This is a short not-a-post; I have a longer post coming out hopefully shortly which will first talk about stuff like Ponzinomics (aka we need to talk about OlympusDAO), and a later one focusing on crypto quantitative research.
To my readers: happy extremely belated New Year! I’ve been busy, and trying to be a bit less terminally online to boot. Later this month, also reuniting with Jim O’Shaughnessy and the pseudonymous but legendary Jesse Livermore on the Infinite Loops podcast to talk about my favorite topic - bubbles. Stay tuned.
More pertinently to this not-a-post, I wanted to share some research I’ve been working on, truly a labor of love, as part of my work at Moody’s Analytics. One topic near and dear to me is understanding the cryptocurrency markets. My position is net bullish long term on decentralized finance - without any idea of future winners or valuations, I think the technologies developed might be both revolutionary and long term a mainstay of the traditional financial markets (this isn’t my employer’s opinion - this is my personal opinion). That said, they could also completely flatline. In any case, the future success or failure of DeFi will hinge both on use cases (which seem to be obvious and interesting) and measuring risk.
Risk is a tricky concept in crypto. The space is incredibly young and rapidly evolving, compared to the relatively ossified mechanics of the traditional financial markets (relatively is a key word here). Risk modeling in traditional finance fundamentally revolves around the view that our future must somewhat resemble the past, and boy, do we have a lot of past to cover. Conversely, the major decentralized finance protocols can count lifespans in years, with new ones sprouting up daily. How do we even think about risk here in a cogent, empirically supported way?
I’ve been working with a few folks both internally and in collaboration with fellow Twitter galaxy brain, Tarun Chitra of Gauntlet Network, on a post to start - at the very least - asking to right questions. No initial risk assessment model will be perfect, or perhaps even good. But as the space evolves and becomes a larger chunk of the financial economy, we must start asking: what is risk, who bears risk, and can we measure it?
I’d love to hear your guys’ thoughts on what we’re working on here.
https://www.moodysanalytics.com/articles/2021/block_by_block_assessing_risk_in_decentralized_finance
As always, stay frosty.
Lily
Hi Lily. Fan of most of your work. However, please be careful about sending fake news about a rate hike. I know you like to have that whole cynical/sarcastic "I'm too cool for this market" persona about your Twitter self, but you have a large audience and people are trigger happy right now. Thanks. --Kelly Vance
You should check out the Gopnik DAO. Granted it is eclectic subject matter, however the project is really taking on the governance and deflationary community asset questions. I’m pretty impressed.
https://medium.com/@Gopniks/g-dao-bsvs-first-community-run-organization-9e3fa7e02c3d