Tag: APY

Cognitive arbitrage in crypto

Financial arbitrage is the act of exploiting discrepancies in price by eg, traders

Similarly, cognitive arbitrage is the act of exploiting discrepancies in perceived value of information by eg, savvy marketers (scammers are the extreme outcome of this)

In crypto such cognitive arbitrage is particularly egregious given the info asymmetry, young userbase, speed of change, and relative novelty / obscuring of the tech. FDV anyone?

Some examples:

…people care too much about market cap and not enough about liquidity (eg, memecoins, low float / high FDV)

…people care too much about the names of VCs and KOLs involved in a project, but not enough about the quality of the actual team and product (eg, KOL rounds, getting a16z or Paradigm on your cap table)

…people care too much about social activity (like how active a Discord is) but not enough about the team’s own output (measured by eg, tweets, blog posts, shipping)

…people care too much about recent price trends (24H, 30D changes) and not enough about multi year price trends (especially over the duration of a bull-bear cycle)

…people care too much about supply (like token unlocks, or token burn) and not enough about demand (like actual usage demand for a token, fee takerate)

…people care too much about yields (like staking APY) and not enough about where the yield comes from (like token inflation vs actual fees earned)

—

I’m sure there’s a lot more that I’ve missed, and I’ll add more as I see them…

Crypto’s killer use cases (and there are many)

Just thinking out loud about use cases… it’s a bit like water because once you’re in crypto, you just take the surrounding water for granted:

—

Stablecoins: Ability for anyone in the world to get, store, and send USD to anyone else (like USDC, USDT)

Bitcoin’s long-term store of value (measured against USD and gold)

Uncensored instant low cost global payments (ability to send eg, $10 or $1M to anyone anywhere for a 10 cent transaction fee)

Internet bonds: Ability to earn more of a token just by holding that token (like Ethereum or Solana staking)

Permissionless speculation with lower fees and potential for larger returns than traditional venues like casino games, penny stocks, and sports betting

Trade assets instantly and permissionlessly (including increasingly complex financial products like derivatives, interest rate products)

True digital asset ownership (self custody, no or fewer middlemen)

Permissionless prediction markets (Polymarket)

Unlimited self-custody bank accounts (self-custody wallet) that can be shared (using multi-sig), sold, transferred (via private key)

Borrow and lend money permissionlessly (like Aave, Compound)

Earn higher asset APYs than traditional options like money markets, high-yield savings accounts, and short-term bonds

Tokenization: ability to turn any digital asset (and increasingly, real-world assets too) into an instantly priced and tradable token (via AMM) that can access an ecosystem of onchain financial infra