And the Crypto Andys were all like "you just don't understand DeFi!" to which the retort is "No, you just don't understand finance".
Finance is the way it is for many reasons. There are thousands of years of lessons that have made the system the way it is. I get the innovator mentality of sweeping away the old but there seems to be a fine line between innovation and ignorance.
I'm just sitting on the sidelines watching people relearn all the lessons of finance the hard way, some because they think they understand finance because because they understand merkle trees and consensus protocols but really most just want to get rich quick.
There was enough in the terra ecosystem to come to a conclusion of avoiding completely
Anyone who has studied quantitative finance knows that it is a HARD science. I worked with a Nobel prize winner in economics, and the math dominated. There was no politics, no opinions, no ethics involved. It really is a science.
Most social media characterize finance as some ethical vice or organized political power structure - and those people simply don't understand finance.
Talking to people who are looking to just tear down modern finance are no different than climate change deniers, antivax, or flat earthers... and yes, they even exist in crypto (and on HN).
There is enough information in a ten or 20% yield to come to a conclusion. That doesn't stop unsophisticated investors from getting screwed.
When they do so because they bought magic beans, I have no sympathy. When are lied to and sold deposit-like products [1], it's infuriating.
[1] https://stablegains.zendesk.com/hc/en-us/articles/4402680375...
The whole Terra saga was a typical example of speculative bubble. Everyone knew it was risky, but its sheer size and the caliber of people endorsing it (https://twitter.com/novogratz/status/1478535972560195585) was providing an aura of safety. Too big to fail.
It's also similar to the stock market as a whole before it started correcting. Everyone knew valuations were detached from every fundamental except liquidity, yet everyone went along thinking the music just had to keep going.
"Meaningful" is squishy. Is it strongly predictive, and in some cases, definitive? Yes.
If you believe the statement "if someone is promising you consistent above-market returns it's either a scam or there is unknown or undisclosed risk" it might be true that you don't understand DeFi to some degree. DeFi isn't a single market, it's millions of micro markets that are accessible through what amounts to a single API.
So when you have millions of markets with different returns that can be traded in every imaginable way (and some you probably haven't imagined), throw in an insane amount of dumb money, people willing to borrow at high interest rates (relative to the real world), and a laundry list of factors that introduce inefficiencies into the market, it's quite easy to find pockets of above-average returns if you're smart. I have no idea if Stablegains was actually smart, but it's more than possible to achieve above-market gains in DeFi without exposing yourself to outsized risks.
"Insane" is subjective. The point is nothing safe yields ten or 20%. Someone saying "you will not lose your funds" [1] when paying above-market yields is lying.
[1] https://stablegains.zendesk.com/hc/en-us/articles/4402680425...
And the fact that YC actually invested in this company which claimed to contravene that basic rule is staggering.
Just because quantitative analysis has solid grounding doesn't mean that its use is unrelated to ethics. The finance establishment is an organized power structure whose decisions are political.
If you want an analogy, I'm pretty sure that you'll find plenty of people who used ballistics to achieve goals that you would find pretty unethical.
> Pre-attack Luna
I love how we went straight from "what happened" to "it was an attack."
Except that there are humans involved. How do you boil arbitrary human action down to a HARD science?
However, the math approach to finance works because in its essence it is quantifying human reactions and or emotions, which in large crowds turns out to be more predictable. In the short run, still, software holds its edge with its probability approach but its not smart so that it is basically a rent seeker.
https://web.archive.org/web/20130411113418/https://www.bitfi...
Physics is a science. Math is. Or Biology. Finance is not. Because it deals with the madness of crowds.
> Recipe for Disaster: The Formula That Killed Wall Street
> And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.
> Nassim Nicholas Taleb is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."
Right, but even then how deep are those pockets (what amount of investment can they absorb without being tapped out), how big a time window will they exist for, how will you know if those limits are being reached, and are you really sure you can quantify all the risks?
By definition if it’s a pocket of opportunity, it’s very constrained opportunity. As soon as those constraints are breached it will suddenly stop being low risk and might collapse completely. A lot of people have lost a lot of money on sure fire pockets of opportunity that were great when they lasted.
If you follow the scientific method, it's science. If you write an observational essay, it's not. You can build theories around falsifiable, replicable experiments pertaining to the madness of crowds. The error bars are longer. But they are not infinite.
It's not just social media and it is somewhat disingenuous to dismiss the idea that finance, specially specially international finance, does not have (some form of) power [that actually trumps and transcends political power].
This is a somewhat interesting film that I was watching the other day. It's mere existence addresses the first bit -- that perception is certainly not limited to "social media". And of course the film itself is about a super secret gathering of G8 ministers where they struggle with the decision to put in place some (undisclosed) policy change that they all know will have very drastic consequences for the global average joe.
The Confessions (2016): https://www.imdb.com/title/tt4647784
But when people say "finance is science" what they usually mean is "here is the complicated math that proves you can't lose money on this, we've modeled everything".
As the joke goes, 6 sigma events happen in finance every week.
100% agree. When I was an algorithmic derivatives trader, we joked that the math was there to scare up investors and scare off compliance. Little did we know...
The point is that these opportunities exist, and they always will exist, you just have to be smart enough to be able to get into them. If someone needed money for infrastructure to run an arb bot, for example, and offered you above market, risk-free returns, it's at least possible they aren't lying to you. That was my point.
There are funds out there that conduct these activities, I know because I recently consulted for one. They are promising risk free returns and getting them.
There are things that exist in DeFi (such as flash loans) that have no real world equivalent, which is why blanket statements made about traditional markets don't necessarily apply. If used properly, these things do in fact offer "too good to be true" types of returns.
Is your counterparty risk always zero (between you and the chain)? Custody? What if a chain is halted or amended?
These systems run on novel rails. You couldn’t honestly tell an investor “you will not lose your funds,” and you’d refrain from using the word “deposit.” Because you’re trying to honestly communicate an opportunity, not to defraud.
In the case of flash loans/swaps, the answer is yes. It's 0. Further, I never have any capital at risk, all of my bots use flash loans/swaps. These transactions are atomic, which means that either all parts of it succeed or they all fail (it's a "revert" in blockchain parlance). So I can borrow $200 million without any prior permission and do an arb/liquidation or anything else I want with it for the life of my transaction, with the only requirement being that I must return it by the end. If my arb/liquidation/whatever succeeds and I return the loan, I keep the profits. If not, it's as if the whole thing never happened. The only risk is the transaction fee, which on the chains I do this on are miniscule.
I realize that it sounds unbelievable, but it exists. My code does thousands of these daily. I am not the only one doing this. See https://eigenphi.io/ . With the exception of sandwich transactions, every one of the bots you see on there is making profits without any capital at risk.
I feel like the only benefit of all this is being able to see posttrade services rewritten with some sane API instead of crazy legacy garbage riddled with CSVs.
The risk of the trade on chain defaulting is virtually non-existent, agreed. Custody risk is never zero. Dollar in / dollar out returns involve lots of counterparties.
As in, $100 in January becomes $500 in February, $2,500 in March, ... $976,562,500 in December?
Edit: actually I read that wrong, that would only be 500%. 5,000% per month (money x 50) would turn the $100 into $9,765,625,000,000,000,000 by December.
Unless by 5,000% yield you mean you get 50x your original investment on top of the original investment, like how 5% yield on a dollar gets me $1.05. In that case it would be more. But I think the 9.8 billion billion would be good enough for me.
Surely you see how even a 10% safe return on investment like these DeFi schemes offer is a whole different thing, when it's a compounding return. There's no way to sustain it. All the arbitrage opportunities in the world can't deliver the funds required to make investors' money grow exponentially.
I agree with you that throwing money at anyone who tells you they can take an unlimited investment and offer compounding returns on it is a recipe for disaster. But in DeFi, intelligence and strategy translate directly to greater yield. Math has proven time and again that those things matter very little in traditional markets.
put another way, its easy to earn 20% on a dollar. its hard to earn 20% on a billion dollars.
I figured that if the system collapsed, I would be able to notice it early and withdraw, and that YC-affiliated investor money would help compensate me with more luck than if I had to liquidate out of the system myself.
I withdrew after seeing a friend on Cryptography Twitter send a message showing the destabilization; this turned out to be many hours before Stablegains announced "we will honor withdrawals before this announcement at 1:1", and I got all my money back out.
The YC brand worked here, I think.
Millions of micro markets that produce what, exactly? Last time I checked there has to be at least something on the other side of the calculation what a coin is worth.
You think crypto coins magically make people work harder, better, faster, stronger?
That's not how the constraints of the physical world work.
Congratulations? You weren't one of those who lost all of their money to this YC supported scam. Scams and get-rich-quick or get-more-rich off of the backs of others: that's the YC brand here and increasingly elsewhere. Paul Graham started this accelerator to make himself and his wife rich. YC exists to enrich its owners not as your litmus test for trustworthiness. Money over morality is the motto here. Libertarian values, limited government, startups as silver bullets, founding workers working themselves to death to enrich venture capitalists, and Dunning-Kruger for days in the form of Paul Graham. Are you poor? 'Have you tried making a startup?' is Paul Graham's solution to poverty as with everything else. You might as well ask 'Have you tried not being poor?'
You're all over the place with your usage of concepts.
Here you say that intelligence and strategy matter little in "traditional" (vague) markets. Yet, in DeFi, they do.
Not buying it. It feels like I could copy and replace your replace all of your uses of "DeFi" in this thread with <insert ponzi scheme>.
It's "different" than normal markets...I made it work personally (but not at scale)...
Not sure why you believe a mere investor is liable for any compensation if the 15% APY gambling scheme goes under.
You seem to be asking me to defend the merits of crypto, which is beyond the scope of this conversation. But generally speaking, most of the coins people actually buy are tied to protocols that are attempting to do things that interesting to at least some part of the population.
But, the ability to prove the provenance and ownership of any asset, whether physical or digital, has value. The ability to move value across borders instantly, cheaply, and reliably, has value.
In a world where so much has been made of fake news, imagine if you could know with absolute certainty that a given quote you read from someone in an article is authentic and given to the specific outlet you are reading it at, not taken from somewhere else, perhaps out of context. Imagine if Google integrated such information/quote verification into its search results, and could use it to prioritize sites with real quotes or information. SERPs wouldn’t be full of trash, and small sites that manage to scoop large ones could get instant #1 rankings. Authenticity verification has value.
The possibilities are endless.
More like claiming they didn’t know when they lose it all. Admitting “I gambled and I lost” isn’t a recipe for sympathy and possible compensation.
I feel like they are infinite? Because, for example, in hyperinflation, there's no upper bound on how long someone is going to keep printing money.
Any given instance will stop at a finite number, but you can't bank of that being the high water mark.
Refusing to take a side _is_ a side, it means you're fine with how things are going on their own.
This isn't corruption, it's just recognition that life has choices, and those choices have consequences, for yourself and others.
I think that this is the "innovator mentality" insofar that, as a group, we tend to idolize/cargo cult innovation as if it was always a good thing. As the pile of things that I miss grows much faster than the things that I feel that I've gained I have come to think of "innovation" as a force for destruction, rent-seeking, and greed, just as much as it can be a force for improvement.
As you say, in many cases things are the way they are because reasons. And some snot-nosed wanterpreneur is just as likely to degrade the situation as they are to improve it.
This assumes that 100% of the ecosystem is already some form of blockchain.
And guess what: It isn't and it never will be due to the democratic nature of the proposed system architecture.
The flaws of every coin I've seen is that there are too many assumptions about markets, and dependencies of the markets in the sense of goods and/or services that are just "assumed" to migrate to their blockchain at some point. That's not how incentive proposals should work, as they will (logically) lead to exit scams because a couple of people cannot write and reinvent an ecosystem from scratch.
Look at how long IPFS took to mature. Look at how long DAT was refactored in a backwards-incompatible manner. Look at how long it took to write the hypercore protocol stack.
Systems like this and - especially markets like this - need time to evolve, which means that the proposed DeFi assumptions about rapid growth bullshit are anti-market proposals, and literally the same way hyped and unverified bonds in the legacy financial systems lead to market crashes.
It's like the notion of a 100-year flood. Of course there could be a tsunami or a dam failure that completely inundates an entire city, but at some point you've got to accept a small risk and ensure you are covered for it.
This is like saying physics is not science because the nutjobs claiming we will recieve divine revelation by praying to "the quantum energy field" use physics-y terms in their BS.
No matter how hard you model you won’t be able to predict processes that are fundamentally unpredictable. And you would get fooled because you only observe finite amount of data.
It is surprising how complicated the math gets even if you try to model very simple processes (eg think of the n-body problem and how complexity increases with every addition of a body). It is not a given that complicated models mean you’re modelling a complicated process.
Your comment makes no sense. Just because there's modeling involved that does not make it a hard science. A hard science requires stuff like the ability to perform controlled experiments and replicability, in order to arrive at a high degree of accuracy in predictions.
Throwing around partial differential equations does not turn something into a hard science. You need to meet way more requirements before you're in a position to claim that.
OP's claim was that quantitative finance was *hard science*. Requirements regarding predictability are way more stringent than merely observing stuff and seeing how it responds to an input.
These are colloquial terms [1]. We might as well argue about whether Pop Tarts are ravioli or tacos sandwiches.
When informed the maths in economics is wrong, the economists don't go and fix their maths either.
Economics is more like sociology with some random incorrect formulas written on the black board as set dressing.
Economics might in self loathing claim they are the "dismal science", but the cold hard truth is they simply speaking are not doing their jobs properly. It's a broken research field.
Whoever thinks "millions of markets trading in every way" is a guarantee of making money is in for an awful surprise
Colloquial terms whose concrete meaning does not correspond to OP's claim.
There is no ambiguity in this: if your models are not testable and fail to predict behavior then it's not hard science.
The scientific mindset is there, but not the publishing because the publishing destroys the value of the model. Once your model is known, others trade against your model and it becomes invalid.
If you needed money for infrastructure for more arb bot, would you look for random novices and offer them 15% (and raise $3m in VC to market to random novices)? Or would you take out an unsecured personal loan from a bank at a lower rate, or a much lower cost loan from a counterparty involved crypto, especially one who understands the nature your trades?
This comment is why the humanities should be a prerequisite for all academical endeavors...
> Essential app developers looking to join for emergency allocation should signal public support for the net network on Twitter and social channels.
There’s a very low chance of that happening, but not zero.
It is worrying to see that people tend to just click thumbs down when they don't agree rather than to pick the towel and build a strong argument against what they don't agree with.
StableGains was skimming off the top so they weren’t directly exposed to the risk of the underlying asset.
This only works for assets which themselves exist on the blockchain and for whom the blockchain is the only source of truth - such as cryptocurrencies.
Anything else that involves off-chain activity would require a bulletproof way of keeping the on-chain and off-chain state in sync which is typically a neutral, trusted party, at which point you may as well just let them operate a conventional database and forget the whole blockchain bullshit.
> In a world where so much has been made of fake news, imagine if you could know with absolute certainty that a given quote you read from someone in an article is authentic and given to the specific outlet you are reading it at, not taken from somewhere else, perhaps out of context. Imagine if Google integrated such information/quote verification into its search results, and could use it to prioritize sites with real quotes or information. SERPs wouldn’t be full of trash, and small sites that manage to scoop large ones could get instant #1 rankings. Authenticity verification has value.
I don't see how blockchain/cryptocurrencies help here? Cryptographic signing is all you need.
https://www.pionline.com/hedge-funds/renaissance-technologie...
It always happens with people who think they are smarter than the "dumb money" they're taking advantage of. "Sure it's a scam, but I'm smart enough to not be the one getting scammed!"
You are not addressing the substance of my comment, namely that many investments are finite, and this is why infinite riskless investments don't work.
I agree that "infinite riskless investments don't work" and agree with the "possibility of consistent good rate of return." Many investments are indeed finite on a human scale. An investor will almost always want their money back with some return, no? At some point they'll take their money out of the investment or market and spend it. The particular issue was the claim that the Medallion Fund from Renaissance Technologies was a good example for a consistent rate of return. They may have done that but how would we know? Their data is self reported, and as far as I'm aware there's no publically available audits of their performance. Even if there were, we have evidence of their cheating at taxes through abuse of options. If I were you, I would take their claims with a very large lump of salt. Do you know who else claimed guaranteed double digit rates of return? Bernie Madoff. We might not have found out about his fraud either if it weren't for some whistleblowing and for his admission of wrongdoing.
The Medallion Fund may have returned 30-70% over decades. Do we really know for sure? I think you'd have been better off simply suggesting index funds for consistent returns for the average person or citing Warren Buffett or Bill Gross for generating alpha/consistent returns.