Introduction

Equity perpetual futures are the inevitable collision of crypto’s greatest invention and the largest speculation market in the world. In the author’s opinion, perps are the correct instrument to express delta leverage positions, especially non-event based. This describes the majority of retail speculation, as seen by 0DTE option volume growth (the highest cheapest delta leverage possible).

This intersection of old and new finance brings new design choices. The topic here is: how do you price known future events like dividends into an instrument that never expires (perpetuals).

Why Aren’t Dividends Free Money For Puts?

TardFi contracts like futures and options have expiration dates, which means they have a forward price. A forward price takes into account all available information—especially interest rates and dividends—to calculate the price at expiration given the current spot.

the simplified forward prices for non-dividend and dividend stocks with interest rate r and dividend yield d:

A put option already prices in any relevant dividends through the forward, so there is no free money to be made. This is called a non-arbitrage condition.

A forward (with expiration < T0) vs spot price for a $100 stock with a $2 dividend on T0

Perpetuals obviously never expire, which makes pricing future events interesting. This hasn’t been a problem with Bitcoin, as Bitcoin has no dividends. But as the first liquid equity perpetual NASDAQ contracts go live on trade.xyz, now is a good time to think about it.

How Do Perps Work?

A quick primer on how perpetual futures work, since it will be needed later. Feel free to skip.

Perpetual futures are synthetic contracts that track an underlying ”oracle price” through a funding mechanism. If the perpetual’s mark price is above the oracle, the funding is positive, and longs pay shorts a small % of their notional every period. This incentivizes selling through closing longs or opening shorts, which pushes the mark price down towards the oracle.

Vice versa, if the perps mark is below the oracle, the funding is negative, and shorts pay, which incentivizes buying through shorts closing or new longs opening.

This filter ensures that on long enough timeframes the perpetual tracks the oracle, although in times of volatility this relationship can break down due to stronger external forces (liquidations).

Note there is always a 1:1 ratio of longs to shorts (when a long is opened either a short is opened or a long is closed).

What Oracles Do Crypto Perps Use?

For most crypto perpetual exchanges, the oracle of an asset is simply an index of spot prices. This allows the cost of capital (both interest rates and ”borrow”) to get abstracted into a relatively continuously settled funding rate.

This works well. For example, in times of froth, when people want extra money to go long, the mark to oracle premium drifts up to an agreeable funding rate.

https://hyperliquid.gitbook.io/hyperliquid- docs/trading/funding

What Oracles Do Equity Perps Use?

While we don’t have many examples yet, trade.xyz’s perpetual model can be explored here, as it’s rational. trade.xyz backs out a spot price from the forward price of the front quarterly future.

https://docs.trade.xyz/xyz-perps-specification/equity- perpetuals/xyz100-and-index-perpetuals

This forward price only captures dividend events before expiration T. As the oracle rolls over to the next quarterly, it will price in the next set of dividends and go down accordingly. This presents a funding/forward arbitrage if not properly priced. While the NASDAQ has a measly ∼0.46% annual dividend yield, for higher dividend paying stocks it is a potential opportunity. Markets are only efficient because people make them efficient.

What Is The Arbitrage?

In isolation, if no one else does anything, one could short the perpetual with very little time left in the last funding period before the oracle roll, while simultaneously buying the next quarter’s future. This would give you no delta exposure to the underlying, while benefiting from the perp’s oracle basis collapsing.

In practice, the mark will discount below the oracle leading into the contract roll.

Here we will explore how to think about this discount curve backwards from non-arbitrage condition principles.

Let’s take a fictional $100 stock paying a $2 dividend at some date in the future. On date/time T the perpetual’s oracle will roll to a contract that includes this dividend. We will assume no cost of capital.

Given the oracle price will go down $2 to $98 on T , the mark price must discount from oracle into T such that shorts pay longs $2. The way to think about this is to solve backwards, from T to T − 1 funding period.

For T − 1, the further drop from mark to $98 must equal the funding rates shorts pay for T − 1, or one could arbitrage the difference, by either longing or shorting the perp and hedging with the future. The funding rate shorts pay longs also depends on the difference between oracle and mark, so you can solve for mark.

where x is the non-arbitrage mark price for T-1, o is the oracle price, and d is:

For our fictional $100 oracle going to $98 at T, for Hyperliquid’s one hour funding model, x works out to $98.975. At $98.975, shorts will pay $0.975 in funding to longs, while benefitting from a final $0.975 price drop as the oracle rolls to $98.

You then repeat this process for T − 2, replacing the old $98 destination price with $98.975 (so d = −1.025% instead of -2%). This results in a non-arbitrage price of $99.4625. This process is repeated until you approach the neutral funding rate, at which point capital costs drown out any effects of the oracle roll.

Non-Arbitrage Conditions

This process can be repeated to construct the non- arbitrage condition discount curve for the mark price rel- ative to an oracle price.

Any upwards deviation from this discount curve would mean you could short the perp and buy the future and pay less in funding than the perp basis collapse. Any downwards means you could buy the perp and sell the future and receive more in funding than the basis collapse.

Under these conditions, the long side of equity perps for trade.xyz’s design elegantly receives the dividend payment in the form of funding, equivalent to holding the underlying spot.

Piecewise Solution

Simplifying the equation, the min max clamp results in some weird piecewise math, reducing from:

to

now define y as:

then:

next we express the clamp only in terms of y

so we just need to solve:

solving piecewise by region of the clamp:

region 1: y < -0.0004

then c = 0.0005

check boundaries:

valid when d < -0.0003.

region 2: −0.0004 ≤ y ≤ 0.0006

then c = 0.0001 − y

check boundaries:

valid when −0.0003 ≤ d ≤ 0.0007.

region 3: y > 0.0006

then c = −0.0005

check boundaries:

valid when d > 0.0007.

so the final piecewise solution is:

and then:

where x is the non-arbitrage mark price for the funding period given a known discount d, for hourly funding rate according to Hyperliquid and trade.xyz’s funding rate and clamp, with o = oracle.

Further Problems To Explore

One critical problem for perpetual exchanges to solve is: how to handle known future gap volatility (earnings)? If the option market is pricing a ∼20% implied move for earnings, someone going 10x long and 10x short will lose 100% on the wrong side but make 200% on the right side—an arbitrage condition. Isolating the market and ADL-ing profits is a bad experience for the correct side. ADL-ing before is a bad experience for everyone. Things to think about.

what is “long degeneracy”?

long degeneracy is a mental model, centered around hypergambling. in the author’s words, long degeneracy represents “a belief that the world will only get more degenerate, financialized, speculative, lonely, tribal and weird”.

the most concise and holistic explanation of this trend is:

as real returns compress, risk increases to compensate.

the reasons explored below are varied and intertwined, but hopefully after finishing this article you, the sophisticated reader, will return to this statement and nod wisely.

South Korea is the canary in the coal mine. it has high inequality and low social mobility - meaning once you’ve sorted to the wrong end, you’re stuck. this drives the insane cram school culture leading up to the high school CSAT - a test so important they literally close the country.

for those who do well, the prestigious national universities and a good life awaits.

for those who don’t, there is no recovery.

is it then any surprise that many of the world’s largest degenerates have been Korean? think of Bill Hwang, Masayoshi Son, and Do Kwon. when the traditional ladder is pulled up, the only way to increase the reward is through increasing risk == hypergambling. this future comes for everyone.

long degeneracy is your college friend sports betting. long degeneracy is your uncle trading options. long degeneracy is your participation in an online community instead of an irl one. these trends are modern efficiency applied to human nature - the shortest-term reward cycles.

forces like ai only accelerate long degeneracy - at its core there is an understanding that the time to “make it” is running out, and any new developments only shorten the clock.

and though one might be tempted to try and save the world with this knowledge, it is a very large ship headed for the rocks. it is far more practical to ensure you have a safe spot on a lifeboat than it is to turn the ship around.

ok, but what is hypergambling?

hypergambling is the high risk-taking behavior caused by fears of future financial insecurity.

but rather than try to properly define it, it is easier to explain how it feels:

imagine you are a new college grad from a middle class family.

if you are lucky you have no education debt, but many do. if you are lucky, you land a 100k+ job, but many don’t. and even if you are lucky you still look up at astronomical asset prices (houses, stocks) and try to work out how you can maybe afford one in 20 years. with the understanding that they will only continue to go up in the meantime.

you are surrounded by online examples of success (usually fake or survivorship bias). your attention span has been fried by tiktok and youtube shorts. you simply don’t have the patience or discipline for the slow path.

so instead, you start taking outsized risks with your monthly paychecks - crypto, options (pls no), meme stocks, meme coins, sports betting (pls no). your rationale is that this current amount could never buy a house, but if you win it might. and if you lose you simply have to wait a week or two before you can reload.

that is hypergambling, and if you participate in crypto with a significant percentage of your networth, congrats you are hypergambling too.

hypergambling came into public consciousness around covid. in january 2020 peter thiel wrote to mark zuckerberg, with the observation that:

“from the perspective of a broken generational contract, there seems to be a pretty straightforward answer to me, namely, that when one has too much student debt or if housing is too unaffordable, then one will have negative capital for a long time and/or find it very hard to start accumulating capital in the form of real estate”.

while he was talking about millennials being socialist, that is just the other side of the same coin. hypergambling is the emergent seethe, socialism is the cope.

the core issue here is the cost of owning a house, and the expected timeline on an average salary. with this core social contract broken, people look for shortcuts. crypto, memestocks, and the rise of option and leverage trading are examples of the public’s increasing desire for volatility and asymmetric upside when linear can’t buy a house.

the downside of taking repeated high risk investments is that many fail, and if you find yourself at the end of the tunnel with no diamonds to show for it you will be even farther behind.

the causes

inequality is the obvious theme, and present in many causes. but it is important to point out before going further - in the author’s view, the current trend is a return to historical norm. the modern concept of the middle class was borne out of the post-world war two boom and a global labor arbitrage. the classical definition of petit-bourgeois is specifically owners of business and capital. even knowledge workers are still part of the labor class. it is precisely this rage against the machine from a way of life that is being compressed that drives these issues.

income disparity

the key underlying factor is growing income to asset inequality. not the ratio of highest earners to lowest earners, but the relationship between wages and the cost of a house.

as this continues to worsen, it will only make the linear timeline - get a normal job, save up for a house - longer and longer, until it becomes completely untenable. this is an example of an expected return (“get a good job after college”) compressing, and this fundamentally drives the search for higher yield in the form of riskier investments.

rise of asset prices / the denominator is going to zero

housing prices, s&p 500 and bitcoin are at all time highs at the time of this post.

importantly, one can’t buy a fraction of a house - only throw money away renting (or live at home) while saving. in the worst-case, the asset prices continue to rise faster than one’s savings - unattainable forever. this fear of not “catching up” drives increased risk taking.

the other side of the coin of rising asset prices - the denominator is simply going to zero. the dollar is down 10% on the year so far. in a world where consumers continue to experience rapid inflation, how much savings is enough? and what can outpace future fiat inflation?

gambling/speculation deregulation

safety rules are written in blood, and despite being positioned to benefit from deregulation, this author views the mass-market gambling trend as anti-social.

with the proliferation of sports betting, prediction markets, online casinos, the invention of 0dte options, and the upcoming popularity of perpetual futures - the average consumer is a click away from entering the world of the degenerate.

this is not a good thing - most of us in crypto are only functioning because we happened to choose an asset class that goes up 10x every four years. but repeated high risk financial speculation fries one’s dopamine receptors and short-circuits the effort/reward relationship. “become unemployable” quite literally.

online dating

the rise of online dating doesn’t just contribute to the everyone loneliness epidemic.

it also shapes men’s worth, at least how the market perceives it. online dating is power law. the top percentile of men receive a disproportionate amount of interest. the broadly accepted way for a man to increase his market value is through wealth.

even sex is driving men to take higher risks.

note the inevitability of the causes. rising income inequality, rising asset prices, increasing speculation and online dating. these trends will only get stronger, and thus long degeneracy.

the short-term effects

crypto goes up. sports betting grows. buy now pay later grows. savings decrease. attention spans decrease. money is now numbers on a screen. discord is the new church. parasocial relationships replace real ones. birthrate falls. happiness falls. outcomes continue to separate into winners and losers. unemployment rises. neets rises. hikimoris rise.

the longterm effects

derivatives eat the world

whether perpetuals, binary options (prediction markets are a form of binary option) or a new instrument, the more retail gets access the more they will adopt, to the authors benefit and regret. but you can’t fight the market.

broken reward/effort models

traders are the worst employees imaginable. a trader’s work ethic is broken the moment of their first win - how can they be expected to put in 40 hours a week for a year to make the same numbers they just saw flash on their screen in 40 minutes.

worsening inequality

the net result of many people losing is the money increasingly flows to the winners. viciously, this exacerbates the cycle.

it is the author’s belief that if Unversal Basic Income is ever implemented, it will accelerate long degeneracy to new levels. live life as a stipend peon, or swing for elite status. after all, if you can simply try again next month, what’s the downside of speculating with this month’s check?

authors note:

this thesis has been my north star for almost a decade now. i credit my miraculous recoveries to an unwavering belief that “the world will only get more degenerate, financialized, speculative, lonely, tribal and weird”, expressed through owning equity in growing exchanges (once a casino). but i could have expressed this view in many ways - roblox is also at all time highs.

but never once did i recover by “digging more”, unless you consider any speculation digging. perps, memecoins, gambling are all generally -ev and if you continue to participate and lose money you are the yield. find ways to own pieces of the houses.

the greatest risk in investing lies in the “what you don’t know you don’t know” quadrant. traditional finance (tardfi) has decades of experience and regulators that minimize this danger, what we deride as “investor protections”. crypto is the comparative wild west, a surprisingly small arena relearning tardfi’s rules in blood. this creates an unequal playing field, where some players understand the “unwritten rules” better than others.

this guide is intended to impart those lessons, hard-earned. unfortunately, selection bias dictates those most in need are likely watching youtube videos or following lilmoonlambo, not following me (as one writing a guide would tend to think). hopefully you, the sophisticated reader, can still find some useful amongst the obvious.

i’ve chosen to frame crypto as an mmo because it has all the characteristics of one. health, levels, online friends, pvp, pve, a town square, an economy - its all there, just the coins are worth more than wow gold. these are the monetary metaverse origins.

concepts are roughly presented in order of perceived potential impact to your outcomes (if not already implemented/understood).

grouping up

many that embark down this path are natural contrarians and/or solo players. definitionally one must be, to ignore the warnings of friends and family - if they know at all! and any experienced success only reinforces the feeling of personal advantage. “i only need listen to the market” - this solo player states.

discard this independence. the issue with only listening to the market is: it’s a lagging teacher. it will only tell you your wrong after you’re wrong, and this industry moves too fast for such lessons.

find a good group of ethical, hardworking, likeminded grinders. the most important trait to look for is resilience - befriend those who seethe at mistakes and take action, avoid those who simply cope. a high-trust chat can cover more ground than a solo player, and will tell you when you’re right or wrong quickly. the most helpful, if abrasive, is directly - but indifference is feedback too.

if you’re having difficulty finding a group, consider your value proposition. generally, unless you meet and befriend people irl, invites are based on “potential added value” and “culture fit”. the best machines are made up of strong individual cogs - work on increasing your reputation until you can join the chats you want as an equal, not a charity case.

here are a few helpful friend archetypes i’m fortunate to have alongside me:

• the guide: teaching truisms early on, as i hope to pass on

• the partner: 10 hours and 2000 dms a day during the right regime, working on plays together

• the signal: a more discerning partner, who helps differentiate between good and bad schizo ideas

• the prospector: a less discerning partner, who surfaces new opportunities to sift through

• the wizard: a technical ringer

• the expert: situationally appropriate expert advice

what most people think are cabals are usually just group chats of friends that came up together, and now wield influence.

the importance of the home base

all group chats are not made equal. there is a concept of a “home base” chat group - the one you log into first, respond to first, and most importantly - the one you share stuff in first.

when choosing whether to invite someone to your high-trust chat (for productivities sake), counterintuitively you must discount higher profile accounts, as they likely have established home bases. instead, the best profile is a still hungry grinder who doesn’t yet have a group.

growing complacent

a group chat has a natural cycle of life.

in its prime, the majority of the chat is motivated and hungry. usually this comes from newer sharp entrants who haven’t made it yet but likely will.

at its dusk, a chat grows rightfully complacent. the members have made it to higher levels, where the gameplay is slower, more methodical. there is less actionable to chat about day to day, and thus topics often switch to life/political etc.

if one enjoys staying at the cutting edge, it can be helpful to befriend new up and comers and join chats that haven’t made it yet. remember the energy and hunger you had when you first came up, and surround yourself with it again.

pick a class - find edge

in order to succeed long-term in this space, one must develop real edge. buying a coin that goes up during the bullrun is not real edge - though identifying bullish conditions is. sitting in a groupchat that spoon feeds you plays is a kind of real edge that often decays quickly. consistently making money in an area of expertise is real edge.

different strategies suit different temperaments. a patient, risk-averse player should not enter the pump.fun arena, and likewise a degenerate will not farm very long before getting distracted.

below are broad overviews of different skillsets i have seen work, categorized by general risk profile.

dps - traders

these are the different types of directional trading styles, offering high reward at a high risk. the success stories from those who rise overshadow the masses losses. to play a dps main one must have a high capacity for risk, strong risk management, mental resilience, and energy in the face of defeat.

trench warriors

shitcoin traders have the widest range of aptitude of any class - the worst (and average) are very bad, and the best are very good. players like req and nbs take full advantage of the information set available. if you consider yourself a “shitcoin trader” and are not running your own onchain analytics you have room to improve. this is the only true alpha in this category imho.

while a popular starting class due to the low capital requirements and high potential upside, the trench warrior style does not scale to higher levels. the issue is liquidity - new launches are very illiquid and trying to trade with larger size means more slippage. in fact, often buying too much supply of a coin kills it - as one takes on a proportionally larger responsibility for distribution. shitcoining doesn’t scale well horizontally with more volume/trades, as the failure rate is so high.

those who make it out of the trenches are advised to not return, save special occasions or serious demonstrated edge.

good new thing hunter

good new thing hunting is about finding a new token with a strong fundamental thesis, positioning early, and riding the subsequent appreciation. unlike a trench warrior, whos holding period is in days if not hours, a fundamental narrative can take weeks to months to develop, although ideally the market agrees. this is my preferred style, and the one i believe is most repeatable without “getting lucky”. the ideal range for a “good new thing” is buying around 50-100mm market cap and exiting around 1bn mark, which means this strategy can scale into the higher levels without issue.

why new thing? because the core thesis is “the market isn’t pricing this properly, it should be worth more”. this is easier with new things than old things for two reasons:

• time - the market has had less time to price it properly

• flows - there are less existing holders to sell and more sidelined buyers

it doesn’t entirely have to be a new token - an old token pivoting can work too, with a little more headwind due to existing supply.

how do you find a good new thing? the answer is “you’ll know it when you see it”, but assuming you don’t know what you’re looking for, this is my starting checklist:

is it new/novel?

this is the most important one. first movers can gain more momentum than you expect, with a very high upside reflexive risk/return. a new meta brings new opportunities to talk about this industry, and all attention calls back to the original.

does it have a flywheel?

shitcoins have a natural flywheel - as they go up, holders get richer and more excited, tell a few more friends, and thus the cycle goes. other flywheels are more intricate. a bonding curve is generally a fantastic flywheel in of itself, because you can be deterministically early with a guaranteed payout, which bootstraps the activity.

is there onboarding friction?

onboarding friction allows for your entry, for the thesis to develop. if there’s no onboarding friction, then why are you so lucky to be buying it cheap? maybe it is fairly priced. this also assumes there is a path for that onboarding friction to be reduced - think rollbit migrating from solana to ethereum, hyperliquid spot ecosystem growing, even the bitcoin etf. the friction reducing allows for more flows to enter, to the benefit of those who put in the effort earlier.

meme priest

while a gem hunter relies on the crutches of “fundamentals”, a meme priest is untethered from such nonsense. meme priest’s are this cycle’s nft traders, intuiting vibes to find alpha. just like nfts, buying and coma-ing is the best trade until its not.

this path requires extreme conviction - one must be able to withstand drawdowns that also deteriorate said vibes. the best priests change the odds of success themselves. consider baproll and spx6900, or dbl and fartcoin.

also consider that bitcoin is, on a grander scale, a giant memecoin. when i look back on my own history, i find if i simply fell into a coma each time i bought a memecoin, i would have outperformed much of my “active investing”. i wonder if the same applies to you - something to take away perhaps.

leverage wizard

the highest risk of failure of all classes, the leverage wizard can be indistinguishable from the “problem gambler”. the issue, from experience, is most traders use too high leverage, hold onto losers too long, and generally overtrade. i have made this joke before: “there are no successful leverage traders - only ones who haven’t blown up yet”.

leverage trading lies to you, by being deceptively easy a few times a year - think around the bitcoin etf approval, or trump election. the rest of the time its a brutal pvp battleground. even when profitable, the leverage wins often pale in comparison to simple asymmetric spot plays.

i strongly recommend against picking this class.

farmers - tanks

nigh indestructible (save for smart contract risk), tanks take very little losses, while their upside is far more capped. playing tank is recommended for the very patient, risk averse, or otherwise occupied player.

stable farmer

providing liquidity to users or projects is a lucrative job. in general, there are a few different sources of consistent yield, and most stable farming opportunities rely on one or a mix.

funding rate trade

when bitcoin is at all time highs, as it is at the time of this writing, there is a tremendous demand to buy on margin. this pushing the funding rate, the annualized rate that longs pay shorts, very high - often above 20% on major coins like bitcoin, ethereum and solana. a high funding rate trickles into all corners of onchain stables, obviously usde but aave and other lending markets as well.

rwa yield

treasury bills are the most common and liquid real world asset that has been successfully bridged to crypto. i would avoid real estate and most other forms of real world asset yield, as the liquidity is low and negative selection high.

emission yield

projects emitting tokens to users who provide capital was the discovery that created defi summer. today it is more complicated, as points programs make the returns less predictable, but even points programs can have upside surprises. this is true pve, as the projects are happy to pay with tokens they print for useable liquidity.

while fitting none of the categories above, “marketmaking liquidity provider” is a new entrant from this cycle that is not quite stable but has high enough returns to qualify. the gmx liquidity pool was the first major implementation, followed by jupiter and hyperliquid. i think both jlp and hlp are fantastic vehicles to deposit capital into, because everyone is so shit at leverage trading.

i would generally recommend against leveraged stable farming - too many things can go wrong at that point.

sybil/wash farmer

for the hardcore runner, this strategy presents the best risk/return by far as it typically risks very little capital. the idea is to participate in a new protocol (as a user, as trading volume, etc) such that the expected reward is greater than the cost. it is also a dying art, as projects wizen up to the extractive nature of this farmer and implement linearly designed rewards.

at the core of this farming is an implicit understanding - projects want metrics (users, tvl, volume) to support valuations and attract new users. unlike stable farmers, who provide generally useful liquidity, sybil/wash farmers provide an illusion. still, many projects are willing to pay (tokens they print) for a good dune dashboard.

most serious operations I’ve heard of are programmatic, always fighting detection. i decided to never touch zksync after a casual mention of a 12k bot farm.

one practical way to implement this - when you interact with a good new thing, touch it from several accounts that you actually use organically. in related news i have a few extra hypurr nfts if anyone wants to otc.

support - other

neither really trading nor farming, these styles are orthogonal enough to get their own category.

insider

there are many forms of the insider; some helpful, some nefarious. regardless, it is a privileged position to be in, with far less downside risk compared to the average buyer.

what is the difference between an investor insider and a preseed insider? usually project quality - previously you could have used vc capital as a signal but those norms are shifting.

most project founders are more open to a dm than you realize, especially at earlier stages. nbs’s presale strategy of waiting for the presale to fill up, sending after and dm-ing the dev is a form of this.

builder

i’m not a builder and don’t have any real success building, so my only serious advice to a builder would be: stop reading this and go back to building. maybe it can help with your user profiles, but i don’t think anything i can say would be better than continuing to iterate and find pmf. think of the best builder you know. are they reading this?

onchain rogue

the space has many corners, and those with the technical proficiency, required curiosity and energy to dive deep can find and monetize the edge cases. sniping, sandwiching, randomness exploits and more await those who care to find them.

leveling guide

it’s important to contextualize any leveling attempt as either a speed run or a hardcore run.

a speed run can restart. this is what we call “hypergambling”. ideally you have a separate income stream, or are a student with high earning potential in front of you. less fear of death means a speed run can take risks a hardcore run cannot.

a hardcore run has higher loss aversion. life savings, third world country, dependants - anything that makes hitting zero an impossibility.

four figs and below

if you already have a job/are a student, skip to the next section

at this stage, your time is much better spent fiat farming - a minimum wage job is a 150% apr farm, and surely you, my reader, can achieve greater.

the truth is you simply don’t get enough out of a portfolio of this size to warrant spending time on anything but sybil farming, and that does not demand fulltime attention. 10x’s are rare, save them for higher levelups.

if you live in a jobless region, join a protocol, as community manager or however they’ll have you. the simplest way to do this is to actually be native to the community as the protocol grows and they need to hire.

five fig hell - focus on increasing fiat

welcome to the trenches. every dollar here is precious as ammunition for the 10x you’ll eventually find.

many try to be trench warriors without putting in the technical effort that it actually takes, or try their luck as leverage wizards. these are the ones forever stuck in five fig hell until a bull run comes along and lifts them out - just as often to fall back in again.

instead, i have seen memecoin holders and good new thing buyers consistently graduate - buy and hold spot with conviction.

whether you’re playing on hardcore or not, sybil farming takes very little capital to participate, and it only takes one big misguided nonlinear airdrop to graduate from this tier.

six fig hell - find the 10x

this is the sweet spot - you have enough capital to make a 10x trade worth it, without being too big as to worry about sizing or slippage. in the good new thing hunter section, it describes the ideal opportunity as 50/100m -> 1bn.

i have personally escaped six fig hell four times now, having been so lucky as to never fall below. each time the strategy was the same:

1. obsessively monitor for good new thing opportunities

2. play around a bit to confirm thesis

3. full port with conviction and wait for thesis validation

4. take profits when the entire timeline is talking about it

when i look back, each escape had another commonality - i bet on an exchange token. after all, speculation is the killer product market fit of crypto.

seven fig hell - find a few 2-3x

the strategy for exiting seven fig hell is largely the same as six figs, just repeated. riding the swings gets harder as the numbers get bigger, but you get used to it.

the hardest thing to consider is sizing - oftentimes you’ll find yourself wanting to buy more of something than the liquidity allows. this forces diversification. at six figures you want all your capital available to throw at your best idea - at seven often thats not realistic.

because of this, this is the first level that i would start seriously considering private rounds. while often presenting great upside, there is a significant illiquidity that comes with private deals. that illiquidity is ok if you have too much liquidity in the first place - otherwise it becomes a real cost.

parking capital in stable farms in between good new things becomes more attractive at this level too. patience is a virtue.

eight figs and beyond

what is there to say - no one that has reached this level needs advice beyond “dont fuck it up”

dont stand in fire

avoid these common mistakes.

avoid trading while on tilt

learn to recognize your own tilt. when you feel it creeping up, close positions and walk away for a while. nothing good ever comes from chasing losses.

avoid punting after a big win

often big wins are followed with a dumb loss - scaled up due to the recent win. “euphoria trades”, as i call them. keep the same rigor to your process regardless of your emotions.

avoid roundtripping

constantly think about “whos left to buy”, as everything is flows. oftentimes something will feel safe because everyone is holding it.

forget about upnl/old ath

dwelling on past mistakes is wasted energy. coping about such things clouds your mind and obfuscates the next play. ball up top.

“ive watched people lose the most money on “insider” information” -cl207

think very hard about where you sit in the shill radius. the farther away you are from the source, the more likely your edge is actually exit liquidity

losers average losers

also known as “don’t fight the market”. if the market is telling you you're wrong, don’t add to the position without outsized and justified conviction.

oldcoin bad, new coin gud

i refer you to my thread on flows for more in depth coverage of this topic here

traits of the best players of games - david sirlin

david sirlin, a competitive fighting games champion - thank god we didn’t get that autism - wrote a book called “playing to win” in which he details his approach. nothing will be too surprising to anyone who has participated in a high level organized competition. the traits he outlines as necessary for a successful winning player seem remarkably apt for crypto participants as well. in no particular order, they are:

deep knowledge of the game

knowing historical precedents helps to extrapolate

love of the game

you must love this game to put in the required hours to win

mental toughness

this game will break you

mental attitude towards winning/losing/improving

do you cope or seethe when misfortune strikes

technical skill

do you have edge

adaptability

can you adapt your edge to new regimes

yomi

can you predict the actions of other participants

appraisal

can you relatively value the “goodness” of things

further reading

thank you for reading this far, i hope you found something to take away. if you’re interested in further thoughts, here are my strong recommendations:

trading the metagame - cobie’s primer for how to trade metas/narratives/rotations

geeks, mops, and sociopaths - an exploration of different actors in a niche ecosystem

why the yuppie elite dismiss bitcoin - how bias can cloud your logic

playing to win - competitive manual on improving in competitive video games

identity requires more agency now

In most of recorded history, and still some modern, your identity/destiny was largely determined at birth. Outside of exceptional circumstances, you were born into a social world that assigned you traits – peasant, farmer, Catholic, Firstborne, etc, etc. Where choices existed, the range was limited, and strong institutions gave people a sense of belonging.

In contrast, modern institutional participation is at all-time lows, and cultural and social mobility is higher than ever before. As a person changes traits and relationships, their identity changes too. This new state of dynamic identity and institutional fragmentation is at odds with a traditional structure that imposes a single, condensed, outward facing “you”.

Discord is the new church - more accurately, online micro communities are replacing IRL macro gatherings. This shift democratizes prior physical constraints, especially geographic ones. It is no longer necessary to move to a “City with Ambition”, as Paul Graham put it, in order to surround yourself with like minded individuals. My closest friends now live in Singapore, Australia, Germany, and sometimes nowhere at all. 

The downside of this freedom is a higher barrier to entry. Finding your online people requires tremendous agency - knowing what you want, where to find it, and ingratiating yourself with the existing community. All three agentic choices are difficult in their own right, and compounded by inherent obscurity of online groups. As participation in default in-groups like religion and nationalism decline, the result is the average person feels more alienated than ever before.

But for those of us who embrace this shift, fragmentation is an opportunity to present ourselves in diverse ways without entangling irrelevant aspects of our identity. There is no reason my online gaming group needs to know of my crypto obsession, and through multiple online identities I can easily draw a line between different vertical interests in my life. Restating from the introduction: the old world constraint of mapping status onto a single IRL “identity” is removed. But how does this relate to crypto/digital assets?

the rise of anons/psuedoanons is upon us

digital is default networked but constrained

Until now, we have always mapped identity and status to personhood because of the enforcement problem. The physical world is very unconstrained – without the ability to hold an individual accountable for their actions, the number of attack vectors is too high. This exists for anything with physical interaction.

Digital worlds are far more constrained, and crucially: enforceable without physical interaction. The Ethereum Virtual Machine only allows predefined interactions with applications. If a user misbehaves in a Minecraft server you can simply ban them – a virtual death sentence. Because of this, entities no longer need to transparently map 1:1 to individuals, because enforcement on the entity, whether through constraints or action, is equivalent to enforcement on the individual.

A good way to think about where the line for digitally native status exists is crypto KYC endpoints. Within the context of a digital system (say, Ethereum), your online identity is enough for commerce – identity being an aggregate of “provably having funds” and other assumptions. However, before you try and touch the physical world (fiat money), you must map to an IRL individual, because the entire digital interaction could have been an attack vector in a complex crime, and enforcement optionality is necessary.

This enforcement problem is why there is no place for anons/psuedoanons in most traditional power structures. But as wealth and power move more online, opportunities arise within the constraints of digital worlds and assets.

Minecraft moderator today, anonymous asset manager tomorrow. This is an inevitable path of power expansion.

What does this mean?

digital status is native

As with any transition, old world status doesn’t always translate to the brave new world. A prestigious degree and suit headshot are the key elements of a traditional resume, and yet wade into a crypto twitter argument armed with those and you might get laughed at by a cute yet very aggressive neo-chibi aesthetic avatar. Native status is only obtained through an observed history of excellence in the medium – whether in crypto, gaming, discourse or other.

Native status exists in every social ecosystem – discord mods, prison trustees, lieutenants, head chefs. Native status is nonportable and earned through demonstrated excellence, and its significance is directly correlated to the reputation and power of the ecosystem. Thus, if you believe in “online eats the world”, digitally native status will only increase in importance going forward.

Deepfakes add another layer of potential deception – all of a sudden provenance/sourcing becomes critical. In the very near future (already happening), videos and audio recordings will only be trusted asofar as the publishers/distributors reputation. Reputation is the only credibility remaining in a post-truth society, and reputation can only be established by repeatedly contributing quality.

Two anonymous accounts that rose to prominent digital status are Satoshi Nakamoto, the inventor of bitcoin, and Scott Alexander, the author of SlateStarCodex. Both have documented histories of high quality thoughts, Satoshi on bitcointalk in addition to the Bitcoin protocol and Scott on his blog. Currently, a race to capture the attention of the native mindshare is well underway; with accounts like @cobie (whose doxx has not negatively impacted his accrued digital reputation) and @CL207 leading the way.

As reputation becomes more critical, I expect mainstream signing schemes to become more popular, in order to connect accounts across platforms. In many ways, Ethereum public key addresses as verifiable identities across platforms is an elegant standard.

with digital status comes digital status symbols

A high status anonymous account can’t properly own or flex land, cars, watches, Gucci, any traditional old world status symbol, at least not natively.

Digital status symbols have existed long before NFTs – think desirable urls, usernames, game skins. Mainstream NFT profile picture projects, like CryptoPunks, found explosive product market fit as the digital equivalent of a luxury watch or car – a flex during online social interactions, a csgo skin for your social profile. Because it was a new digital surface, the offerings that resonated the most with natives won, while traditional luxury heavyweights like Coach, Tiffanies, Louis Vuitton and Porsche all underwhelmed. The best transition at the time was made by Nike, who bought the native digital wearables studio RTFKT - although as we have seen in recent markets digital status can be fleeting, and real longterm lindyness continues to be scarce, as with the traditional world.

if we believe this, wat do

I’m a firm believer that the only way to surf a wave is to stay on top of it – you have to get your hands dirty. You should be building natively digital status and identity. This comes in many forms, from public discourse to private chats to code contributions, it’s really choose your own adventure. The best time to start was 6-8 years ago, but the second best time is today, as the pool is only getting more crowded as time goes on. Start trying out everything new, as status is most easily obtained in new and shifting mediums. You can have fun online.

While the L2 landscape is well on its way, we think there’s an opportunity for a new layer that specifically caters to the secular rise of sustainable onchain yields (e.g. staking or RWAs). Modern Ethereum infrastructure was not built to handle yield-bearing assets. As a result, users end up taking on extra friction like having to wrap or deposit tokens in order to access the yield. A new layer offers the chance to rethink how staked ETH and stables interact with your wallet and dapps.

For these reasons and more, we are excited to introduce our investment in Blast — the first Ethereum L2 with native yield on ETH and stable coins. It is being built by Pacman, founder of the popular NFT marketplace Blur.

Blast is a chance to rethink layer 2 infrastructure with yield-bearing assets treated as first-class citizens — a fresh rebuild. If ETH was a natively rebasing token from the start, we think even basic Ethereum building blocks (e.g. Uniswap pools) would have been designed differently. With Blast, that capital becomes efficient, earning almost an extra $100 million a year in interest based on current Uniswap TVL.** The bridge becomes the event horizon; upon crossing idle ETH and stables transform into natively-yielding versions. Wallets become savings accounts and dapp TVL becomes revenue. Users can now directly and natively capture yield from their holdings instead of having to take an opt-in action. We are big believers in the power of defaults.

the great infrastructure reset

A risk-free rate is the reward you should expect for taking “zero” risk. The traditional example is Treasury Bills — an investor buys treasuries with cash, and upon maturation receives a yield that was riskless so long as the U.S. Government does not default on its obligations. The merge created this dynamic for Ethereum as well, as staking rewards are “risk-free” in the context of the system — if either Ethereum or the U.S. Government fails, the underlying instrument will not be worth much anyway. If an individual does not match or beat the risk-free rate, they are losing money to a form of inflation.

Here’s the opportunity: neither Ethereum nor the current crop of L2s were designed with widespread yield-bearing asset adoption in mind. Their ecosystems were designed and built at a time when the predominant onchain assets — ETH and stable coins — did not bear native yield. Simply holding ETH gave you no rewards before proof-of-stake was implemented in September 2022, and most stable coins still don’t pass through treasury yields to users. Because of this path dependence, billions sit unyielding in ETH-paired AMM pools and NFT marketplaces alike.

yield as a primitive

TVL is an imperfect measuring stick, but it has gained adoption as a metric to understand a dapp protocol’s success and growth. Most successful dapps in categories like amms, lending, perps, and even social like Friendtech have accumulated tens or hundred of millions in external user deposits. On Blast, those deposits become a new revenue stream. Imagine a perp dex that charged zero trading fees, and monetized using collateral and the liquidity pool. Natively rebasing Ethereum and stables unlocks new business models for developers, which will power the ecosystem beyond the incentivized stage.

Additionally, Blast itself can monetize by taking a cut of the yield. This means that Blast no longer requires sequencer fees for revenue, and can pass gas fees back to the dapps that generate them. This makes building on Blast very attractive, and removes the main reason for dapps to create their own chain by allowing them to internalize gas fees on a general purpose layer. 

why we chose these builders

Blockchain adoption does not come directly from technological improvements, but rather from growing a high-quality ecosystem of builders and users. The market has observed this time and time again, with more performant chains turning into ghost towns if they fail to find product market fit and lack attractive destinations. 

Pacman is one of the best executing entrepreneurs we’ve observed. His product velocity is prolific: launching an aggregator, marketplace, mass listing, bidding pools, and lending in months. He’s also demonstrated strong and creative incentive design ability. The broader market adoption of the Blur-invented “Season Points” gave developers greater flexibility in their incentivization mechanisms, allowing implicit rewards for explicit actions. And he cares deeply about the end user experience, obsessively hunting for and rapidly incorporating user feedback into his products. We think Pacman is a natural steward of an L2 and we’re excited to see his creativity applied to a domain with more degrees of freedom than he’s had to operate within previously.

When Pacman first approached us about building a layer 2 earlier this year, the impetus came from his explorations of suitable layers to deploy a Blur layer 2 dapp on — necessary for both low-value NFT trading in high gas environments and for an eventual NFT perp dex. As we talked more, and features like the native yield developed, we realized that though the L2 landscape is maturing rapidly, there’s still room at the top for another winner designed for the right trend and executed upon by the right team.

As a longtime crypto believer, as a degen, and as an investor at a crypto-native VC, I believe programmable money is the future and I’m just here to enjoyooor* the ride. Those of us who are onchain regularly battle-test protocols so that the strong may survive — we are in the arena and trying stuff. Through network participation, by voting and signaling with our capital and attention, we shape the infrastructure we use. Natively rebasing tokens are the best way to pass through yield, and existing ecosystems aren’t designed around such mechanisms. This is the opportunity for Blast — a chance to build with the asset primitives of today in mind. 

Follow the official twitter to stay up to date on information and announcements forward!

This post will serve as a guide to thinking about crypto and gaming, establishing that:

• Game economies are great fits for blockchains

• Crypto’s killer use case is incentivization

• Games are an even better fit for incentivization than DeFi protocols

game economies + crypto

Popular games that allow item transfers create emergent economies, whether centrally organized as a marketplace, or as player-to-player bartering. This form of in-game asset ownership has long predated crypto. A few examples include:

• 2001: Wizards of the Coast sold digital booster packs in Magic the Gathering Online at the same price as physical packs. A digital-to-physical redemption mechanism kept the virtual economy peg. Most commerce happened player-to-player via an in-game trading system. An online card marketplace named MTGOx would later pivot to selling Bitcoin directly. The asset values of individual cards were low, usually between $1 and $5.

• 2009: Valve popularized loot boxes to Western audiences by introducing them into Team Fortress 2. With only in-game player-to-player trading available, custom “trade servers” where players would mill around selling wares instead of playing the game became popular. As it was a pure barter economy with no circulating currency, certain fixed supply items became standardized stores of value at useful increments. The values ranged between $5 and $100, with some rare items going for $3,000+.

• 2023: Steam marketplace volume sits at $1 billion annualized, 25% of OpenSea’s volume, and growing quickly. In 2017 it also reached similar volumes, largely due to CSGO skins used as collateral for gambling and esports betting sites. In an effort to combat this, Steam introduced a seven-day transfer restriction on newly transferred items, which slowed volume. However, native in-game item demand remains strong, and recently skins have sold for upwards of $400,000.

Weekly Steam Marketplace Volume in USD - https://www.trade.tf/volume

These examples show that when a game gives players ownership of an item, via transferability, they will assign value to it. That value scales with liquidity — an item with a global marketplace will find better price discovery than one in a barter system. NFTs are, by their nature, transferrable and instantly tradable on a global marketplace. This means NFT item ownership is a real benefit, and Pareto superior to the ownership paradigms that came before it (even though NFTs aren’t a requirement for player-owned in-game assets).

The main utility of NFT game items comes from their default composability rather than the strong item ownership. After all, while rumors exist that Vitalik Buterin partially created Ethereum because the World of Warcraft developers nerfed his favorite ability, NFT ownership would not have improved the situation. World of Warcraft, like almost all games, is centralized, and simply owning an item doesn’t stop the game developers from making decisions that negatively affect said item. This happens all the time in card games, where certain powerful cards are banned from play. The player still owns the card, can still sell the card, but can’t actually use it in the game. In truly decentralized games, where players co-own the game alongside the devs, ownership becomes much more powerful (an exploration for another time).

It is composability that allows for NFT items to be instantly tradable on multiple global secondary marketplaces, providing optimal price discovery while also forcing marketplace fee compression. Steam Marketplace takes a 20% tax, forces a seven-day transfer restriction, and caps the value at $5,000. IOS takes a 30% tax and caps the value at $100. These restrictions weigh heavily on current game designs. By running everything on an unrestricted and neutral payment rail such as Ethereum, arbitrary ecosystem limitations can be avoided.

It is that same composability that allows for permissionless external game integrations. The closest we have today to cross-game item interoperability is within a single company’s ecosystem (e.g. a deluxe Overwatch purchase that includes a WoW pet). And it is the composability that turns game items into strong financial assets, which players can rent, sell off claims to, or even take loans against.

Unfortunately, these benefits of ownership and composability only apply to successful game economies. As stated above, value scales with liquidity, and the largest input to liquidity is player base. Very few people care about owning an item in a game that no one else plays, and similarly the composability of an unwanted asset is low. In other words, NFT item ownership can greatly benefit desirable assets, but items are not inherently desirable because they are NFTS —people have to want the item for external reasons.

Enter incentives.

crypto is good at incentives

Crypto’s killer feature is community incentivization. If you give early adopters economic ownership in the venture, they turn into powerful evangelists, which can create exponential growth for a new network. Over time, from PoW mining coins to ICOs to DeFi to PFPs, the market has iterated on different models, but one design stands above the rest.

Token emissions — including airdrops — are a growth mechanism that attracts early adopters, incentivizes their behavior, and aligns their interests with the growth of the protocol (sometimes). A well designed tokenomic program, like the compound farming rewards, can help a protocol skip past an early two-sided marketplace bootstrapping problem. The launch of sushi farming and resulting liquidity vampire attack compelled Uniswap to launch a similar emission program. The general market discovery of emissions and subsequent implementation/experimentation phase is commonly referred to as “DeFi Summer.”

As NFTs evolve from community Schelling points to something better positioned to take advantage of crypto’s inherent strengths — tracking assets on a ledger and user incentivization — the gaming use case becomes more obvious.

Compare a multiplayer game’s player base to DeFi protocol liquidity. Both have classic cold-start problems. Unattractive and not very useful at low utilization, they gain compounding network effects with scale. This framing captures crypto’s true value prop to gaming — bootstrapping player liquidity via incentives. By rewarding early adopters with economic ownership, games and DeFi protocols alike can subsidize the poor user experience of a new network.

Bootstrapping a game’s playerbase is ostensibly even easier than bootstrapping a liquidity network as there is only one side to coordinate. This concept was notably implemented by Axie Infinity in a category now known as play-to-earn, while another approach led by Digidaigakus is called free-to-own (F2O).

The launches of multiplayer games may soon look similar to protocol launches, with emissions and airdrops attracting initial users who then stick around (or don’t!) based on the underlying merit. This solves a fundamental marketing problem for new games, and while the incumbent big studios are unlikely to adapt per usual, the transition will likely impact the gaming industry on the scale of the freemium/shareware->free-to-play shift.

defi:erc20 :: gaming:nfts

DeFi protocols gained adoption not because their mechanisms were superior to all others. Overcollateralized DeFi loans are strictly worse than offchain alternatives, and constant function decentralized exchanges suffer from worse slippage and “impermanent” loss. But segments of the market wanted access to these tools onchain, and emissions helped bootstrap the liquidity to function.

With gaming, NFT items are strictly better than prior schemes, all else being equal:

• Inherently strong item ownership

• Composability unlocks global liquidity

• Built on a native, neutral high-throughput payment processor

Most importantly, incentivization solves gaming’s largest problem: marketing to attract new players. Most video games fail because they couldn’t attract a large enough player base, regardless of the inherent fun of the game loop. AAA games spend more on marketing than they do game development, and indie games must hope to go “viral” to compensate for a lack of advertising budget. NFT incentivization costs almost nothing, and can even lead to revenue via royalties as players speculate on the items.

NFTs are even better incentivization mechanisms than fungible tokens when the flexibility of their implementation can be taken advantage of, as with gaming. Fungible tokens only have one desired use case: value accrual, whether through “number go up” or yield. NFTs can optimize for value accrual, but can also represent rare in-game items or skins — digital assets desired for their own sake. NFTs can also separate hierarchies and functions within the same collection, something a fungible token cannot.

The success of Axie Infinity opened a lot of people’s eyes to the opportunity set of an incentivized economic ownership model in gaming. While there were issues around the emission supply/demand curve and the gameplay itself had room for improvement, it found an explosive product market fit around incentivized gameplay.

Finally, it is important to recognize item ownership is an intentional choice that game designers make. As soon as a game allows transferability, it allows for “accomplishments” such as earned skins to be bought for money, which can potentially cheapen the experience. Many of the most popular games such as Fortnite, Call of Duty, League of Legends, Overwatch and even Hearthstone, do not allow item transferability and thus have no in-game economies. External economies around trading entire accounts still emerge. However these are very illiquid due to the complexity and compliance of account selling.

Even if NFT item ownership becomes the new gaming standard, you will still see games intentionally opting out of economies via non-transferrable NFT items as a game design choice. Luckily, non-transferable items still act as great incentives — just look at the rise of “Battle Pass” systems like in Fortnite, where players earn limited seasonal items for playing the game.

/end

Understanding why certain market phenomena worked is crucial to projecting forward to the next one. Economic incentives, in the form of token emissions, helped DeFi protocols bootstrap past the two-sided liquidity marketplace problem. This worked because the products, mostly lending markets and dex’s, needed to reach a scale threshold before finding PMF. Taking this framework, and applying it to gaming’s fundamental need to bootstrap a player base, looks a lot like incentivizing player liquidity. Call it gaming summer.