Jordi Alexander - Selini Capital @ TOKEN2049 London 2022

hi everybody so given the title of my speech as opposed to the first Speaker I do feel like I do need to switch things up given what's been happening in the last 24 hours so if you'll forgive me for a little bit of a free flow um I was initially going to talk to you about why a uh background with 10 words could be worth tens of thousands of dollars apparently I was going to talk to you about algo stables and tell you you know what the learnings are and whether these things are sustainable or not possible I was going to tell you why people claim that you can have a sustainable 76 100 percent yield but instead you know I have to address the elephant in the room which is why is my tongue blue uh so that's because uh I am experimenting with a powerful nootropic because experiments are good and sometimes they take us to places where we learn something incredibly valuable but as we've been seeing sometimes we realize that we are very early we are so early in fact that what we're learning is that sometimes nobody really knows what they're doing and I kind of want to touch upon psychology instead of getting into a lot of technical things instead um so let's start with a quote from Matt Levine who is maybe the best financial journalist out there he recently did a really amazing deep dive into crypto from an outsider's View and he's giving us like an objective perspective of a neutral third party who really understands you know finance and technology and you know his point is crypto is recreating a lot of things that we've seen already in the traditional world but it's also giving us a lot of new experiments that sometimes are really really bad and sometimes are quite promising and can lead us somewhere um but I want to start with something that is timeless since Homo sapiens have existed one of the most powerful forces is greed and some people will say greed is good but it doesn't even matter as grief greed is good or not greed is powerful and uh you know a lot of the people that are you know showing up at events like this a lot of the millions of people that are in the space yeah there's a lot of interesting technology there's a lot of you know puzzles and a lot of forward-looking things that we want to learn about but there is a lot of energy that is brought on because people want to make money they want to get resources we're kind of wired that way and it doesn't matter if you are at the bottom of the pyramid or if you have made billions of dollars you have literally a money making machine that can make you know eight figures a day and you don't have to do anything and even those people as I have seen from the front row and actually even being on the stage with them many times these things are Universal to everybody so if you're a retail person we see 1.8 million followers for people who want to believe a model that says just buy Bitcoin wait 15 years and every dollar you put in will be worth 10 million dollars and this is a mathematical fact this is kind of scientifically something you can you can trust and you know these things have a virality same as you know talking about a super cycle and if somebody says you know maybe there's not going to be a super cycle some people will listen and some people will pay attention but at the same time there will be a lot of people that will kind of not retweet it it won't get those same viralness and virality is such a important concept in the world in general in politics as we see like you know in many countries it just comes down to like the virality of a meme but also in crypto especially we saw a tweet this morning uh Sue uh suzu kind of one of the uh as he says the uh so he was kind of a uh a poster boy obviously for Golden Child uh for the cycle uh after four months of not speaking he's kind of expressed a little bit uh what it what it is like not just for being you know somebody who is hoping that they can make 10 000 X but somebody who has already made it and what we learn is that greed is something that does not go away it's just writing the next wave and surfing the next wave and doing the most good the most Global impact for good so what we see is that it doesn't slow down there's a reflexivity that only picks up as you go up and some of these things as Matt Levine says are not new at all moral hazard has been around for a very long time this is very basic Game Theory so what moral hazard basically says is if you can take a risk where the upside you can capture and the downside is somebody else's problem that creates a very powerful incentive to sometimes act in ways that most of us would consider to be inappropriate or possibly you know immoral and we're seeing like many versions of this now we see this with you know Celsius places that will tell you like you know you can get 10 on yield and they'll they'll go back to somebody else who's promising them 20 percent now whether this person gives them 20 or not you know they hope they do because that's their business they want to make this 10 but then if they don't if that does not happen that's not necessarily going to be out of their pocket of course they will have a lot of downside you know in reputationally in other ways but this is a team uh this is the same tale that we've seen throughout and it's even more powerful in crypto there's two reasons when you go up in crypto this is such a new technology that nobody knows where the upside is should something be worth five billion dollars should it be worth 10 billion dollars 20 100 you know some of these uh coins like cardano really interesting Technologies but even being very early nobody knows how to Value them so you get this incredible reflexivity on the way up and then of course on the way down there's nobody guaranteeing a floor price nobody knows exactly okay you know worst case Bitcoin is going to be worth ten thousand dollars that is not a guarantee because intrinsically we're still all collectively figuring out where we ascribe value and this is a psychological game that is still very early on and a lot of times what gets even more confusing especially like people like myself I spent a decade in traditional Finance in quantitative trading a very objective uh place where you know you really look at figures and facts and sometimes you realize that memes are actually more powerful than fundamentals in crypto at least in the at least in the you know during the bull market you see that if you go and you start becoming a real product and you go from an idea to having actual Revenue you're no longer a pure play people can point things out you know there's flaws your your blockchain is going down sometimes there's all kinds of uh nitpicking from the community well if you just stay a meme there is a power to that so this makes it very confusing and very hard to Value Assets in this space the other thing with memes is that they are so important to creating the virality in the communities that ultimately like build events like this and you know much bigger ecosystems in the world and sometimes the memes are not necessarily accurate so they're very good at creating a community how many of you have heard of uh three three can I see like anyone who knows what 3-3 is okay we have some Define natives here so 3-3 is basically a meme that Olympus Dao created and the idea of 3-3 is a great idea it says if we all collectively get together and just kind of cooperate we will all be rich together we will all be successful together we will create this like new world this new future for us together and you know 3-3 is Game Theory concept and uh being a game theorist myself this has kind of always been my uh my specialty and all my degrees I looked at what they claimed to be 3-3 and they basically say that you know if nobody sells we all get rich if people sell then it's bad we it's minus three three so this meme was so powerful on Twitter you would see like you know many many thousands of people have like three three in their in their profile this kind of uh grew to be like worth billions of dollars for their currency and their currency was basically a meme based on bad game theory and sometimes that can work for a while but eventually eventually what happens is the the truth and the fundamentals do catch up many times so the first problem that happens is if you have a good me people will Fork Your Meme so we saw this with Olympus Dao so on the right on the left you have uh Zeus so Zeus is the founder of Olympus Dao and a lot of people as we do in crypto when you have open source code they take the code they Fork it it doesn't it doesn't cost a lot of money you change the name you change certain attributes about it so uh you know we had a very famous example the first really like famous example after a sushi swap maybe was Wonderland so you have the Frog Nation who basically took the same idea created a different meme spin on it around you know we're all frogs and like this is kind of like the plebs and the community against the overlords and they basically stole some of the fire so one of the things that happens with memes is dilution and while Olympus Dao was very successful because it promised six thousand percent yields the next guy just comes along and says I will give you eighty thousand percent yields and then the next one says thirty thousand percent yield so this concept that draws in retail that basically says like you can just make free money and print it every day and even if the price goes down a little bit that's okay because you're making so much yield and some of these you know figures just become astronomical obviously you have things like honeydowell you know millions of percent of yield and it kind of has always made me think you know judging from first principles is it good to have more or a scarcity kind of really important and of course you know Bitcoin was built on the belief that there are 21 million Bitcoin this is a scarce resource and this is kind of what creates value and I've had quite a few discussions with uh people in the space like suzu who's uh you know a famous example we had a very long chat about Dogecoin and you know Dogecoin tries to be another currency so it says you know there's Bitcoin and we can just make a new one and make it funny and it's just gonna keep creating more virality and more people and of course ultimately this becomes down to coordination and coordination is very hard to do when there's a lot of new things coming up you really need everybody to coordinate and accept that you know Dogecoin is money or Olympus Dallas money or Wonderland is money and if they don't coordinate ultimately like things start to fall apart we have it with Dogecoin and then we have Shiba Inu and I don't know how many of your degens in here but there is World Cup Inu and World Cup Inu is you know performing really well right now so what does this mean there is kind of like a spectrum of of ponziness and you know on the one hand you have criminality so famous examples being like bitconnect and on the other hand you have things that are legitimately creating utility they're allowing people to get a service in exchange for Revenue like uni swap for example and in the middle you have things that potentially are trying to become sustainable famous example being axi Infinity where they have this tokenomics model which uh ultimately I don't know how many of you actually played axi but the reflexivity on the way up of axi also resulted in a price crash because the game itself did not manage to become fun to the extent that people would pay money so why do I have Rafa Nadal here ultimately to create sustainability the key ingredient is you need to have a benefactor who is not in it for money they are gaining something else so if you have Rafa Nadal at your poker table while he might be incredible on a tennis court he's probably going to lose money at the poker table but maybe that's fine because he's getting entertainment he's getting utility in some other way and this is a sustainable model where someone is actually kind of gaining a service or entertainment in exchange for money if everyone is in it just for money there is the first law of poncinomics which basically says you can't just create money when you put it in a box it cannot grow into new money so this is kind of a concept that a lot of people miss when the hype kind of picks up eventually what starts to happen is the hype dies down and as we see with something like FTX um part of the reason why FTX was a very successful and important exchange was because a lot of people trusted that they are back they have a lot of money they're doing things properly once one of the things in the equation starts to come out there is a death spiral because you know no longer people will trust them to calculate their money there's there's kind of like a dynamic to where you know we see this with uh D5 protocols in general as the yields start to decrease because they're not sustainable if you don't have sustainable yields the next step is activity starts to drain out of the system and then eventually like people exit and everybody realizes this is not worth much and a very simple way to think about it is the caveman classic which basically says you can take real money you can issue a coupon against it you can convince people that this coupon is representing the actual wealth the real money that you have there and the more you can convince them and create incentives and create apis you create this like flywheel effect but ultimately you're going to end up being unbacked and this is something that we saw with Luna which was unbacked to a large extent is something we see with a lot of currencies that get created so just some closing remarks um General things that I've been thinking about experiencing the last few years one is you know there's scams and there is gambling and gambling will always be a part of this industry because it's exciting it creates entertainment there's a reason why Las Vegas still exists and it's very popular and there is entertainment I don't know how many of you guys watch this viral clip of uh a token called squid Dao which was getting rugged while somebody was streaming live and this thing was going up to trillions of dollars of market cap and then in one second you know yeah it just goes to zero right I see you guys shaking so uh I think that's not as bad as some of the financial instruments that were being promised like Luna or Olympus Dao because ultimately people know squid game is not going to make them Rich they're playing this game for fun it's sort of a who can get out first musical chairs while they're not being promised and being tricked to put you know no one's putting their life savings into squidale I hope another thing we saw is that we're relearning a lot of the financial learnings from traditional Finance something like price Discovery so we had amms you know part of D5 and amms were very popular for a while but what you're doing when you're putting your money as a liquidity provider who's passive is you're basically writing options as soon as there's volatility you're going to lose a lot of money from that volatility and protocols we're kind of giving tokens as API to make up for that fact but ultimately price Discovery has to happen with professional market makers otherwise these pool two incentives run out so this is something that we're kind of relearning this is like a relearning of Finance another thing is how to Value layer ones and I I recently talked about ethereum quite a lot because the merge was happening and people were trying to figure out is the merge priced in what is the value of ethereum and sometimes what I find with crypto is that you get these extremely complex Dynamics like here we have something I built from scratch but this really shows you all the key stake players that are involved in a blockchain you have people paying gas fees and then Mev is going over there and then validators and you know intermediaries are getting commissions you have these complex systems but when you break it down to First principles which is really what we need to do as we're like going through all these experiments you realize all that matters is like the users are they willing to pay gas fees because they're getting utility and then the ecosystem can survive all the rest is sort of short-term Pawn genomics and I'll leave you with this uh the most important thing of all is probably coordination as I've said scarcity and dilution is such a huge part of whether value accrues or whether value gets drained out and unfortunately as people look out through their own self-interest and they look after you know what what is my own best move to make in this game as opposed to collectively those two things sometimes clash and that's sometimes referred to as a tragedy of the commons we all want to have a really nice grass field in the middle of our town but if no one is willing to put the work and actually make that happen it's not going to exist so if there's one thing to learn from all these experiments that I hope you take with you is that we have to find common sources of coordination if we all just kind of make a new coin and a new kind of meme uh we won't actually ever be able to coordinate enough and move forward together as an industry thank you [Applause]