I’m a believer in crypto(.*), but I keep seeing the same thing happen over and over again. The idea was that open innovation meant that small experiments were easy to exploit before they grew to systemic risk levels. But this exact formula for stablecoin staking and collateral has failed in spectacular fashion many times before (e.g. Iron Finance). Specifically, ridiculous yields that shrink the collateral, and collateral with circular dependency on the peg.

I’ve been a lot closer to the people behind cryptocurrency and it has sharpened my eye in every other sector of business to see that the people that are out there doing the biggest things are often the ones with the weakest understanding of the problem they think they’ve solved. Money flows to them because there’s too much of it being created, and it has to go somewhere, until it crashes the whole system. Real conscientious long-term innovators get crowded out and then wrecked, while the ignorant and/or dishonest pull out with short-term fiat gains.

Ironically, this is why Bitcoin was created in the first place. It was a response to the systemic risk created by the nexus of the Federal Reserve, Wall Street, and Treasury: fixed-supply self-sovereign currency for a stable value and peaceful society. I have an email from 2009 to a friend that just discovered it, explaining why it was brilliantly elegant technology, but flawed by its speculative nature. There is a difference in the way people perceive information. I ignored it because I thought this flaw would be fatal to anyone that thought about it deeply enough. They saw opportunity, and mined over 200,000 BTC.

It turns out that human social systems require a bit of ignorance, irrationality, and greed. Ponderous people might do better by limiting the depths of their thought, but honestly it will never be as natural for them as it is for a hyper-enabled over-confident person with capacity for thought that roughly aligns with ignorant money handlers. There is a strong correlation between intelligence and wealth, but it only fits the middle. I think this is explained by career choice for salary employees, and conscientiousness to avoid wasteful spending and loss. I’m not sure where I fit on that spectrum, but my savings account grew until I realized that I was losing more in terms of future housing costs than I was gaining with salary, even with an extreme ascetic lifestyle. But what to invest in? Its all junk, really. I see no rational basis for the valuation of any company in the S&P, nor price of real estate. Some may exist, but I don’t have time to find them. Sooner or later, we all become ignorant money handlers ripe for exploitation.

I chose cryptocurrency because I was more okay with being exploited by a society at large than an oligopoly. Then the same things started happening in cryptocurrency, and I did the same things to try to avoid it. Regardless, the crypto-oligopoly, knighted by the kings of traditional finance, ended up pumping and dumping the whole system. Predictable, but still unavoidable. What are you going to do? Savings account? Corporate officer salaries? Shiny yellow stuff? Give up your salary to become a farmer?

So you have to invest in things you may know to be junk, and sometimes it works out, and sometimes you get wrecked. The one thing that is guaranteed to wreck you faster than anything else, is trading junk to junk at taxable profit. Portfolio strategy like rebalancing will kill you in both directions. Don’t buy unless you’ll never need the money, and don’t sell unless you do need the money. Paradox? Yes.

Meanwhile, I’m still amazed by the cryptography and decentralization, so I’ll be working on something that makes sense to me, and probably nobody will care.