Long Take: Learning to notice the shape of Liquidity, and its impact (e.g., stETH, Celsius, 3AC)
Gm Fintech Architects —
Today we are diving into the following topics:
Summary: In this analysis, we propose a framework of looking at market activity akin to that of mindfulness. In meditation, you can notice the patterns of your thoughts in addition to the substance and experience of your thoughts. In markets, we can notice the shape of liquidity and market participants, in addition to the substance of their fundamental or macro investment philosophies. This helps us think about the issues leading to the incredible pressure of stETH, Celsius, and the ETH price.
Topics: capital markets, bank runs, crypto, philosophy
Tags: Celsius, ETH, Staked ETH, Lido, 3AC
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Our consciousness is closely tied to the ability to focus attention.
Attention is limited, both metaphorically (i.e., you only have capacity to process so much) and calorically (i.e., you only has so much energy to spend, see Lisa Feldman Barrett). Our choice of where to spend attention defines our inputs, what we consume, and what our brains and bodies output. People grow out of the soil of the events around them at a population level, and make individual choices on the margin.
We all have thoughts, and those thoughts carry substance. That substance equates to some cluster of neurons firing in your brain.
For example, one thought is “The market is going down”. Another thought, while in the same situation, is “my computer screen is too bright”. Or “I am hungry”. You can choose to go deeper into any of these thoughts — and in doing so, you are not pursuing the others. If you think about how and why the market is going down, you are not spending calories on fixing some physical discomfort. Or perhaps, you pause to ponder the nature of the universe, and whether money has any meaning. Then you are not optimizing the substance of the other problems, and instead looking out and wide.
This is to say that ideas have both substance, and structure both. In mindfulness practice — not that we have any expertise — one can move past rumination of the particular thought, and instead feel around the *structure* of how one makes or experiences thoughts, emotions, feelings, sensations. You can detach from the thought to scale up and contextualize, or scale down and observe. We point to John Vervaeke yet again, with a summary here, who described how to notice this process as if it were a limb of your body. And it is.
This is worth your time to learn how to notice yourself, and your mind generating your narrative. You can watch your own internal machine work, and understand the structure of its approach.
Now look, these thoughts and ideas do have substance. You are processing inferences and ideas — some yours, some at the meta organism level, some artificially implanted. Social media and other large robots and peer pressures may constrain your ability to choose, but still we do our best according to the internal landscape. This too is the structure of your decision space, the architecture of your constructed mind as influenced by others.
And then, once enough information *clears*, we make choices and take actions as a result.
On Seeing Markets
We say this to point at some “ideas” that we all process as thoughts about value in the capital markets.
Lets say those ideas are called fundamentals, and those fundamentals extend from traditional publicly traded companies, to art markets, to crypto tokenomic designs. Fundamentals are thoughts, perhaps derived mathematically from common data, that market participants have deemed to be the important, driving factor of prices in the market. Demand for things with “good fundamentals” stacks up against supply of things with “good fundamentals”, and then prices clear. Analysts spend their days debating and fine-tuning what such worthwhile components are (e.g., revenue, cashflow, users), how the are trending (e.g., earnings), and relative market comparisons overall.
Notice the language. There is no single actual truth, despite there being long term statistical averages. All this is social convention subject to market clearing. They are mental models to simplify and standardize data from the world. They are maps and observations, which happen to be true over some period of time — perhaps centuries. And they work perhaps because of the shared belief that they work.