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CMC
Who are you! Tell us a bit about yourself.
Capt. R
I’m Noah Seidman, Captain Rational on Twitter and YouTube. That's now, but it did all start in college. Every now and then I recall experiences back then that I now qualify as an upgraded perspective. A great example of what I mean is modeling. Back in college I was schooling for Electrical Engineering, and I took a passion in energy systems. I modeled fuel enhancement systems using super charchargers as the analogy, as the modeling. I didn’t know the significance of this back then, but nowadays I realize it to be the way to understand the world. Applying the concept of modeling to financial structures, especially with regard to crypto, allows us to see the systems for what they truly are.
Clearly a brief intro highlighting something that comes to mind that impacts my daily life, I won’t bore everyone with the trials and tribulations that we all must endure.
CMC
What is money?
Capt. R
Money is a way to store natural resource and labor credits. It’s used as an incentive system to organize labor. I have very abstract thoughts about money, and there’s too many misconceptions to fit into a brief statement… suffice it to say money isn’t what the majority thinks it is. Ultimately money is a system of organization and control, it’s used to primarily finance social stability.
CMC
You’ve mentioned before that finance can be modeled in terms of fluid dynamics. I’ve argued one day the field of economics will directly be recognized as a subset of physics… agree or disagree?
Capt. R
Agree. The global financial system has ebbs and flows that manifest in charts as cyclical waves over longer time frames. Capital flows through the system from one market to another, from one sovereign to another, and back. This most certainly can be modeled as fluid flowing through a system, with pressures that encourage directionality shift respective of conditions. Fun thought, what would the pressure be? Demographics, population attributes? Maybe concentrated investments in critical infrastructure, or just merely spontaneous technological breakthroughs? We know certainly that liquidity availability is an obvious pressure, but what most don’t know is that for almost all of recent history liquidity availability has been purely artificial; a conversation for a different time. Overall we know what the pipes are… SWIFT, ACH, Fed Wire, traditional banking rails, and more recently blockchains & crypto protocols.
CMC
How would you summarize the state of the global economy?
Capt. R
Disinflationary. We had growth up until 2008, and since then the capital in the system has been contracting. Disinflationary global currency availability still remains a positive sum, but over time demographics kicks in, leaning the system toward zero, and hopefully not negative sum. We all are chasing currency units, and optimally there’s more to go around, for if there were less we’d be chasing increasingly scarce supply which disincentivized spending. Spending is a positive pressure as discussed in the previous question, and currency scarcity trends the system towards accumulation, decreasing velocity, and generally less activity. The system is slowly collapsing, and the end game speculated on by some of the most brilliant macro economists that we all need to continue listening to social media and their respective content platforms. I align well with Luke Gromen, Lyn Alden, Brent Johnson and others.
CMC
You follow the Fed’s actions closely. What do you expect they will do over the next year? And if you were in charge, what would you do differently?
Capt. R
I don’t believe the Fed has much control. They are like Western medicine, a reactionary institution. They have rules that they enforce on members, and actions they can force member banks to take, but ultimately the bond market controls the vast majority of their decision making. When the bond market moves, the Fed must respond to achieve their stated mandates.
They will do exactly what they say they will do, until the market forces them to behave differently.
CMC
What’s the thesis for cryptocurrencies at the moment? Put another way… why are you still here?
Capt. R
Crypto is a word that is short sighted at best; not being critical here, just clarifying. Ultimately the critical system that peaks everyone’s interest is the EVM. The Ethereum Virtual Machine is the most widely deployed distributed compute system in history. The distribution trends toward decentralization, and censorship resistance, clearly those are hotly debated topics. Aside from that, it’s the protocols that catch our fancy. The successful protocols are modeled after traditional financial structures, and the more successful protocols are experimenting with novel implementations that could never have been tried using traditional financial infrastructure. I remain for two reasons. One, the novelty, and two the freedom of access. The freedom to access financial systems that were never accessible in traditional finance. Money markets, forex markets, debt markets, and derivatives markets. Not just as a user, but more importantly as an owner with access to governance rights and cash flow.
CMC
What characteristics of projects do you suspect may still be here in two years accumulating Lindyness? What types of protocols may be dead... or functionally dead?
Capt. R
Lindyness requires survival, and survival requires a balanced balance sheet. The books must balance assets and liabilities. Cash flow must be positive. I must admit we’re still trying to digest *tokens, are they models of equity shares? If token emissions are greater than income, is that like a dividend rate greater than total revenue? Clearly many emissions are inflationary, optimally disinflationary, and at best deflationary. Overall we’re dealing with topics that big banks and national central banks have historically dealt with. Properties of currency, overtones of equity shares, and novelty combining characteristics of traditional financial systems that would have never been combined. A quick example is deterministic lock periods. There is no analogy in traditional finance for such a system.
CMC
How do you mentally model the Curve “flywheel?” Flows of liquidity? Something else?
Capt. R
$crv is an incentive system that carries governance rights and access to cash flow through the protocol, but the flywheel is a manifestation of federation. The next paragraph sets up the following continuing on about federation.
Traditional finance says equity shares, and dividends, but currency must be considered because of the short term inflation, mid term disinflation, and long term deflation that it will experience. Equity shares cannot achieve this type of dynamic behavior, so it must be some novel, something iterative. If we consider currency, and the need for sovereigns to place it in reserve to accommodate periods of austerity, is this not what is occurring with the protocols that are accumulating $crv for governance over liquidity emissions?
This is akin to a federation of sovereign reverses, overtones of corporations accumulating shares of other corporations for purposes of governance, but it ultimately is neither of those scenarios. We have glimpses of what it is, we see the analogies that are apparent, but we’ll most certainly need several systemic liquidity cycles to gain a clearer picture.
Most pertinent is the protocols that are accumulating $crv are *mandated to do so for purposes of survival. $crv emissions are a positive pressure encouraging engagement with a protocol; an incentive. Controlling an incentive system is therefore powerful, and that is exactly what we have seen; protocols fighting for control of the incentive system. It’s a complex thought experiment, because time is a difficult factor to digest. If there’s current federation participants, we must conclude new participants will emerge attempting to acquire a piece of control. That’s the real flywheel, the more protocols accumulating the more protocols will want to participate, and somewhat need to, in order to pursue controlling the centerpiece incentive system of the crypto space.
CMC
What are your thoughts on the role of $crvUSD?
Capt. R
$crvUSD is a product, a CDP, otherwise known as a Eurodollar. Skipping over the history less on Eurodollars, $crvUSD offers a way for capital expansion to occur, and as a product it will create fresh cash to flow through the protocol. This will contribute to liquidity in the LPs, total volume through the protocol, and cash flow that admin fees produce.
CMC
What’s your most controversial opinion?
Capt. R
A couple of one liners:
Great tech isn’t always a great investment.
Humans should not be the hero, software is better suited.
Hope has no place in the investment process.
If everyone is interested, it’s almost certainly not the place to be looking.
My favorite of all:
CMC
Any alfa you can gib?
Capt. R
Dollars are grossly misunderstood, and most of the animosity folks place on dollars are more correctly applied to humans controlling fiscal spending and monetary policy. Point being, the most important alfa is during a bear market (decreasing market liquidity) cash is king. Traders can outperform, but trading is an adversarial sport where the majority will always lose. This is currently a market to identify what survives to future markets, why is that important? Because that has never occurred before. That makes it different this time. There was no market at the end of the last cycle ‘18 ‘19. There were no stable coins like there are today. There were no crypto debit cards. There currently is well over 100 billion dollars in liquidity in the DeFi system. That was NON-EXISTENT in the last cycle. Barely anything survived the last cycle because it wasn’t a market; a market modelable as an actual financial system. There is now, capital has been retained, currency is sticky for the very obvious reason… there's lucrative financial opportunity. I expect crypto to fall in line with emerging market capital flows. When we see China, India, and other large world markets receive capital inflows, that’s when capital flows out of the US and back into the rest of the world. That’s when capital flows into crypto markets. That’s when *up only mode* returns and for a transitory period of time even shit tech becomes potentially a lucrative investment. Until then folks need to digest what makes up a resilient core portfolio, learn how to survive, how to general cash flow (salary), and speculatively identify systems that have the most important attribute of all, survivability.
CMC
Any other questions we should have asked you?
Capt. R
As for other questions, I promise it never ends. Questions should never end, from other persons and from yourself to yourself. Looking forward to chatting 🙂
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