starholder

Lord, I was born a rambling man.

Thoughts on crypto’s interregnum as I’m trying to make a living and doing the best I can. 

Let's look at why retail is not getting rich in today's article 🧵

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We get out there, comparing crypto to the Crisis of the Third Century, weaving in personal experiences and exploring the differences between now and the last time retail scored big.

https://paragraph.xyz/@starholder/notes-from-an-interregnum

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Worldbuilding /starholder |

DAOs: The LAO & Flamingo

An interregnum is a gap between two well-defined periods. In Latin, it means *between reigns* and that's a good way to describe the lay of the land for retail. 

We are in a bull, it's just not one the little guy can clean up in & that's why retail is climbing the walls.

First up, we explore the idea that capital is now labor and people are just narratives. Crypto doesn't need you, it needs liquidity.

We are entering a post-Marxist world where the means of production has no politics because it has no workers.

Get your head around this. It's happening in crypto, happening in Silicon Valley with AI, it happens in politics. 

One reason this points meta sucks is because it is paying lip service to community when all it wants is capital to pad TLVs.

From there we look at scale and how the Law of Big Numbers is a real son of a bitch. I use churn as an example showing as a system/product scales 3x it needs to both improve retention by 50% & double new incoming users just to keep growing its user base.

And that's how $50 US dollars turns into $6k of crypto wealth.

But that order of magnitude increase today? ETH needs to go to $18k and a 1 ETH deployment of it would need to go to $360k.

Way more inflows are needed to make that happen now that ETH mcap went from $25b to $390b.

Not only is that hella hard, but retail's personal risk management of that is exponentially difficult. I paid taxes out of pocket last bull to stack ETH. It was a right move with a rising asset, but it'd much harder to do that at this sort of scale...

Because you can't keep as much ETH recycled and working across multiple bets. Risk of ETH price collapse relative to USD tax obligation means stack depth diminishes while risk management skills have to level up.

This diminishes & concentrates the pool of retail foot soldiers.

Lets talk about Rome & how the Crisis of the Third Century has many parallels to today's scaling expansion multi-chain landscape. Also big shout out to Diocletian who cleaned up that mess, then retired to grow cabbages in Croatia.

The big takeaway is all the L2/3s, sidechains, etc.. are fragmenting liquidity to the point regenerative capital and liquid markets cannot get going because the population size and capital pools have not reached a critical mass.

This then gives specialists leverage over chains.

When one group holds the cards & extracts resources which are better spread commonly, it's retail who suffers because there's simply not enough to go around and marketplace liquidity starts freezing up. 

Retail needs lots of liquidity to make scores with.

ETH price also hangs over these chains because it is the coin of the realm, smothering an environment where wealth creation is needed to induce more onboarding.

L2s today are closer to globalization (faster, cheaper) than opening new resource pools to extract from.

Until protocols can flywheel new categories on L2s that require people instead of capital, we are just transferring yield from an expensive L1 to more efficient solutions.

This is an interregnum forcing chains to hire mercenary capital to perform the same jobs they do elsewhere.

Since these are transactional events, there's a cynicism on both sides. Projects get cagey with reward design. Tokens become points. TVLs get expanded and dilute issuance. Points get rejiggered downwards.

Low trust environments kill trade which dries up liquidity stunting wealth

On to the information curve which is the rate and breadth that novel ideas become distributed enough that markets can act on those ideas with widespread participation.

Last cycle, incentives pushed retail way out on the information curve because opportunity was there.

Kills ICOs, hobble airdrops, change rewards to yield on capital deployment and then require a lot of capital to make it meaningful...

That sounds like a recipe to discourage retail from exploring the edge of possibilities in today's tech.

And largely they have, preferring to front run 2021's information curve as the same categories and offerings get deployed on chain after chain.

The thing is if everyone is relying on old alpha replaying over and over, then it's not alpha, it's a sniping PVP race to the bottom.

And that behavior contributes to the low trust environment which slows trade, liquidity and wealth creation. So the chains are doing it, the mercenaries are doing it, and projects are farming farmers.

Why get risky in a world where everyone wants to cut everyone down?

Institutional, inflows and partitioning. Why isn't shit trickling down if the L1 tokens are in a bull?

The last cycle likely burnt the Street from entrusting cryptonatives with their capital. Partitioning seems a far cleaner way forward. 

It worked for Rome who cut off the west and focused in on the east. The Byzantines got another 1000 years using this strategy.

So Larry is not going to get in bed with Barry. They'll build their own rails and products and the trickle down into sectors of crypto where retail has exposure will be far more limited this time around. Once again, less liquidity means less opportunity for the little guy.

Despite all that we are in a positive interregnum. Scaling out is necessary for growth even if it means fractured, low population chains (who don't have regenerative process in place yet) having to buy mercenary capital.

Study & wait in this period. The time will come for retail.

The Law of Big Numbers matters in wealth creation too. Retail got rich last time because ETH 6X'ed & then things like NFTs went 10-20x+ on top of that. 

In the last bull, many of us had an ETH cost basis of $500. It went to $3k. Mint an NFT for 0.1 ETH, see it go to 2ETH...