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> it's more than possible to achieve above-market gains in DeFi without overexposing yourself to insane risks

"Insane" is subjective. The point is nothing safe yields ten or 20%. Someone saying "you will not lose your funds" [1] when paying above-market yields is lying.

[1] https://stablegains.zendesk.com/hc/en-us/articles/4402680425...

I run arb and loan liquidation bots, and have for over a year now. These are atomic transactions almost always using flash swaps/loans that exist only exist for the life of the transaction. I am only exposed to potential losses on transaction fees, but have never had a losing day while running production code. My yield on my investment (mostly infrastructure costs) is closer to 5,000%...per month. I will not lose my funds, whether the market is good or bad.

There are funds out there that conduct these activities, I know because I recently consulted for one. They are promising risk free returns and getting them.

There are things that exist in DeFi (such as flash loans) that have no real world equivalent, which is why blanket statements made about traditional markets don't necessarily apply. If used properly, these things do in fact offer "too good to be true" types of returns.

> I will not lose my funds, whether the market is good or bad

Is your counterparty risk always zero (between you and the chain)? Custody? What if a chain is halted or amended?

These systems run on novel rails. You couldn’t honestly tell an investor “you will not lose your funds,” and you’d refrain from using the word “deposit.” Because you’re trying to honestly communicate an opportunity, not to defraud.

Is your counterparty risk zero? Custody risk?

In the case of flash loans/swaps, the answer is yes. It's 0. Further, I never have any capital at risk, all of my bots use flash loans/swaps. These transactions are atomic, which means that either all parts of it succeed or they all fail (it's a "revert" in blockchain parlance). So I can borrow $200 million without any prior permission and do an arb/liquidation or anything else I want with it for the life of my transaction, with the only requirement being that I must return it by the end. If my arb/liquidation/whatever succeeds and I return the loan, I keep the profits. If not, it's as if the whole thing never happened. The only risk is the transaction fee, which on the chains I do this on are miniscule.

I realize that it sounds unbelievable, but it exists. My code does thousands of these daily. I am not the only one doing this. See https://eigenphi.io/ . With the exception of sandwich transactions, every one of the bots you see on there is making profits without any capital at risk.

> it’s 0

The risk of the trade on chain defaulting is virtually non-existent, agreed. Custody risk is never zero. Dollar in / dollar out returns involve lots of counterparties.

Hi there. My name is Bryan, and I'm a member of the EigenPhi team. Thanks for recommending us; twice!! :D Would you please spare a few minutes to have a quick chat? I'd love to receive your feedback and provide more valuable data! Here is my email: bryan at eigenphi.com. Looking forward to your reply!!

> My yield on my investment (mostly infrastructure costs) is closer to 5,000%...per month.

As in, $100 in January becomes $500 in February, $2,500 in March, ... $976,562,500 in December?

Edit: actually I read that wrong, that would only be 500%. 5,000% per month (money x 50) would turn the $100 into $9,765,625,000,000,000,000 by December.

Unless by 5,000% yield you mean you get 50x your original investment on top of the original investment, like how 5% yield on a dollar gets me $1.05. In that case it would be more. But I think the 9.8 billion billion would be good enough for me.

No, sadly that return is based on my infrastructure costs, which I can't keep increasing and get the same return. But yes, I'm doing better than 50X my monthly infrastructure costs with this, which are my only actual risk.

Ah, ok, so this is more like a thing where you drive around looking for loose change on the ground, and you find enough to exceed your fuel and maintenance expenses. But you can't scale it up by hiring more drivers, because there is only so much loose change to be found.

Surely you see how even a 10% safe return on investment like these DeFi schemes offer is a whole different thing, when it's a compounding return. There's no way to sustain it. All the arbitrage opportunities in the world can't deliver the funds required to make investors' money grow exponentially.

You are correct, but all investments have a maximum size at which returns will stop. That said, even large banks are seeing returns considered impossible in traditional markets with DeFi strategies, often with lower risk. Arb bots like mine are now generating more than $1 billion per year in risk-free earnings, so the pie is not exactly small. Estimates are that statistical arbitrage bots, which do take on some small capital risk, generated over $5 billion in profits last year.

I agree with you that throwing money at anyone who tells you they can take an unlimited investment and offer compounding returns on it is a recipe for disaster. But in DeFi, intelligence and strategy translate directly to greater yield. Math has proven time and again that those things matter very little in traditional markets.

>But in DeFi, intelligence and strategy translate directly to greater yield. Math has proven time and again that those things matter very little in traditional markets.

You're all over the place with your usage of concepts.

Here you say that intelligence and strategy matter little in "traditional" (vague) markets. Yet, in DeFi, they do.

Not buying it. It feels like I could copy and replace your replace all of your uses of "DeFi" in this thread with <insert ponzi scheme>.

It's "different" than normal markets...I made it work personally (but not at scale)...

There are countless articles showing that literal monkeys throwing darts at a dart board can pick sticks as well or better than most fund managers. This is not the case with DeFi. I’m not all over the place with anything, DeFi is a place where skill still matters because of inefficiencies and the presence of a large amount of “dumb” money.

> DeFi isn't a single market, it's millions of micro markets that are accessible through what amounts to a single API.

Millions of micro markets that produce what, exactly? Last time I checked there has to be at least something on the other side of the calculation what a coin is worth.

You think crypto coins magically make people work harder, better, faster, stronger?

That's not how the constraints of the physical world work.

Millions of micro markets that produce what, exactly?

You seem to be asking me to defend the merits of crypto, which is beyond the scope of this conversation. But generally speaking, most of the coins people actually buy are tied to protocols that are attempting to do things that interesting to at least some part of the population.

But, the ability to prove the provenance and ownership of any asset, whether physical or digital, has value. The ability to move value across borders instantly, cheaply, and reliably, has value.

In a world where so much has been made of fake news, imagine if you could know with absolute certainty that a given quote you read from someone in an article is authentic and given to the specific outlet you are reading it at, not taken from somewhere else, perhaps out of context. Imagine if Google integrated such information/quote verification into its search results, and could use it to prioritize sites with real quotes or information. SERPs wouldn’t be full of trash, and small sites that manage to scoop large ones could get instant #1 rankings. Authenticity verification has value.

The possibilities are endless.

> In a world where so much has been made of fake news, imagine if you could know with absolute certainty that a given quote you read from someone in an article is authentic and given to the specific outlet you are reading it at, not taken from somewhere else, perhaps out of context. Imagine if Google integrated such information/quote verification into its search results, and could use it to prioritize sites with real quotes or information. SERPs wouldn’t be full of trash, and small sites that manage to scoop large ones could get instant #1 rankings. Authenticity verification has value.

This assumes that 100% of the ecosystem is already some form of blockchain.

And guess what: It isn't and it never will be due to the democratic nature of the proposed system architecture.

The flaws of every coin I've seen is that there are too many assumptions about markets, and dependencies of the markets in the sense of goods and/or services that are just "assumed" to migrate to their blockchain at some point. That's not how incentive proposals should work, as they will (logically) lead to exit scams because a couple of people cannot write and reinvent an ecosystem from scratch.

Look at how long IPFS took to mature. Look at how long DAT was refactored in a backwards-incompatible manner. Look at how long it took to write the hypercore protocol stack.

Systems like this and - especially markets like this - need time to evolve, which means that the proposed DeFi assumptions about rapid growth bullshit are anti-market proposals, and literally the same way hyped and unverified bonds in the legacy financial systems lead to market crashes.

> But, the ability to prove the provenance and ownership of any asset, whether physical or digital, has value.

This only works for assets which themselves exist on the blockchain and for whom the blockchain is the only source of truth - such as cryptocurrencies.

Anything else that involves off-chain activity would require a bulletproof way of keeping the on-chain and off-chain state in sync which is typically a neutral, trusted party, at which point you may as well just let them operate a conventional database and forget the whole blockchain bullshit.

> In a world where so much has been made of fake news, imagine if you could know with absolute certainty that a given quote you read from someone in an article is authentic and given to the specific outlet you are reading it at, not taken from somewhere else, perhaps out of context. Imagine if Google integrated such information/quote verification into its search results, and could use it to prioritize sites with real quotes or information. SERPs wouldn’t be full of trash, and small sites that manage to scoop large ones could get instant #1 rankings. Authenticity verification has value.

I don't see how blockchain/cryptocurrencies help here? Cryptographic signing is all you need.

> it's quite easy to find pockets of above-average returns if you're smart…

Right, but even then how deep are those pockets (what amount of investment can they absorb without being tapped out), how big a time window will they exist for, how will you know if those limits are being reached, and are you really sure you can quantify all the risks?

By definition if it’s a pocket of opportunity, it’s very constrained opportunity. As soon as those constraints are breached it will suddenly stop being low risk and might collapse completely. A lot of people have lost a lot of money on sure fire pockets of opportunity that were great when they lasted.

Of course there are limits to every opportunity. I make money everyday from opportunities that exist on microsecond timescales. I run arb and loan liquidation bots, so I haven't had a single losing day, ever. The last two weeks were quite profitable for me, actually the best two week period I have ever had. There are other strategies that are easier to pull off, such as market making, that have moderate risks and outsized returns.

The point is that these opportunities exist, and they always will exist, you just have to be smart enough to be able to get into them. If someone needed money for infrastructure to run an arb bot, for example, and offered you above market, risk-free returns, it's at least possible they aren't lying to you. That was my point.

> If someone needed money for infrastructure to run an arb bot, for example, and offered you above market, risk-free returns, it's at least possible they aren't lying to you. That was my point.

If you needed money for infrastructure for more arb bot, would you look for random novices and offer them 15% (and raise $3m in VC to market to random novices)? Or would you take out an unsecured personal loan from a bank at a lower rate, or a much lower cost loan from a counterparty involved crypto, especially one who understands the nature your trades?

I’m sure it’s a great business, but what would happen if 10 competitors all spun up arb bots tomorrow morning?

There’s a very low chance of that happening, but not zero.

A market where, with work, you can "find pockets of above-average returns if you're smart" is MILES away from one where companies are "promising you consistent above-market returns"

You’ve kind of just demonstrated the OP’s point. What do you think modern finance looks like?

I'm looking forward to your followup post where you lost all your money and can't figure out where you went wrong.

It always happens with people who think they are smarter than the "dumb money" they're taking advantage of. "Sure it's a scam, but I'm smart enough to not be the one getting scammed!"

[[This is what DeFI people actually believe]]

Whoever thinks "millions of markets trading in every way" is a guarantee of making money is in for an awful surprise