. I’ve never been particularly excited about quirks, loopholes or exploits. As long as I think I have a decent overview I’ll just throw myself into gameplay with an intuition of what looks like enjoyable continuous play. I don’t need to be rewarded with discrete wins I am happy to just play and build.

I’ve got friends who relish the day to day optimization stuff. They run the gamut from professional mathematicians to gamblers and full time gamers. The thing they all have in common is a love for the individual wins. They solve problems. They will rack up wins in short games but are less motivated by building towards dominance in any given system or game over time. They respond positively to the kinds of short loops that makes level play so much fun.

I’m more of a long loop than a distinct arc player. I like mental maps and models that don’t always give an immediate or measurable reward sets but rather engaging me in nested, dependent loops that yield unexpected dynamics. While I love games that have economies that have immediate yields I’m so much more turned on by ones that have distinctive world level macroeconomic game play. Nothing gets me more invested than causality you can’t see or map immediately.

But I’m envious of people that are good gamers because they have the skills and intuition for financial games. I want to be a winner at stuff like like yield farming that mimic the kind of play to win whale games. I can defend all the kinds of games I am good and how they are worth a lot too but for the moment I’ll just let my envy sit and admire the player of games.

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Finance Internet Culture

Day 136 and The Ease of Centralization

We are a few days into a news cycle where Elon Musk’s corporate socialism interests and/or environmentalism has pushed the Bitcoin discourse to a fever pitch. I don’t begrudge Elon because it’s hard out there for someone who takes government subsidies and we’ve all got to lean into our economic interests. The renewable energy credit system is a policy choice and my neoliberal friends would argue it’s a good one. It’s also one that currently pay’s Tesla’s bills.

Tesla makes most of its $ from RECs, not cars. Last year, it made $1.58bn from sales of RECs to gas-powered auto companies (which must buy to offset their CO2 emissions). Tesla has never been profitable without REC sales to bolster its auto margins.

That’s about to change. Last week, @Stellantis (i.e. PSA Group + Fiat Chrysler) told @LePoint it’ll meet carbon emission rules this year. That means it won’t need to buy RECs from $TSLA anymore.
Fiat Chrysler accounts for $2.4bn of Tesla REC sales from 2019 to date and 55% of Tesla sales since 2008.

What I think is really interesting is that Elon DOES know a lot about money, in particular the benefits of a centralized trusted player. Which he himself points out since you know PayPal. Centralization has been pretty crucial to fast efficient financialization especially in modernity. Of course that has some downsides as institutional power tends to accrete. Good and bad amirite?

The exciting thing about cryptocurrencies is that they may offer us they same scale as global institutions but without the whole plutocrats and fossilized bureaucracy part. Not that I’m advocating for Ethereum or Consyns.us but they put it well in the below quote.

Whereas our traditional financial system runs on centralized infrastructure that is managed by central authorities, institutions, and intermediaries, decentralized finance is powered by code that is running on a decentralized infrastructure

We’ve got a couple decades of experience in computing on the challenges of decentralized infrastructure. It’s not easy and it has costs. The costs are both significant in time and money but the benefits are significant as well. I personally find the argument that systems which are not centralized are less fragile and it is worth diversification into systems that are less fragile. I often chose convenience and speed but I also put significant effort into having systems that can withstand crisis and disasters as well. Security has always been about trade offs. And cryptocurrencies, especially Bitcoin, is about making some trade offs in efficiency for the sake of hardening of financial system. I’m philosophically inclined towards this. If I’m trying to solve global warming and getting to Mars I might find this less compelling as I’d rather focus on efficiency. This is also why environmentalists make great villains as they decide on that choice for you. I’m not saying Elon explicitly going for Bond villain but it’s an aesthetic.

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Finance Politics

Day 135 and 4 Quadrants of Crypto

I’m on my own this weekend so I had some time to listen to podcasts on my daily walk. I stupidly decided to listen to a podcast entitled “best crypto debate ever” which was vastly overselling both participants capacity to engage in productive debate. Not because either wasn’t smart but simply because they were both approaching the topic from entirely different vantage points. One had reasonably well founded concerns about about the how existing powers will fight to preserve their interests and the other was too fixated on proving that the market was the only player that matters. I am beginning to think that crypto, and in particular Bitcoin, is having a “blind men and the elephant problem” that makes discourse challenging.

I’m not pretending to have a full understanding of the future of cryptocurrencies or Bitcoin, merely articulating to myself as an exercise (it’s my blog after all but maybe my thinking helps you too) the four expertises required to wrap one’s mind around how cryptocurrency will evolve and what consequences we need to consider. Because there are no “right” answers at the moment merely different vantage points to consider as we stumble into the future.

1. Macroeconomic: understanding central banking, treasuries, monetary policy and macroeconomic actors is a specialized skill set. I studied it at arguably the best university on the planet for the subject and I still find the ins and outs to be heady stuff. Who decides what money is worth? When do we change those valuations? How does one country’s currency impact another’s? You hear a lot of buzzwords tossed around like “rules not rulers” but the practicalities of it are in fact hard problems. Just tossing off that you think “fiat currency” is bad isn’t enough.

2. Geopolitical: governments need money to provide services and security which makes them economic actors in addition to being political ones. America’s political ambitions are distinct from China’s. How we make make our money and how we spend it both at home and abroad will affect how we perceive other currencies. You need to understand things like how the dollar’s reserve currency status operates (ideally it’s history) to even begin to understand the geopolitical implications of cryptocurrency. Much hay was made of Peter Thiel suggesting Bitcoin could be weaponized by China against the US. Clearly any currency, especially one not run by Americans, will have geopolitical consequences. That anyone got hysterical about it suggested to me that our understanding of monetary policy and its political implications is limited in the general population. One needs to understand how the many actors on the political stage intersect their interests, political and economic, to even begin to comprehend how a cryptocurrency, particularly a decentralized one like Bitcoin, might evolve. In other words you have to understand how it works before you can do any predictive work.

3. Technical: concepts like distributed ledgers, hash rates, decentralized computing, and cryptographic keys are all crucial subjects for understanding the mechanics of a cryptocurrency, who owns it, and how it’s transacted. The chances that you understand the above geopolitical and macroeconomic problems and also understand how to code say your own token or have the wherewithal to acquire and set up hardware for a mining rig are slim. Maybe you grok it but being an expert in all is vanishingly slim. Computer science, political science and economics are all separate disciplines. Sure Bitcoin mining basically operates like loot crates in a game and who am I to say whether it’s a better system to have dorks with a lot of hardware run our money instead of Steven Mnuchin.

4. Microeconomics: the final area expertise is how markets and all the different players in them will value a currency and use it both as an asset and as a payment system. The elaborate financial systems that exist to determine what you think something is worth versus what someone else does is elaborate. We’ve got Byzantine financial products that decide everything from your mortgage to your salary to the cost of a sandwich. And while it’s not intuitive the folks that work on currencies, monetary policies and macroeconomic issues are not equipped with the same skill sets at all as the folks who trade on financial markets, cut deals between market participants or work out balance sheets. I’m much more studied in the macroeconomic issues than the financial ones and I wish that weren’t true. It’s a lot more lucrative to work in futures, arbitrage and market making.

When it comes down to it these four quadrants all require distinct skills and very different areas of study. Much of the debate and disagreement may simply come about because we are seeing different possibilities. Wrapping your head around the whole is difficult and no matter how brilliant you are having exposure to all areas is a lifetime of work.

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Aesthetics Finance Internet Culture

Day 128 and Financial Aesthetics

Humans have imbued money with so much significance over the centuries that financial spaces (merchants, traders, banks, trading floors, brokers, hedge funds) show us the style of their times better than almost anywhere else. Even when power centers have shunned money directly (democracies), and sometimes even because of it, money has dictated the soft powers of perception and relevance.

This makes investigating the styles of finance particularly fun as their signifiers tend to hum with unsaid anger, greed and resentment. Sexy stuff generally as we fixate on ever finer granular details to indicate that our taste shows us to be worthy of holding power (and hopefully money).

There is a reason popular culture loves the Hollywood treatment of Wall Street. Even if some of the most iconic touchstones like American Psycho were meant as dark comedies we didn’t perceive them at way. We were supposed to laugh at the business card scene not get turned on. When Gordon Gecko bellowed “Greed is Good” we were supposed to know he was the villain. We didn’t. We don’t particularly like watching these heros get their comeuppance. Giovanni Ribisi in Boiler Room ratting out the pump and dump scheme doesn’t leave a very satisfied audience but oh how we loved the second act when the gambling prodigy finds a way to go “legitimate” and become a millionaire. Just ignore the crash at the end.

Americans in particular love to fetishize our villains. Our media is littered with anti-heroes that over time become our actual heroes. We throw jealous narratives at the preppy alpha males but love it when their power is subsumed by someone who plays their games better than them. We are riveted when a protagonist emerges that knows how to best the alphas at their own game and emerges victorious. Just be careful you don’t overplay your hand and remain a villain (sorry Martin Shkreli you deserved better) as we need you to be seen as the good guy. It’s a delicate tension.

Think poor savant Bobby Axelrod in Billions becoming the titan of industry. Sure you know he didn’t start out as a classic alpha male (that hard knock upbringing) but I doubt you could tell at the end as he styles himself in the cashmere of his former enemies. Sure now it’s a hoodie but that’s a small inversion of the original sweater. The WSJ has an extensive shoppable feature on the style of the show. Now that’s cultural relevance. Turns out we do want cosplay Carl Icahn or Bill Ackman.

I’m particularly excited about the aesthetics of the next phase of financial heroes emerging from the financialization of cryptocurrency. Scrappy upstarts that want to make a more just and free financial system free of cronyism and accessible to the entire world is a beautiful narrative arc. The chaos of outsiders making the system their own has an ending we all know. You might start out in a tee-shirt and hoodie like Axe but beware the creeping encroachment of luxury goods looking to ride on your newfound wealth.

Turning doge gains into jokey NFT art is just a hop skip and a jump away from getting subsumed into the Art Basel scene. Lest you one day turn up and wake up in a new Bugatti. And while right now it may seem funny to buy a Lamborghini remember the narrative the world wants. You may just claim the mantle of a new kind of power. Or the Feds will come for you. Have fun out there!

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Finance Internet Culture Startups

Day 119 and Status Narratives

I’ve mostly worked inside insular industries. There is something about disdaining a club and then slowly forcing it to adapt to me that I find appealing. My handle on Twitter “AlmostMedia” wasn’t actually meant to be a joke about the ephemeral nature of timeline driven content (though it is now) but was an inside joke about my first personal blog.

I wasn’t as comfortable being an outsider when I was younger so a common theme on my blog was about how I “almost” achieved insider totems and status but never quite did it right. I never felt like I was stylish enough, cool enough, rich enough or had enough status symbols. Now I kinda laugh at myself as I realize semiotics is as driven by the out group as the in group. I always had the power to be enough.

But thanks to this insecurity about being “almost” but not quite right I’ve achieved a pretty valuable skill set. I’m able to see what is coming, what will resonate, and most importantly what will have status. I’m not always great at the timing (I’m often too early) but I am very good at nudging narratives into the popular conception. I call this the Thursday Styles problem. Timing what is next is as much about knowing what is coming as when it will hit and doing what you can to control the pace.

I particularly like fashion and startups as as success is often a Thursday Style problem. Status narratives are driven by people who like to show off that they knew something cool was coming. Think of the trope of venture capitalists publishing a post about when they first met a founder timed with a company’s IPO. Music used to be like this too with snobs insisting “I knew them before they were cool” when a band blew up.

Status narratives often revolve around being first. Much of crypto is obsessed with showing off how early they were while also insisting to everyone that “it’s never too late” as they need to drive a status narrative that brings in more adoption. Being early generally only matters if you are also still around when it’s “late” and you always need more people to push you further into early. Even if most of the benefits are seen by late adoption we all want to feel like we won the status game of being early. But it’s important to remember we are all a little too early or too late. We are almost right. Which is enough for plenty of success.

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Chronicle Internet Culture Media Startups

Day 84 and The Thursday Styles Problem

The Thursdays Styles problem is about zeitgeist, wealth, perception and power. The New York Times publishes its “styles” section on Thursdays and Sundays. Generally speaking if you work in media, public relations or culture, you are aware of the general trends that will emerge on Thursday ahead of time. For the sake of argument let’s say I know directionally on Tuesday in private what will be featured on Thursday in public.

If you know “what everyone knows everyone else knows” ahead of time, there is a lot of money to be made as Tuesday person. For more on the second derivative issues in zeitgeist I highly recommend Epsilon Theory. If you can sense the zeitgeist ahead of time & move to take advantage of it you can be a Tuesday person.

Alas it’s not as lucrative as you may imagine to be a Tuesday person. A Thursday person who lives exactly on the zeitgeist can take advantage of “in the moment” culture moves. Good entrepreneurs do this well. Most consumer companies hit “right on time.”

This is why venture capitalists will ask “why now” as they may have invested in a Tuesday Person who hit the zeitgeist too early and couldn’t capitalize on it. It really pisses off the founder who knows “but I was first.”

As a Tuesday person, I hate when this happens. I loathe seeing people I perceive as less capable or intelligent than me hit a zeitgeist moment exactly on Thursday. The trouble is they are right. They won. They got the timing right. I didn’t.

And yes being a Thursday mover is good. But it’s crucial to understand who can win this game. The only way to win the Thursday Styles problem is to be in finance, media or culture work that can place a call option on the Thursday future on Tuesday. You have to be able to hold an opinion on the future zeitgeist long enough for Thursday to get published.

If you cannot hold your zeitgeist long enough for Tuesday to become Thursday when “everyone knows everyone knows” being right early serves no benefit. You need diamond hands. And yes, you will be wrong 9 times out of 10.

So you need to ask yourself if the New York Times cuts a piece and it takes another week to run can you hold out? If the markets don’t make a Tuesday idea hit, can you wait till it becomes common knowledge on that metaphorical Thursday? It’s a question for all long holds to ask themselves.

It requires patience to be a Tuesday person. And it takes resources. Knowing you will look wrong for a bit. Knowing that you will lose money when Tuesday knowledge takes longer to become Thursday Style’s common knowledge. If you can hold it’s the ultimate form of future leverage. That’s alpha.

And better yet, it’s “possible” to influence. Publicists make their clients on Tuesday shine on Thursday. And capture the upside. Folks who are extremely online spot how market makers make zeitgeist hit. Cathie Wood at ARK Innovations has been playing the media in exactly this way. The largest experiment in making Tuesday thinkers hit before Thursday is Margit Wennmachers at a16z.

Centralizing zeitgeist and monetizing it with future calls with narratives they tell on platforms they own stakes in has massive potential. The smart money is turning their Tuesday zeitgeist into Thursday Styles and taking it to the bank.

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Chronicle Finance Internet Culture

Day 74 and Unfinished Thoughts

First off I’ll admit that I don’t really feel like writing today but I’ve committed to “putting pen to paper” every day so I’m stuck with it. I have a dozen topics I actually want to discuss but I don’t feel like I’ve got it in me to be coherent.

I’ve been thinking about how the idea that all property rights are a gradient from violence to grift to institutional legitimacy and this is just how civilization codifies worth. I’m particularly interested in it because we’ve reached the NFT is a grift stage of the discourse but I’m not at all convinced that NFTs are a grift for the reasons people think.

And while I’ve made really elaborate jokes about NFTs, finance, crypto and semiotics with illegal.auction I’ve noticed people with vested interests in this category working out, really don’t want anyone to joke about it. It’s likely wise as we all have varying degrees of horror that property rights is always some degree of grift working towards legitimacy.

That we don’t like to touch on it amuses me. I suspect that the internal logic of wealth and money as always being abstraction guarded by state violence is just too much for folks. It hurts too much. It makes us angry. Surely money, wealth and inherent worth must exist in a moral framework? Good hard working people are rewarded with wealth right? If you want a truly excellent read on the subject of property rights, violence and investing I recommend this essay on emerging market investing and Deadwood by Ben Hunt at Epsilon Theory

Another topic I also want to dig into is environmental impact of crypto and energy equity but I don’t think I’ve got all the facts. I’m still very much in a skeptic phase when it comes to moralizing over the energy usage of crypto. As if crypto brought about the carbon apocalypse on its own.

I’m sure “crypto used a lot of energy” is a valid criticism until you remember we subsidize monsoon crops in deserts (they grow rice in California ffs) and we ship plastic trinkets across the globe while a plutocratic elite consumes the majority of our resources. Maybe moralizing about impact should come with some caveats on how many lives it might improve? I haven’t seen much discourse on this topic as American media leans towards a generic tech skepticism stance at the moment which is making them lean in on attacks as it’s the wrong people who are pushing the crypto agenda. But we deserve more than “environmental impact bad” like maybe it’s a net good to use this energy to decentralize finance?

By allowing the global south and the unbanked to have access to capital instruments we actually discover this is the best use of our energy resources and may distribute wealth more equitably. I don’t know yet and I’m not even confident I can find relevant statistics that won’t overstate one tribal position over the other.

At any rate none of these thoughts are coherent or useful yet but I’m thinking about how we codify wealth and property and what energy usages might be valuable for a more equitable planet. Don’t cancel me please.