Connor McCormick ☀️
@nor
In an index wallet, how does someone know how to set their valuation? There are three things that matter when choosing how much to endorse: 1. how much new business will I get 2. how much inflation will I incur 3. how much will I be able to spend it for This weekend I found a nice visual way to think about it
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Connor McCormick ☀️
@nor
It's easiest for me to think about this using a much simplified setup. Let's imagine you exist in a community with only 2 tokens, and only 2 potential customers. Here's an example of one way that could look, each arrow is a customer's valuation of those tokens. E.g. here the left customer values A @ 0.9 and B @ 0.2
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Connor McCormick ☀️
@nor
The natural question to ask is: what's the best valuation for you to set based on this? (p.s. endorsement = their_valuation / your_valuation) my favorite way to think about this is as little mountains under each customer, the further away your valuation, the less valuable their currency feels to them to buy from you
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Connor McCormick ☀️
@nor
This immediately tells you where to put your valuation, you should put it on the saddle right between the two mountains: (note: this is true if these mountains represent "total willingness to spend", which makes sense because a customer that feels rich with you but doesn't want your products is quite useless to you)
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Connor McCormick ☀️
@nor
However, this is clearly not a complete answer, since you don't just care about how much business you can get, but also about how much that business is worth when you go to buy something with the new money. This means we also need an arrow to represent our supplier, the person who sells us stuff.
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Connor McCormick ☀️
@nor
What you should then notice is that this is just the same problem as before, but now you are the customer, and the supplier is in the role you were in. We could also put the supplier's supplier on here, and so on, but let's imagine for simplicity this is the best your supplier can do, how should your valuation adjust?
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