Aave/Morpho: A clash of different worldviews. Both design have their pros and cons.

Aave as an entity manages all the risk and also covers any loss. Aave needs deep expertise on all coins and the dynamic of their corresponding markets. You trust the brand, Aave, and they did a very good job of shielding users from risk.

Does it scale?

It has limits, as many different assets, crypto native and non crypto native ones come into existence. It's a jungle, and how should one entity have deep expertise about all assets?

Aave chose their risk parameters always on the safe side, and if they don't have the expertise, they don't list assets. Having risk parameters on the safe side also lowers the capital efficiency.

Morpho has dedicated, independent risk managers, which manage metamorpho vault and and create or attached markets to it, if it fits their risk profile. Risk managers can be specialized in markets and if you know markets well, you can choose more risky parameters for your markets, which makes it more capital efficient.

The pure Morpho way, would be that they only manage the protocol, maybe with a costume white label front end, where the risk managers use the infrastructure, but any hiccups do not affect the Morpho brand.

Now Morphos brand suffers from spill over of quality issues from one of the risk managers.

Does it scale?

It may scale better than Aave, but has reputation risk for Morpho, even if they are not risk manager. And: In an easy markets, users may flock to the risk manager who takes more risk, the same risk manager who are whipped out if the markets are in turmoil.

What out of questions: Aave and Morpho are both highly professional teams, Aave is battle tested over more than one cycle, while Morpho and risk managers on Morpho are still in the learning phase.

Curve has a lending market too, but Curve has always chosen the path to try to solve issues with technical solutions.

The benefit of soft-liquidation for users allows us to set conservative LTV values, because we don't compete to be the most capital efficient markets, but compensate users with the benefits of soft-liquidation which helps save their position in rough markets.

As tweet:
https://twitter.com/martinkrung/status/1783092537353248972

January 13, 2024

The forever cyclic nature of crypto

A nice version of this with some memes:

https://twitter.com/martinkrung/status/1746284429750730799

Or just as a wall of text:

The base of crypto is tokenization of for profit projects, in fact very early stage ventures, some are only ideas put on a sheet called whitepaper.

In a normal economy this kind of ventures never have tradable shares in the public. Most don't have investors at the stage, and if, only fools, friends and family.
In addition most tokens of these ventures don't have a use-case in that project, the token is only a virtual share of that project, in a sense like a NFT collection.

BUT: As the tokens have no fundamentals, no tokenomics and no use-case they are a perfect place for everyone's projections of how successful that venture will be.

Tokens are the perfect vehicle for speculation, where the mere narrative of a possible success is enough for others to buy and invest.

If the cycle is started, every player in this market: founders, teams, investors and early token buyers fuel the hype by telling the outsiders how their venture is changing the world and how big the potential will be.

Normies have close to zero chance to value this venture rationaly, they invest left and right, attracted by the gains early token buyers have made and brag around.

We all know how crazy these bull markets are, it's a form of collective euphoria and my bet will be for this cycle that the craze will be the same or maybe even bigger than all we have seen until now.

My personal top: if I start believing that this time everything will be different and numbers will never go down again, at that time I feel an urge to call all my friends and tell them they should invest and everyone will be a millionaire with me. This is the time myself and maybe you should sell everything, but it's so damn hard to do.

Then the wave breaks, first the multi-cyclers start to sell, the latecomers still filled with greed and hope for the next 10x.

BAM: suddenly it's 4 o'clock in the morning, the music stops and somebody turns on the light. At this point, even the most stupid participants in that cycle understands that the whitepepper he did read from that copy cat of a copy cat is worthless bullshit and the next bera with bloody infights and people losing the last shirt and more, has started. As the pile of bullshit is so big, it takes a long time to get rid of it.

To end the forever cycle tokenization of early stage projects would have to be banned, which will never happen and is impossible.

May be the zupercycle with you!

September 26, 2023

Introducing ‘Means of Speculation’ as a Core Characteristic of Early Stage Stablecoins

Tweet here, to comment: https://x.com/martinkrung/status/1706655567589101926?s=20

The Unique Characteristic of Stablecoins

Stablecoins possess a property that traditional cash doesn’t: they can serve as a means of speculation.

Traditional Cash and Commodities

Traditional cash acts as both a medium of exchange and a store of value. While gold primarily serves as a store of value, cash performs a dual role. Although various commodities such as food, oil, or art can also serve as both a medium of exchange and a store of value, cash is superior due to its relatively stable value, which erodes gradually, depending on the inflationary environment.

Stablecoins as Means of Speculation

In crypto, cash isn’t limited to being a store of value or a medium of exchange; it can also be used as a means of speculation, a characteristic not typically associated with traditional cash.

In the crypto world, equivalents to cash are represented as stablecoins, typically pegged in various ways to the USD. These stablecoins are in competition with each other for market dominance.

Speculative Asset and User Behavior

When viewed as a speculative asset, on-chain cash is neither a store of value nor a medium of exchange but rather serves as a means of speculation. Users often hold stablecoins primarily for the rewards they offer; once these rewards diminish or cease, users typically opt for a different stablecoin.

Adoption Trajectory and Ultimate Goal of Stablecoins

The adoption trajectory for on-chain stablecoins typically progresses from a means of speculation to a medium of exchange, and finally, to a store of value. The ultimate goal for any stablecoin is to achieve recognition as the preeminent store of value, as this represents the ultimate demand sink. While acting as a medium of exchange does create a demand sink, it is inherently more volatile. Stablecoins used primarily as a means of speculation risk becoming obsolete as soon as the rewards cease.

Current Stablecoin Market

Currently, in the crypto space, many stablecoins are primarily used for speculation, albeit exhibiting some characteristics of a medium of exchange. Progressing from these initial stages to attain recognition as a reliable store of value represents the top for most, if not all stablecoins.

What do you think about this view? Which stablecoin in the market has which state and which one have a chance to be store of value?

September 8, 2023September 8, 2023

Crypto has slow innovation cycles. Here’s why:

Discuss here: https://twitter.com/martinkrung/status/1700040547698643342?s=20

Complexity of Technology

Given that every project is build on cryptography, fast iterations are challenging. Cryptography doesn't allow incremental adjustments easely. You can't have a semi-functional blockchain or smart contract – it either operates as intended, or it doesn't.

This contrasts with other software types, which can be improved upon incrementally while in use. For instance, if you're developing blogging software, you can release initial versions within days and refine it during users using it. In crypto just migration from one version to another is a major undertaking.

Misleading Signals in Product Usage

Crypto represents the merger of code and money. It's an industry standard to monetarily reward users. For instance, when you mine Bitcoin, you're often driven by the financial incentive rather than bitcoin beeing of use for you.

Many crypto projects heavily compensate their users. This leads to wrong data about the usage of the product. Users may engage with a product primarily for the payout, not its utility. Consequently, many projects never truly achieve a product-market fit, and those that do find it challenging to iterate swiftly due to the underlying technology.

Regulatory Hurdles

The fusion of code and money in crypto brings it into the arena of financial regulations, many of which are ill-suited for this new technology.

This misalignment often diverts innovation as projects modify their approaches to navigate these regulatory waters. A significant portion of the industry's energy goes into lobbying for regulatory adjustments. Traditional financial institutions leverage these regulations to protect their interests.

While older fields like AI aren't burdened by such legacy regulations, they have more influnce in crafting new ones. If you view crypto from a monetary business perspective, it operates within one of the world's oldest industries.

Limited Public Funding

Blockchain technology is one of the few fields where government public funding hasn't invested millions. In contrast, AI research, which spans more than 50 years, has benefited from extensive publicly funded research. Billions have been poured into AI over the past half-century. This hasn't been the case for crypto, with most successful projects being privately financed.

June 30, 2020July 13, 2020