Hodling is not a good community strategy.
It's easy to see where the strategy of "HODL" came from. Anyone who held Bitcoin from $1 to now just went x50000 on their money. That's crazy! HODL! HODL it up! Money money money!
Unfortunately the concept of hodl is not a good one when considering network growth and fairness to new users. It is only a good long-term strategy for individual users trying to get rich over the course of years.
But when we look at these communities themselves, HODL is all about deflation and supply shock. Spoiler alert: choking the supply and causing supply shocks is bad. That's what "shock" means: it has an obvious negative connotation for a very good reason. You never want you or your network/community to go into shock. It is foolish to root for such an outcome.
But Bitcoin maximalists are completely delusional so they think supply shock is a good thing. Bitcoin has had such great success over the last 13 years that they aren't going to listen to reason anytime soon. It just so happens that deflation does not allow for good network growth, because new users have to buy at inflated prices, and those inflated prices could deflate at any time, syphoning money from new users and disillusioning them from participating in this emergent economy.
The key to a healthy economy is heavy inflation in all the right places. It is not hard to allocate inflation within this context into areas where the inflation actually generates more value than the dilution of the currency itself. If you print a million dollars, but then generate two million dollars worth of value, everybody wins. Literally everyone, not just legacy users (as is the case with deflationary economics). This is why deflationary economics will eventually fail over and over again as they are replaced by inflationary ones. Bitcoin hasn't had any "competition" in this regard because AMM is such a new technology.
The Crux is AMM
Automated Market Making technology is still an extremely undervalued invention/implementation of crypto. It is the ultimate answer to supply shocks and providing infinite liquidity to the markets.
Using AMM, it is now possible to incentivize entire networks to STOP HOLDING and instead get paid to provide liquidity. This is a massive paradigm shift away from this idea that deflationary supply shock being the way to go: it isn't.
By providing massive yield in exchange for liquidity pairs, all of a sudden it becomes more profitable to NOT HOLD and get new users to enter the platform at a fair price. This becomes even more true when paired to stable coins, because stable coin liquidity sets up anchors and will cause the base asset itself to become even more stable.
Eventually hyperinflationary tokens are going to completely take over, and they are going to find ways to constantly turn their own token into a much more stable asset with exponential yields and a price that can be counted on to be exponentially more predictable than something like Bitcoin which relies on supply shocks and toxic deflation that leeches value from new users who FOMO into the current rally.
The only way hyperinflation can fail is if the money being printed can not sustain itself. We actually saw this with CUB as the price fell from $13 to 40 cents. Why did this happen? because CUB DEGENS are DEGENS. Too many people greedily stacked the den when that money should have been inside the liquidity pools. It's not Khal's fault that LEO bulls are degens and chose to "HODL" rather than actually providing liquidity and value to the network. We are actually still having the problem right now, but lo and behold supply shock will kick in eventually and the price of CUB will spike once again.
If CUB users had instead stayed in the LPs and avoided the den, the spikes and dumps would have been greatly lessened, and the APR in the den would have been much higher. Everyone would have won, but instead what we got was greed. Crypto punishes greed. Plain and simple.
Impermanent Losses
All of these decentralized exchanges are running around trying to avoid 'impermanent losses' at all costs. Again, this is greedy and stupid. Impermanent losses are amazing and there is no reason to try and avoid them. They force everyone in the network to bear the brunt of growing pains rather than putting that onus on new users who will inevitably ragequit when the token falls 90% in value during the bear market.
IL allows for new users to enter the network at a fair price without ever causing a supply shock. It becomes obvious that people in crypto don't even understand what Impermanent Losses are, which is quite embarrassing for them. If the word "arbitrage" is ever used in the explanation of IL: that person doesn't know what they are talking about (and they all do it; see above link).
Again, there is no reason to try and code around IL. All that needs to happen is that rewards for being a liquidity provider increase to match the risks being taken. There's only a problem when liquidity vanishes, which never happens because when liquidity vanishes then APY goes up and competition in the pool goes down, incentivizing other LPs to join the pool. It's a self-correcting system that is 100% superior to deflationary economics. We will see this play out during the next bull/bear market. This is AMM's time to shine.
Hive inflation
Hive is way way way ahead of the curve. We are offering inflation and yield not only on blog posts, but on development itself. The decentralized hive fund used for building out new apps is really a revolutionary thing that we don't see elsewhere (yet). I maintain that the DHF is still in the infant stages and will be upgraded multiple times over the next decade.
It's easy to go into the proposal system and be like 'WTF'. We are 'wasting money' on this this and this. However, that's not how it works. We have to take the entire system into account. Does the entire proposal system as a whole generate more value than it syphons away from the network? I think it's pretty obvious that it overwhelmingly does. The DHF doesn't actually cost us that much money. It's possible that a single funded project in the proposal system could 10x the price of Hive by itself, which would basically fund and justify the entire system until the end of our natural lives. These are the new laws of exponential economics, and they are pretty wild indeed.
But again, on Hive we see the same sentiment of deflation being a good thing, with the inflation of Hive being cut by 0.1% every certain number of blocks (currently around 7%-8% I think). If it were up to me I'd jack up Hive's inflation to at least 20% and let it sit there indefinitely. Hive can easily expand more than 20% per year, and we should be allocating yield into our own AMM market that should eventually replace the internal market (Hive/HBD).
Conclusion
A bit of a rant and all over the place, but I think the theme is solid and overarching. Inflation is good, and deflation is bad. Inflation is only not good if it becomes a drain on the network and leeches more value than it creates. With AMM, this is not the case because liquidity will always be an extremely high priority that allows new users to enter and force the old users to accept the slippage and growing pains of scaling up.
The value of Bitcoin is not that it stores value, but that in it stores security. The security that Bitcoin stores is that of a governance system that is completely minimalist in nature and is impossible to hack because there is no governance system to hack in the first place. With only 2M more Bitcoin to be mined over the next hundred years, BTC's inflation rate can be rounded down to zero already. There is no inflation to hack.
Ultimately, Automated Market Making technology has not even come close to proving to the world how fundamental it is to future growth and development. We no longer have to play this Greater Fool's Theory game where the person who bought in last is holding the smallest bag that cost the most. AMM and yield farming force 'everyone' in the network to provide liquidity to the market and accept the burdens of slippage and growth as these platforms expand (using the proper incentive of high yield to offset risk). It creates exponentially more stable systems over long periods of time, and no one seems to realize it, to the point of trying to mitigate and eliminate impermanent losses altogether. These short-sighted greedy mindsets will be revealed for what they are sooner or later.
Once again we can see how all these systems are not even in competition. How many AMM pools out there are paired to Bitcoin or Bitcoin-pegged tokens? Quite a few. Therefore the advent of AMM not only helps new projects get the liquidity they need to bootstrap the network, but also Bitcoin itself (and Eth and BNB, etc) is just getting free liquidity without having to pay for it. These are all win/win situations. The real enemy and competition here is the legacy system. Fiat must die for crypto to reign supreme. That much is obvious.
Posted Using LeoFinance Beta
Return from AMM and IL: Convincing Communities they shouldn't HODL. to edicted's Web3 Blog
