Guide:
Guide:
In this article we will explore three core questions.
Is SBF maliciously shorting the DeFi market?
What is SBF's DeFi investment strategy?
How should we retail investors learn from institutional investment thinking in the DeFi market?
This article is about 2400 words in total, and the estimated reading time is 6 minutes.
A photo of him sleeping in the FTX office, with a peaceful and harmless expression, SBF may be the hottest figure in the encryption circle in 2020.
However, the prices of DeFi tokens have plummeted one after another recently. Whether it is SUSHI, KIMCHI and other "foodies", or popular leaders such as YFI and UNI, they all experienced the "fastest toe cut in history" within a month.
Someone broke the news that the "black hand" behind all this turned out to be SBF, the founder of FTX.
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Debank wallet data for this address
Going deeper into its debt process, it is not difficult to find that SBF’s address mortgaged about 21 million FTT, 2.2 million SRM, and 14 million SUSHI on the decentralized financial platform Cream to lend about 165 YFI and 2.7 million UNI.
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CREAM platform data for this address
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The YFI loan record of the address
How much impact will these YFIs have on the market?
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Coingecko YFI Historical Data
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Etherscan SUSHI Historical Data
When I looked through the chain transaction records of this address, YFI, SUSHI, UNI, LINK, CRV, CREAM... one by one. I can't seem to find any evidence of malicious shorting. Such a rich SBF sold YFI with 0.4% of the daily trading volume? Why don't you cash out the $10 SUSHI?
Exploring here, I suddenly realized that something went wrong.
Do you still remember the total asset size of the address at the front? Total assets of US$90 million and net assets of US$65 million.
What is the scale of assets borrowed from this address? $25 million YFI, UNI.
What are the uses of the loaned assets? Rush into the exchange to open short and earn income.
What is the operation of "shorting" part of the $25 million in DeFi ecological net assets of $65 million?
If it was a short position, why didn't he sell the asset size of more than 65 million US dollars; but it seems that this is not a simple long position, otherwise why didn't he directly hold a net long position of 40 million US dollars?
When I changed my mind to think about this problem, the problem suddenly became clearer.
SBF is holding USD 65 million in DeFi ecological assets, which he is optimistic about and supports for a long time. At the same time, due to the large scale of assets and the obvious overheating of the DeFi market in July-August, he needs to hedge the risk of short-term market downturn, so he holds a hedge position of less than 25 million US dollars.
In fact, hedging is a very common investment strategy. In the same sector, holding long and short positions of different sizes on different assets can effectively balance the overall risk of the market.
Let me give you a simple example. Suppose you want to invest in milk tea shops in the long-term, and you are optimistic about and buy more HEYTEA (although HEYTEA is not listed yet), but there is another risk at this time, for example, the potential outbreak of the second epidemic may have an impact on offline retail.
How to do it? The best way is to short another milk tea shop at the same time. For example, you short Nayuki while you are shorting Doheytea. In this way, even if the overall milk tea field is in a downturn, you can still surpass the market share and market share of your peers through Heytea. Profit from brand stickiness.
Considering this, SBF's investment strategy seems to have been fully exposed.
Be optimistic about and hold logically self-consistent projects in the DeFi ecosystem for a long time, and hedge against areas that you are not optimistic about in the short term to reduce risk exposure.
In this mindless public opinion in the currency circle that only allows ups but not downs, maintaining one's own independent thinking and learning the excellent investment strategies of big Vs is actually a shortcut for our retail investors to make progress.
Why?
Why?
The A-share and US stock markets around us are the best examples. It is difficult to short a certain stock in A shares, but the process of short selling in US stocks is very convenient. However, the overall increase of A shares has not been higher than that of US stocks.
In other words, no matter whether it is borrowing on Cream or shorting on CEX contracts, it is not the real reason for the decline of DeFi tokens. Perfecting a reasonable shorting mechanism is even a means to promote market value discovery.
Different market participants carry out long or short operations based on their own understanding of the pros and cons of the project, and finally the market returns to value under such a joint force-seriously overvalued projects are squeezed by short sellers, while undervalued projects Items are mined.
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Public opinion is concerned about the plunge of DeFi
However, when the emotions are discovered, the reality still needs to be faced.
If the value support of YFI and UNI tokens is hard enough, no matter who uses them as one end of the hedging position, they will not be able to change the trend of their market prices.
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$AAPL Monthly Chart
The answer is obviously no. Moreover, every short position closing is an automatic verification of Apple's value by the market.
It seems that the topic is far away, so we might as well return to the topic of SBF's DeFi investment strategy and talk about how our retail investors make money.
Can we mindlessly copy SBF's DeFi investment strategy?
What DeFi assets does he hold for a long time, what do we hold? What is he hedging in the short term, we just do it?
Talking about this topic, we have to talk about the development of the DeFi world.
All DeFi projects can be roughly divided into three generations. The first generation is a simple lending project with MakerDAO as the core, the second generation is a token swap project with Uniswap as the core, and the third generation is the expanding DeFi and CeFi Combined items. Of course, there are some decentralized lending agreements with relatively simple models that are not included in this list.
What is the core of the MakerDAO class? Overcollateralized.
Whether it is the first generation of Bitshares, MakerDAO, or Synthetix, they are actually exchanging excess DeFi assets for assets with lower value and stable prices.
What is at the heart of the Uniswap class? AMM (Automated Market Making).
Whether it is the original Bancor or Uniswap, Iearn Finance, and Sushiswap, most of them use the conversion between the time value of assets and the liquidity value.
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SBF Twitter Thoughts on AMM
Translation of the text in the image above:
“What needs to be added is that although lower fees and blockchain latency can help improve AMM, making it faster and cheaper to add or remove liquidity, so you can add or remove assets at any time, but in general , or the fundamental problem of not being able to AMM.
AMM forces you to take bilateral risks at the same time, which is obviously an ineffective trading method, even if you improve the algorithm of slippage, hedge risks at the same time, or other methods are useless.
Now just because of the rise of liquidity mining, we suddenly forget that AMM was actually a very inefficient trading method before, and how unpopular it was with the market.
But it still has to be said that AMM can demonstrate its value in some applications, such as the exchange of stable coins with low volatility, or new projects that require token liquidity.
You can't solve the AMM problem at all, you can only make them less difficult to use.
Trading order books have solved trading problems in the past, and I believe that trading order books will still be an inevitable trend in the future. "
Therefore, when we think about this level, it is not difficult to understand how we retail investors should use the experience we have learned from SBF for ourselves.
If you are bullish on the second category but bearish on the first category, then you should hold UNI assets for a long time and short MKR and SNX to hedge at the right time.
If you are optimistic about simple lending agreements such as AAVE and COMP, but you are not optimistic about DeFi Lego, which has a deep combination, then you should place your bets according to the corresponding viewpoint.
I think this is what we can learn from SBF, a front-line investor and trader in the currency circle.
