Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned | Hacker News Reader

Sam Bankman-Fried Described Yield Farming and Left Matt Levine Stunned

bloomberg.com

133 pointswebmaven91 comments

It's a Ponzi scheme. He doesn't even seem to push back against the "Ponzi" phrasing.

Also -- this is merely a footnote -- his Ponzi scheme is currently the 3rd-largest political donation source in the USA.

https://www.opensecrets.org/outsidespending/summ.php?GoToPag...

https://www.nbcnews.com/politics/2022-election/-crypto-cash-...

Regulatory capture by a Ponzi scheme was just added to my "list of things that could legitimately destroy the USA from within."

Did Bernie Madoff ever do this? I feel like he did, but maybe not so effectively or at such scale.

Madoff was different in that he successfully hid the fact that his was a ponzi scheme for 40 years.

This interview with SBF suggests crypto does not even try and hide it.

Albania did, and it led to a civil war.

This has happened a number of times in this country. One major example is MLM, which was fully legitimized in 70s and 80s, after spending some time in a legal gray area. Ever since, the industry has expanded, even though it largely functions as wealth transfer from late arrivals to early incumbents, with a sprinkling of sustainable external commerce.

Calling it a Ponzi scheme is uninteresting and not really the point here. Was GameStop a Ponzi scheme when the stock price soared?

I think the interesting part here is the relation to bitcoin and a new theory on how to price things. It’s traditionally been assumed that the price of an asset is related to the underlying value it has or the value it generates (eg cash flow). SBF is pointing out that’s not a complete method of pricing assets in today’s world. You also have to factor in “collective agreements”.

Bitcoin is the clearest example of an asset price that is driven by collective agreement. The collective agreement is enshrined in code and algorithms.

Whether it’s interesting or not, what the FTX CEO described is literally a Ponzi scheme.

> Calling it a Ponzi scheme is uninteresting and not really the point here. Was GameStop a Ponzi scheme when the stock price soared?

I’d argue that the intent of GameStop was not to provide a solid investment as it was just as a collective intent to make short sellers fail.

I have serious trouble seeing how “collective agreements” has any intrinsic value. To me, it’s effectively the same as saying “the value of coin X is that people believe in its value”.

It seems like at least this CEO recognizes it for what it’s worth.

> I have serious trouble seeing how “collective agreements” has any intrinsic value.

Then you probably don’t see value in any form of cryptocurrency. I do, because I think collective agreements are at the heart of how society functions. Fiat money is a collective agreement that works by the backing and enforcement of a central entity (government). It’s at least interesting to me to experiment with a collective agreement that does not have to be backed or enforced by a central entity (bitcoin).

I'm not arguing against crypto here. I do want to argue the semantics of fiat: they're issued by the civilian arms of militaries, called governments. They control land and resources and will defend or invade to sustain themselves.

How collective agreements compare against them is an interesting question of modern economics vs history.

> Then you probably don’t see value in any form of cryptocurrency. I do, because I think collective agreements are at the heart of how society functions. Fiat money is a collective agreement that works by the backing and enforcement of a central entity (government). It’s at least interesting to me to experiment with a collective agreement that does not have to be backed or enforced by a central entity (bitcoin).

The main problem with crypto is that it does not work like that. Society demands way more than mere vague "collective agreements" in order to function. Society relies on debt transfers that preserve value between transactions. It expects value to be stored and also stable and reliable enough in order to enable deferred payments.

Crypto provides none of that. Worse,crypto proponents explicitly praise crypto's inability to remain stable even in the short term, which manifests itself through an expectation of ever increasing price. You simply cannot portray something as being a kind of money and at the same time praise it for it's "get rich quick scheme" nature.

Coming to HN for an unbiased analysis of cryptoasset discussion was your first mistake. Acknowledging this fact was your second.

That's a lacking comparison. The Gamestop stock has not been specifically created for this kind of "investing", neither does it not have fundamentals behind the value.

Of course there's going to be speculation going on with any asset, but GME is not a purely speculative asset, and is not purely based on possible future application which isn't even known yet. There's a corporation behind it, which generates revenue, which provides services, all of this has real value, which then serves as a valuation.

A stock is a small share of a corporation. A token could be comparable, however, if the only purpose of trading this token is speculation, the value of the venture itself is speculative and the value of the token is based on the speculation itself, it's nothing but at best high-level gambling.

If you then factor in a deflationary nature of the asset, and the requirement for constant influx of new buyers to even hold the value with yield farming going on, it quickly becomes a Ponzi scheme.

(and if you then back a stablecoin with this Ponzi scheme it's called Luna/Terra)

> Of course there's going to be speculation going on with any asset, but GME is not a purely speculative asset, and is not purely based on possible future application which isn't even known yet. There's a corporation behind it, which generates revenue, which provides services, all of this has real value, which then serves as a valuation.

GME also benefits from a significant protest aspect, with people buying stocks without any expectation of profiting from it and with the sole motivation of participating in an event which, in the very least, causes an hedge fund suspected of ilegal practices to go bankrupt.

"Collectives agreements" are not an innovation. Underlying value is precisely, simply and only, a collective agreement (made by the market, instantaneously in real time billions of times a day) about how much something is worth.

Absolutely zero innovation there.

The shock in Matt's voice was hilarious on the podcast. It's in the article, but here is is for anyone looking for it:

> Matt: (27:13)

> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.

FYI, the timestamps in the article are about 2 minutes earlier than the actual track, so this would be somewhere around 29 minutes

What farming actually is is companies using their equity directly as marketing incentives. In principle, there is nothing really wrong with this, although usually companies don't find that to be the most efficient way to use their equity.

The problem with farming was that, in many, but not all, cases, the equity in question had no value. It isn't true that they were all ponzi schemes, though. Many of the tokens did generate and continue to generate quite significant revenue for their holders, e.g. Compound. You can argue that the entire space is a ponzi, but within that space, Compound (among several others) is a legitimate service provider to the casino, and earns real income for doing so.

Farming is really no different from startups paying early employees in options. Its just that the companies were a lot dumber, and it was a lot easier to participate.

While the analogy is correct, a key difference is that startups are illiquid by definition. Founders can't just cash out and are thus incentivized by build something of value. With protocols, there is no incentive to build something of value. Instead, the incentive is to building something that looks valuable on the surface to generate liquidity and cash out at the best point.

"What are secondaries?"

Not for super early stage. Crypto projects cash out after a few months or so. That's pre-seed/seed startups.

But you used a binary term "illiquid" rather than opting for something more open like "most illiquid". Just wanted to make a clarificaiton for other readers.

Are you aware that most crypto projects also opt into vesting patterns - and this is an increasing trend overall?

Another thing that might be interesting to you is that in most countries we have close to no public information if founders sell on secondaries. Your C-Suite might have maximized their secondaries in mutliple rounds and you wouldn't even know that incentives have changed.

In Crypto this is fully transparent and there are people bringing these to light on a consistent basis.

Some stuff to think about!

Secondaries are rare until series A or later.

It's kind of a Ponzi scheme, but not really since it's not (usually) orchestrated by one malicious entity. Instead, it's a collaborative community effort with the community doing marketing and driving the price. In other words, the dirty work if customer acquisition and advertising is outsourced. It's not so different from crazy startup valuations that are often a result of market forces and competition, with the hope of exiting through acquisition to generate returns before anyone notices not much of value actually exists.

It's a fun game to play, just like casinos are fun. In 99.9% of cases nothing of value is behind these protocols.

Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump and dump schemes, while others are pyramid schemes. Others are just standard issue fraud. Others are just middlemen skimming of the top. Stop glossing over the diversity in the industry.

https://twitter.com/patdennis/status/1518637225789042688

What I don't like about this terminology is that I associate these "schemes" with a malicious actor. Someone trying to scam you. But often that's not the case with these crypto projects. Often, nobody is explicitly trying to scam anyone, but everyone looks out for themselves first and wants to make money, which inevitably results in other people losing money if they are too late.

If a traditional startup is valued at $10M, I'm sure many founders would choose abandon it and take $5M in cash if only they could. The difference is that the liquidity is not there, so the option doesn't exist. In crypto, protocol founders may not start the project with the goal of abandoning it, but once they can choose between cashing out with $5M by abandoning it, they take that route because they can. People then call this a "rug pull" or "ponzi scheme" but I don't think the intentions are the same.

I think the word valued is hiding a lot.

With startups, the "value" comes from investors who are willing to buy stock at a certain price with certain conditions, one of which is that the rule of law prevents you from stealing company money. If that law were not there, or could not be relied upon, investors would not be willing to invest at that price, and the "value" would be much less.

Or at least, that is my theory of how things should work, because crypto valuations seem to have proved me wrong.

You need to be able to see true malice through Hanlon's razor. Not every bad thing is just a stupid person, sometimes (often) it actually is people doing bad things on purpose.

Even if someone is so stupid that they design a Stablecoin backed by leverage that fails if the market goes down 20%, that is malice by negligence, because that stupid person should know that they do not have the capabilities to produce what they are promoting to people. If they are doing harm to society they must be stopped; motive is really not important.

If I squint, they are. They’ve already established what kind of person they are, now we are just haggling over the price.

> It's a fun game to play, just like casinos are fun. In 99.9% of cases nothing of value is behind these protocols.

It is a lot of fun until people start becoming homeless and consider ending their life.

https://www.reddit.com/r/terraluna/comments/un3w7t/i_lost_ov...

> It is a lot of fun until people start becoming homeless and consider ending their life.

It's still fun. People make bad decisions all over the world all the time. The fact you read and dwell on the consequences some people suffer over it is not a problem, for other people, to solve.

> The fact you read and dwell on the consequences some people suffer over it is not a problem, for other people, to solve.

Unless those other people are the government. In which case it is their obligation to reasonably check predatory fraudulent activity, including ponzi schemes.

And unless those other people are simply concerned citizens who bring dubious schemes to the attention of the public at large.

> Unless those other people are the government.

> it is their (US government's) obligation to reasonably check predatory fraudulent activity

Crypto, by-in-large, is not predatory. Most fraud checks are after the fact. Fraud can be triaged, but there is no getting around the reality that there will always be people who don't value risk properly. Again, this is not a problem for other people to solve.

This is not a reason to pretend it's a larger issue that will affect your gambling experience.

> Crypto, by-in-large, is not predatory.

I disagree and believe crypto is by-in-large predatory. The crypto handbook seems to be:

1. create coin

2. promote coin and get people to 'invest' in it

3. move the 'invested' money ("rug pull") into your personal account

4. disappear or do it again

> there will always be people who don't value risk properly

This is true. But we cannot compare making a wrong call on the direction of highly regulated Microsoft stock with 'investing' our money with people who are almost certainly going to steal all of it with zero consequences.

> will affect your gambling experience

You call this gambling. But the crypto creators promote their coins as investments with 'exchanges' and so on.

Financial investments and gambling are both highly regulated industries but crypto is subject to regulations from neither.

> Financial investments and gambling are both highly regulated industries but crypto is subject to regulations from neither.

We are not arguing about if there is fraud or not because that is not the issue at hand, nor in dispute. Again, this has nothing to do with the original point. Other people's bad choices do not affect the enjoyment of gambling. GL with whatever.

He is not really describing yield-farming here, he is describing what kind of price action happens when anyone can create a global, liquid, unregulated with just a computer as a tool.

In the US, people can get 100-500$ just by creating a new bank account and deposting money into it. Some people do that, but then immedietly remove the funds once the bonus is paid out.

In reality, yield farming is just that, except in crypto: https://www.reddit.com/r/churning/

It's people chasing bank / credit card marketing bonuses without really any thought of actually using those banks/credit cards in the long term.

This is the correct analogy.

To my knowledge, credit card / bank signup bonus are not marketed / packaged as asset classes.

Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no?

To me, that’s the source of the astonishment in the podcast. If what we’re talking about is built on non-sustainable foundations, fine. Call it that. But that’s the opposite of an investment opportunity.

Yes, indeed this is credit card / bank signup bonus but it's actually giving you equity in the bank instead of pure USD.

Yield farming is usualled called "mercenary" because of this, as instead of specualting, some instantly just sell whatever "equity" or token back into USD.

Some prefer to keep the token and speculate on its value.

Everyone is making their own decisions.

>Learning that a non-crypto investment instrument was based on bank signup bonuses would be shocking to most, no?

What do you mean by this?

As far as I understand (and from an extremely cursory google search), (crypto) yield farming is described as "An investing strategy". Not as a bonus on top of something else. i.e. the "bonus" is the only point.

Your argument (again, afaik) was that yield farming should be likened to bank sign up bonuses.

If I follow that argument:

If someone were to tell me in the non-crypto world that there was a new "Investment strategy" and when I asked what it was based on, the answer was that my money would be used to pay people to open bank accounts to get the sign up bonus and that part of those bonuses would trickle back to me (making this, in some sense, "an investment strategy") -- I would run away.

But maybe I'm taking the analogy too far :-)

You have it slightly wrong - I guess that's why you think it's a ponzi.

In Churning you're not paying anyone or forcing any to open up bank accounts to get the sign up bonus.

You're signing up to bank accounts and credits cards yourself, getting the bonus, and then leaving the service onto the next one. --- In Crypto, you "sign up to the service" which can mean a whole variety of things. For example for an AMM it could mean providing liquidity on the USDC - USDT pair. As a marketing incentive, you start getting a "bonus" that is in the project's own token.

Every time you earn some of that token, you take it and sell it on the open market for more USD. There are actually even "auto-compounders" that do this for you.

This is yield farming.

-- The point here is that in both cases you take something that is meant to be a marketing incentive, and make it into cashflow for yourself.

I appreciate the explanation, thank you.

DeFi/crypto detractors will say "but there's nothing backing it" which is not entirely crazy. After all you could just print out bits of paper and exchange them for money, so long as someone is willing to play that game with you. Blockchain is no different, it's just a clever way to record who has what.

So why do people put billions in crypto but not in random bits of paper such as Pokemon cards?

Liquidity.

This is the magic of the IPO: bits of paper that give you dividend rights to a business suddenly become worth multiples more when it becomes easy to trade them. I'll take a punt on your crappy taxi app if I can jump out of that bet for a small fee. The motivation? Other people will think the same.

Crypto has reinvented the financial system, particularly the part where you can split risks and trade them. There's a whole industry of liquidity providers who basically transport risk across venues and risk classes: prices for the same thing need to be approximately the same across venues, returns for riskier things need to be higher than returns for less risky things. Things that are a bag of risk need to cost something similar to the sum of things in the bag.

This is the exact same as in the traditional financial market: ETFs are bags of stocks, high yield bonds are for riskier issuers, and you can buy the same stock on many exchanges at more or less the same price.

A lot of these trades are really just relative value arbs: something is worth x here, so I can offer it at x + 1 there. When some guy gives it to me at x, I sell it to the other guy at x + 1. If some guy gives me a bag for X + Y, I sell the X to one guy for X + 1 and I sell the Y for Y + 1.

But the liquidity is what allows people to stick loads of money in. They see that you can have a punt on something and get your money back for low slippage, so they give it a go. Whether that's in one scheme or another doesn't matter, but this "put money in a box" analogy is quite apt. Maybe your mechanism is a DAO, maybe it's an AMM, maybe it's some option vault. As long as there's a financial sense in which it can be glued to the rest of the ecosystem, someone will have a go at it.

imo, this liquidity is precisely what's stifling widespread crypto adoption. Speculators kill long term growth of any project and punish actual users the most. GameFi is the perfect example - prices go up as speculators pile in. Actual gamers suddenly can't afford to play (which is why you have gaming "scholarships" - an absurd idea).

Most projects that have earmarked tokens for their employees suffer as well. As the token goes through the speculative pump and dump, employees with locked in tokens can watch their networth go from millions to nothing - without being able to do anything about it. Employees constantly jump ship because after the dump, they realize that their locked in tokens are worth very little - and when the vesting ends, they market dump it all to get whatever profit they can. As the price craters, the project finds it harder and harder to attract new talent.

I've seen this happen with so many projects that I now appreciate why we don't have exchanges for new businesses. Can you imagine what the startup world would be like if every startup was listed on a stock exchange immediately after it was founded? You'd have speculators pumping up the stock price based on rumor and/or fact ("YC invested! Sequoia is in!"). Employee vested ESOPs would go from millions to nothing and hiring future employees would be extremely hard since their ESOPs would be worth nothing.

Indeed, there is a case against overfinancialization. Everything becomes anticipation, there's less point in actually making the thing Vs marketing the stock.

Seen this happen with so many developers that I’m completely jaded by this space. Dev launches a promising project idea. Token balloons because of the reputation of the dev or promise of the idea. By the time the product actually launches, the price has cratered. Devs, team members and users can’t be compensated enough in the native token and abandon the project

Could you list a few of these promising ideas that were killed by this process? I’m admittedly not following closely, but most of what I’ve glanced at seemed like “would only get funded as a by-product of defi/crypto craze”.

Well put.

The financial system largely exist for the purpose of wealth extraction.

Sure, companies use the share market to initially raise capital but what is the true value of Amazon stock considering they don't issue dividends?

Even with a stock that issues dividends how do know that it will happen for years to come?

It's all speculation backed by nothing but emotion.

The "fundamentals" are used in a kind of Schelling game. If people think no divs means it's worth more, the price will go up.

Amazon stock isn’t backed by nothing but emotion. It’s backed by a company that is the largest e-commerce provider and cloud provider.

So Amazons asset minus liabilities is $420.549B - $276.766B

Divide that by the number of shares (shares outstanding for simplicity's sake) is $143.783B / 0.509B

This gives us a value of $282.48 per share.

Share price at the time of the above figures is $3259.95.

So it looks like you might be right. 8.7% of the share price is backed by real world value (assuming the figures are correct) that might be realised for the shareholder some day in the future and the other 91.3% of the share price is hopes and dreams devoid of all emotion.

Jokes aside humans cannot predict the future, value is subjective and emotion plays a part in everything we do. So who is anyone to say that something is worth nothing if there is a buyer that is willing to purchase.

For Amazon, it has value due to partial ownership of the business itself and the cash/assets held by the business. If I own 1% of amazon and it has $100 in the bank, I own $1 of that. This underlies and backs the stock value.

Companies also execute stock buybacks, even if they dont offer dividends.

Amazon just announced a $10 billion buyback, which is theoretically equivalent to a 1% dividend this year ($1T market cap). If amazon buys back 1% of stocks, I now own 1.01% of the company and $1.01 in that company bank account.

https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-st...

> SBF: Well, okay. So you've got this boxes and it’s kind of dumb, but like what's the end game, right? This box is worth zero obviously.

It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care.

They are describing this from the perspective of an exchange however. Also most of the initial guys came from Jane Street which is a market maker. While I haven't personally worked at a market maker before, I suspect these guys are less fascinated by crytpocurrencies themselves but by how there is suddenly a whole new class of assets that is ballooning and ripe for market makers. As market makers, they are also understandably less concerned about what an underlying asset itself really is worth, or what it even is, but more about facilitating transactions and arbitraging away inefficiencies. (for example, in the podcast he repeats a few times, "who are we to question what it's worth if the markets have spoken"). So from that perspective I can sort of understand why he described it that way.

> It blows my mind that the people profiting from this are publicly describing the scheme like this, and nobody seems to care.

This is the same guy the media and lots of HN were parroting his 'Bitcoin has no future' artile recently, when it should have been caveated as 'No future as a pump and dump' token for DeFi scams. Which is true, their is really no way to do that in the BTC ecosystem, and for good reason. Wrapping and all that was the closest thing, and to be honest it was short-lived.

Sam is a clear example of what happened from 2014 onward, billionaires made from the least interesting aspects of this ecosystem, which incidentally is also why most of VC has poured into this space.

Honestly, their is no value in ~95% of alts, they are the 'pink sheets' of the crypto currency space.

Nobody cares if the make money.

Everyone is still filled with hope.

They'll care if/when they lose.

How much is a share of Amazon worth considering they don't pay any dividends? Isn't this the same thing?

No because Amazon generates earnings but reinvests those in its business to make each share worth more.

How does it make the shares worth more if they are not entitled to dividends?

Owning a share of Amazon gives you rights to future dividends, which in theory can be high if they continue to grow EPS.

If I promise to pay you $100 10 years from now, is that agreement worthless because you didn't get it today? No you discount the time factor into current value.

The people who got wiped out on growth tech don't understand this concept

I understand it. It's just that there is a lot of uncertainty. Ultimately I think that different people value things differently.

To some people something is worth what someone is willing to pay them for it at the current moment.

To others it's worth whatever it is in the story they have concocted in their head.

If your sense of worth is derived by anything other than fundamentals, you're setting yourself up for failure.

And to lose a lot of money

Say I own 1 share of Amazon worth $10 and Amazon earns $1 on that share.

Bezos has 2 options. He can pay me $1 as a dividend or he can reinvest that $1 into his business and make my share worth $11.

His choice does not matter in the absence of taxes and other costs.

If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1.

If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share.

In both cases I have $11.

The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors?

Stock buyback is also equivalent to paying cash dividend (ignoring the tax issues).

Stock buybacks have advantages relative to cash dividends for tax purposes because tax on dividend profits are taxed annually, and stock appreciation is taxed in the year of sale.

This is a valid point. If a buyback has been announced then the share is worth at least what the company buying back the share has agreed to.

>If he does not pay out a $1 dividend but I want a $1 dividend, I will sell 1/11th of my $11 share and get $1.

>If he does pay out a $1 dividend but I do not want a $1 dividend, I will use his $1 payout to buy 1/10th of a $10 share and now own 1.1 share.

>In both cases I have $11.

If what you said was true then share prices would go up after earnings were announced by exactly the same amount of profits that were in the earnings report. In reality a company can release their report announcing their profit and the share price can decline so I think it's fair to say that a share price's value is largely based on speculation.

>The difference between this and crypto is that crypto has no earnings. If SBF and his coinmaker friends want to pay me $1 on my $10 ("yield farming") they must do it by taking $1 from new investors to pay me. But who will pay those new investors?

Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.

> I think it's fair to say that a share price's value is largely based on speculation

I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view.

> Yield can be sourced from trading/borrowing fees or in the event of liquidation the collateral that these traders provide. Yield can also be generated by performing some functions on a blockchain like validating transactions. Yield can also come from the "pre-mine" in instances where the coinmaker is offering yield farming.

You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.

> I agree that this is the case in the short run. But I do not believe this is the case in the long run. And there are great investors out there who hold this view.

I think it comes down to the fact that people typically buy shares in order to make a gain at some point in the future so they have to come up with a believable story as to why their desire will play itself out. Some peoples stories simulate reality better than others so they tend to do well in the stock market. Others shape the narrative so they do well also.

Ultimately though I think something is only worth what someone else will pay for it.

The original comment I replied to was horrified that people in the crypto industry would profit off something that they believed was worthless. They didn't acknowledge that this takes place all the time throughout society and ultimately it doesn't matter what a seller thinks something is worth since they can't predict the future or know what the buyer values about whatever they are buying. I think as long as a seller doesn't intentionally mislead a buyer as to what they are purchasing then they have done no wrong.

> You may be right. The only issue is that when someone offers you a guaranteed 12% or guaranteed 20% annual return on your money in a near 0% interest environment then it seems too good to be true. And it was too good to be true in the case of that recently collapsed 'luna' coin which wiped out 45 billion of investor money.

A high APY isn't the concern for me. It's who is offering the APY and how well is their platform engineered. Funding fees on exchanges are a lot more than 10% PA and there is no way to get a traditional loan from a bank to trade crypto on an exchange. That explains why a 10% APY for a coin pegged to the dollar is not uncommon in an environment where trade volumes are high. I would be more worried about a sustained contraction of the overall crypto market based on what I know/suspect about USDT (Tether).

As for the debacle that was UST/LUNA I think marketing a coin as "stable" when the stabilizing mechanism assumes no large outflows and no slippage is reckless at best.

Two additional points

Stock buybacks are one way that is theoretically equivalent to dividends. Amazon recently announced a $10 billion buyback which is about a 1% dividend for owners. [1]

Also, amazon has underlying assets worth 420 billion [2], which the the stock owners own. As Amazon grows, the assets/share also grow

https://www.cnbc.com/2022/03/09/amazon-announces-20-for-1-st...

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/f965e5c...

> Stock buybacks are one way that is theoretically equivalent to dividends.

I replied elsewhere but this is the true value of something. What someone else is willing to pay for it.

> Also, amazon has underlying assets worth 420 billion

I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best.

I guess companies can be taken over and broken apart for their assets like private equity firms have become known for doing so these numbers do hold some weight. Though if liabilities grow to a level where the business files for bankruptcy these numbers are irrelevant to a shareholder since they are behind the creditors.

What no one mentioned here is voting rights. While the votes of small shareholders are largely inconsequential larger voters could on things that would benefit themselves financially so indirectly this can give value to shares.

>I always struggle with these valuations because like I said above the true value of something is what someone else will pay for it so I think they are an estimation at best.

This is true of anything. I own a used car, it is an asset, and has an estimated value that will only be verified/or disproven if I need to go through with selling it.

If a company is liquidated, share holders are indeed behind creditors in getting paid out, so they would not get this full value.

It seems that you understand it fully, what exactly is the struggle you are having?

> It seems that you understand it fully, what exactly is the struggle you are having?

Just the truthfulness and validity of the valuations.

The back and forth of these comments have helped clarify things. Thanks for your comments.

At worst, a fraction of the value of all the companies physical assets and IP, which is significant. At best, fractional control over huge amounts of revenue that the company earns.

A share isn’t just some token, it conveys ownership of a public company.

> At worst, a fraction of the value of all the companies physical assets and IP, which is significant.

This is true. While the company is operating it is at least worth assets minus liabilities.

This video was from a month ago and is about the same podcast with Sam Bankman-Fried. The way he describes the box and how it isn't a Ponzi scheme is just ridiculous

Crypto CEO Accidentally Describes Ponzi Scheme

https://www.youtube.com/watch?v=C6nAxiym9oc

I heard this for the first time last week and I couldnt believe the business model. Its effectively a ponzi scheme but the scheme originater was just so relaxed about it as if it was nothing to be concerned about and was perfectly normal. I think in the Cryto world though the participants, on buy and sell sides, are all fully aware though, all they seem to be concerned with is how much of a speculative boost it will give to the coin price so they can land a 1000% gain in a few days/weeks/months and then cash out leaving someone else holding the baby.

Odd Lots is also a really excellent podcast, even outside of this episode. Their coverage of the past couple years of supply chain issues has been so cool.

It’s a Ponzi scheme, but he’s not afraid or shamed to blatantly state it because the gains and the responsibility for it are distributed.

They are betting that when the crash comes they can throw their arms in the air and say “well that was to bad, sell pressure outweighed buy pressure as the value went to zero, but that’s not our fault” all the while everyone who ever put money in the box have been slowly draining the excess. Naturally those in the know and on the inside have had the best oppotunity to drain the spoils, but in principle anyone could have done it all along. And so it goes that it’s not their fault and they didn’t mislead anyone. It’s just a Ponzi scheme going Ponzi, with everyone who joined up being partially to blame all on their own.

I hope it doesn’t go down like that, but that’s what it looks like.

When farming tulips, at least you could get pretty flowers from them.

Nothing new; just a lovely pass-the-turd fast so you don’t get caught in the inevitable crash.

All crypto degens know when SBF is in a farm. The price pumps initially since SBF going into a new farm means a) buy pressure, and b) the farm is "safe" for others to buy into.

And then SBF starts farming and dumping. People who don't understand the mechanics can be left holding the bag.

As an example, this is the classic "SBFed" yield farm coin chart: https://www.coingecko.com/en/coins/big-data-protocol

Subjective theory of value + Speculation + Unregulated markets = Ponzi schemes

Is it "unregulated markets" that make all the difference somehow? Aren't $tsla, $zm, $coin ponzis as well?

> One takeaway from this whole conversation is that DeFi might be more similar to Bitcoin than a lot of people thought, deriving its value from collective agreement that the ‘thing’ (in this case the box, or yield-farming protocol) is worth something rather than deriving value from a fundamental usefulness.

This wasn't how I had yield-farming described to me by people very knowledgeable on it

The way I had it described involved at least 2 types of coins, with varying rates on different platforms. And a sort of cyclical loop where you were borrowing on one platform + token, to buy more of another (different) token, with a price inequality between them that facilitated this loop infinitely.

It was described to me as blatantly "degenerate" and "the equivalent of a money-printing machine/a bug in game code."

I don't see anything wrong with it. Money isn't about ethics, and the people who explained this to me make several times my annual income from doing this.

Personally, I don't want to invest the free time to try to keep up with all this crypto stuff.

I found the conversation around valuation the most interesting. Especially how the crypto valuation world has spilled over in to the stock market. It’s been my theory that traditional valuation methods are dying in certain areas because they rely on rational markets, and when you have a bunch of retail investors, the markets become irrational and harder to value/predict.

It's possible to describe some of these tokens as lotteries or games of chance as well; people have been buying negative-expected-value lottery tickets for decades now and it's mostly treated as normal.

Aren't automatic market makers with yield farming a thing outside crypto? Let's say Uniswap but with USD and GBP. Are those Ponzi schemes as well?

> Aren't automatic market makers with yield farming a thing outside crypto

Are they the main thing, or the only thing, outside of crypto? Is there much more to the market than that, outside of crypto?

I want to be the emporer's tailor.

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