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1/ I was talking to @hjmomtazi yesterday and mentioned that I think projects like @synthetix_io & @Barn_Bridge are still way ahead of their time. We may be a year out from seeing these at scale. This is why the L2 whispers are so exciting at the moment.
2/ This generalized (ahead of our time) is true of asset based derivatives and yield based derivatives for different but similar reasons which both get fixed by L2. Meaning, they stem from the same place (gas fees) but there are different reasons gas fee optimization helps.
3/ This is because in traditional markets when you call something a $200t market (derivatives) a lot of that value is never realized (most options for instance go unexpired). It's not like $200t is liquid and able to be redeemed on a daily basis.
4/ So who makes money of this $200t market? It's not like JP Morgan is worth even $10t.
Great question - it's often used by HFT and mainly algo desks. Right now it's inefficient to run algorithmic based HFT trading on defi due to gas prices (small arbs aren't worth it).
Great question - it's often used by HFT and mainly algo desks. Right now it's inefficient to run algorithmic based HFT trading on defi due to gas prices (small arbs aren't worth it).
5/ However, I believe in L2 and I believe in a cross chain world. So once that is achieved (this is my earlier year point which is my guess), you'll be able to realize the real use cases for asset and yield based derivatives.
6/ It gets even more fun when these assets are cross chain. This is because you can run a prop desk on an L2 that arbs everything on that L2 (or side chain) then have the same algo on another.
You may think I am shilling @THORChain & I DO think this drives value for them.
You may think I am shilling @THORChain & I DO think this drives value for them.
7/ However, this is about to hopefully be the most bullish case for @synthetix_io and why $60 was never a meme. It will just take time to get there.
It's also an EXTREMELY good value prop for @Barn_Bridge and oracles in particular.
It's also an EXTREMELY good value prop for @Barn_Bridge and oracles in particular.
8/ Long term, cross chain arbitrage will likely be one of the primary sources of alpha in defi & it will be recognized by a mix of humans & algos (until AI takes our jobs) unlike what will be happening on each individual side chain & L2 which will be non-human trader capture.
9/ This happens in forex markets & stock exchanges down to the individual brokerage level, internationally (you can at least analogously think of it like that).
It's hard to peg 1 to 1 how all this plays out because of vastly superior efficiency, transparency, & money legoing.
It's hard to peg 1 to 1 how all this plays out because of vastly superior efficiency, transparency, & money legoing.
10/ So there will be MORE arbs happening on each side chain. Oracles will be needed that you have to pay into which is extremely bullish for oracles. This is because financial firms will have to pay into these oracles the same way they pay for data feeds & HFT throughput access.
11/ Massive hedge funds made so much money over the past 20 years that they literally built internet cables across the Atlantic ocean specifically for arb gapping the London & NYC markets.
The gas tax is prohibitive. But if you think they won't pay the oracle tax, you're NGMI.
The gas tax is prohibitive. But if you think they won't pay the oracle tax, you're NGMI.
12/ Let's get back on track, derivatives will be needed on EVERY side chain/L2 & there will be mispricings (arb opps) across each one. This is obviously bullish for @synthetix_io as they have the strongest community for any derivative platform & that is a moat for trust.
13/ This is also bullish for @Barn_Bridge because we'll integrate many of our asset based alpha volatility offerings.
It's also bullish for the fact that HFT for yield based assets will also be a massive thing in defi & I think were the clear lead in that market at the moment.
It's also bullish for the fact that HFT for yield based assets will also be a massive thing in defi & I think were the clear lead in that market at the moment.
14/ Again also, on the surface, would seem to be extremely bullish for @THORChain but the truth is that oracles & base derivative primitives will reap most of the value in this scenario.
It's still VERY bullish for Thorchain. But there is a difference.
It's still VERY bullish for Thorchain. But there is a difference.
15/ It's least bullish for " @Barn_Bridge on X-chain" (as a new product) or "the Synthetix of polkadot" because oracles will create price trust among the powerful primitives & not a bunch of random side chain shitcoins. It's also bullish for things like @plug_net & bridging infra
16/ I told the @chainlink on our first call that, at scale, derivatives like @synthetix_io & @Barn_Bridge are either use cases of oracles or that oracles make them massive use cases. Either way you word it, it's still true for the reason listed above (trust in the primitives).
17/ So, the arbing going on across all of the side chains & L2s won't be profitable for a bot to do across chains due to the various costs to port everything. It's also risky to run algos across all these L2s/sidechains for calculations. True cross chain arbs will be BIG arbs.
18/ I think why people think this is bullish for @THORChain is primarily going to be captured by oracles.
This is why I invested in @volmexfinance as well because of their oracle solution for how they are handling volatility derivatives. And because the VIX is a primitive.
This is why I invested in @volmexfinance as well because of their oracle solution for how they are handling volatility derivatives. And because the VIX is a primitive.
19/ So what will end up happening is the oracles, algos and derivative primitives will make most of the alpha on each side chain/L2 & then when the arbs become LARGE enough that it's worth closing the gap, the algos will likely ping a real trader like they do in forex markets.
20/ Again, this is until our jobs are no longer needed due to AI but algos don't execute the multi-billion dollar gaps which is what the traders monitor. And the REALLY massive ones are still being done by Soros type funds. Nobody is letting an algo execute a $400b trade, yet.
21/ This is where @THORChain will derive value. They are going to make LESS trades of MORE $ & take a cut of that. Still bullish at scale, but not taking every single smaller arb upstream is a hit to their value prop.
The true alpha is still the derivative primitives & oracles.
The true alpha is still the derivative primitives & oracles.
22/ TLDR.. we aren't there yet but I'm extremely bullish derivatives, oracles, & cross chain arbs at scale.
They'll all work together to create something more transparent & more efficient (making alpha along the way for the WGMI squad) than what we have in tradFi.
They'll all work together to create something more transparent & more efficient (making alpha along the way for the WGMI squad) than what we have in tradFi.
23/
This illustrates why L2 is SO important to protocols like @Barn_Bridge & @synthetix_io (more than capital markets).
In order to capture the value from fees generated on that $200t market you need scaling.
When that happens, anyone looking at SNX fees is going to be
This illustrates why L2 is SO important to protocols like @Barn_Bridge & @synthetix_io (more than capital markets). In order to capture the value from fees generated on that $200t market you need scaling.
When that happens, anyone looking at SNX fees is going to be
