Summer of Protocols

Just came up with a principle that may already have a name:  Correlation-Liquidity Tradeoff (CLTO): The correlatedness of a speculative asset to an underlying value thesis and its liquidity form a tradeoff curve. Private startup stock has high correlation low liquidity. Crypto tokens have low correlatedness high liquidity. Former requires IRR fictions. Latter can experience wild excursions based on factors having nothing to do with the thesis. Between them is a Pareto frontier

Came up with this idea from a weird angle. I was actually thinking about how reward schedule tempo is slower than decision tempo, causing problems in reinforcement learning. 

Eg you are a novelist who writes 1000 words everyday but the reward schedule is every 40k words when you finish and ship a novel and get market feedback. 

Or a robot trying sequences of actions to accomplish a task. It only actually gets a reward when it finds a satisficing sequence. Agile iteration can increase feedback rate but not necessarily reward rate.

Ok this idea is growing on me and is upgraded from minor to major. The options vs crypto example is peripheral. This is a way to view something much more fundamental — the explore-exploit tradeoff. For a fully certain value commodity, in a perfect competition market with instantaneous price discovery, the frontier collapses to a point at (1,1). A perfectly unbelievable fantasy collapses to (0, 0). The 45 degree ray is the fantasy-to-reality turnpike. As you learn more and the thing becomes more real, the frontier initially expands then contracts, with end points on the unit square perimeter. The (1,0) - (0,1) line is the explore-exploit transition frontier. When the frontier crosses that, you’re in fully convergent exploit mode. At that point you can start thinking about “IPO” or “exiting” the idea in some way, since either correlatedness and liquidity can be maxed out. The whole finance metaphor can be ditched. I’m calling it modal information theory — ie how possible worlds become real.

Delver at contraptions.venkateshrao.com, running summerofprotocols.com, host of /gloom ☀️

Yes but the previous post is more appealing to finance bros