I found fintwit less than a year ago. I've really appreciated, learned from, and profited from people like @AlderLaneeggs , @UncleRico77 , @CordovaTrades @HiddenPivots @loggyrhythm @jam_croissant and @Jimmyjude13. Here’s my $0.02 to add to the discussion.
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In 1999 I donned an ugly gold jacket and stepped onto the floor of the CME to become an arb clerk. In my first week I asked a simple question that would ultimately shape my view on what I see as the biggest potential change and opportunity in the financial world.
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Although I earned little money, that was the most valuable year of my career. I was surrounded by dudes like Jimmy Jude and CEM. Even tho those 2 dudes have no idea who I am, guys like them were imparting market and life wisdom that would stay with me to this day.
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But this isn’t a thread about those nuggets, it’s about the spoo options pit and what everyone is missing in DeFi. Every quarter, a supposed pension fund would come and sell index strangles for size. I couldn’t understand it. Did they think the market wasn’t going to move?
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Maybe this was some kind of short gamma play I didn’t yet understand. Trigg Thorstenson explained that the pension fund was likely using options as a way to naturally reposition itself. If the market moves up 15%, it needs to sell a bit. If it drops, it needs to buy.
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Being short options lets it collect some premo while repositioning in larger moves. Short calls would make it a seller into a larger rally, and short puts would make it a buyer into a larger selloff.
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He also told me not to give a fuck about why “paper” was making it’s trades, but to focus on what we were doing - making markets and finding mispricings in the vertical and calendar relationships.
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So what’s this big opportunity? DeFi. DeFi is so underpriced, it’s literally insane. And there is a corner of DeFi that’s so cheap, it might just be the best trade on the board.
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If DeFi was fintech, values would be 3-10x higher. AAVE has $3.7b in deposits and makes $450mm in loans/mo. Mkt Cap: 5.3b VC’s would scramble over each other to invest at that valuation.
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Uni is doing ~$1.3b/day in volume. Mkt Cap: $5.8b, vs Coinbase’s expected $50b at only 3x trading volume.
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Binance Smart Chain, which is faster and cheaper than the ETH ecosystem, is seeing it’s own crop of DeFi platforms pop up. PancakeSwap is the #1 platform, doing ~$115mm in daily volume has a Mkt Cap of $225mm and the growth curve is looking parabolic.
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But wait, there’s more. Let’s go back to that institutional strangle seller. What happens when we tokenize securities and theres a DEX for equities? What happens when that 800lb pension gorilla can deposit it’s equity positions into liquidity pools on the DEX?
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It’s going to earn fees when the market is going sideways , not front run customers, provide massive liquidity, and automatically rebalance itself in market moves.
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There’s a ton of functionality still missing, and obviously a ton of regulation that needs to be in place to make this happen. But it’s coming. This is the future. This will be the new paradigm of the next financial world order. Or maybe I'm wrong. Will be exciting to watch
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