Elsewhere in the virtual realm, Blizzard celebrated 25 million players for the first ten days of f2p Overwatch 2’s debut, and fans seem to have trouble paying c.$25 for a legendary Kiriko bundle.

Eliud Kipchoge smashing yet another world record was widely reported. Yet, it meant a great deal to me. Specifically, (1) that Eliud improved his first 20km time, under racing conditions, and (2) that a 2-hour challenge remains a goal at the age of 37.

I will not butcher this achievement with my analysis, as I clearly lack the domain knowledge and/or language. Inspired, I will make it my personal goal to stay in shape, and complete 10km within 40 minutes in my 40’s. Yes, my very own 40 Under 40 :)

Much ink has been spilled on Taproot Asset Representation Overlay, including a few lightning (pun intended) marketing rounds in April and 2Q22. After many sleepless nights learning and thinking about the protocol, here’s a visual of what I came up with:

The Color of Bitcoin

Apparently, Bitcoin Orange is a thing. And yes, Bitcoin should always stay orange. Specifically, #f2a900.

As for Taro, perhaps it would be nice to specify #a900f2. While we’re at it, may I suggest #00f2a9 for assets represented on Taro? That would complete the Triadic Color scheme. Perfect harmony.

Some thoughts, and a few silly questions

Block space is inexpensive today. It makes sense to find use cases, without unnecessarily spamming Bitcoin. Time (and I guess the market) will tell whether this is a good use of resources. As of September 2022, when I hear “Taro”, Q-taro is still the first thing that comes mind (and not the vegetable). Let’s find out how deep this rabbit hole goes. Meanwhile:

My asks are two-fold:

(1) to keep Bitcoin orange. In many ways, the community has come a long way from P2SH, and Taproot certainly looks like a vast improvement from customized redeem scripts. It’s refreshing to build “natively” on Bitcoin, but let’s proceed with caution;

(2) can someone point me to further readings and resources on Taro asset wallets (or LN wallets, in general)?

Silly questions:

(a) Will Arthur Hayes and team build Q-Taro? (pun-intended)

(b) Wen Carrot?

(c) TARO(T): Looks like testnet’s “T” has taken the commonly used abbreviation, can we keep it that way and keep token’s “T” separate?

Other Resources:

Lightning Labs officially launched Taro on April 5th, 2022 and a video primer was released two days later. I have included references of draft BIPs related to Taro, originally sent out by Lightning Labs’ CTO Olaoluwa Osuntokun: (a) The Taro protocol; (b) The hybrid data structure (MS-SMT); (c) The Taro Virtual Machine; (d) The Taro address format; (e) The Taro Universe concept; (f) The Taro flat file proof format

Images created by Midjourney

Under “Cross-Liguistic Trajectories”

Children understand words at different age, and the difference may be due to many factors. Words are selected using universal lemmas, a GitHub repository of the codebase is available here.

Other very cool pre-built tools are available, under other categories: (1) Vocabulary Norms, (2) Item Trajectories, and (3) Semantic Network.

If you download the data, one can produce other interesting developmental trajectories for the production words by birth order:

He is now fluent in DeGen-speak, and spends his weekends with different communities on Spaces - asking interesting questions, and may well be one of the first teams to solving the more valuable puzzles modern society have in store for our generation.

Disclaimer: I do not know Frank in person or at all. I have only gone through his tweets and a couple of guest podcast appearances.

The Journey

Let’s start the journey with an observation, “there are different groups of people who choose to organize themselves, and live in interesting ways…”.

Gravity in DeFi-land

As mentioned, this is the least interesting part of the journey, so let’s cut to the chase. Most of the current solutions in DeFi-land today are inferior in solving everyday problems vs TradFi. Worst of all, some tooling outright defy the physics of modern banking, or even logic. The world still operate with known players. Rules can be bent, and global fintech companies have been attempting to do exactly that - applying data science obtained legally and interpreting such data to arrive at better pricing of money. However, breaking rules can be quite counter-productive, and will likely set the system back.

Interestingly, as these groups of people attempt to lay out the “DeFi” infrastructure to do things differently, our fintech guru suggests that most parts are not assembled right. VCs thus have a lot to bring to the table when it comes to reviewing new technologies, and tread a tightrope with these startup communities.

So far, two interesting hacks into DeFi-land: (1) Smart contract may gel the best of both worlds: if you were to bend enough rules without breaking them, you end up teasing out (from experience) what data (from sectors of your choosing) you can scientifically execute over smart contracts; (2) Focus on why, and where to spend your time: gravity prevails, but if projects continue to defy physics, that could be a filter to help allocate time accordingly. Complex systems can exist within complex systems, and even more time should be spent in getting to the bottom of why groups choose to reinvent the wheel.

50 shades of leverage

In the recent crypto market cap meltdown, most pundits have pointed to “lenders” as the culprit. Factually, “lending” in DeFi is a misnomer, and the distinction with how the term is interpreted in the world (outside of DeFi) was well articulated by Frank. Notably:

In DeFi, lending is almost exclusively leverage. The ultimate reason is there are few use cases for cryptocurrencies (or tokens) aside from leveraged trading. This directly limits how much token holders can borrow - i.e. over-collateralized borrowings is the only economical solution. Borrowing 0.2 token, while pledging 1.0 token is leverage not lending in the traditional sense.

Contrasting this with traditional lending. The big difference is lenders do not have to take a directional view in markets. Instead, they can price the loan, i.e. tweak the interest rate. Again, the reason lenders are able to do so is because an ecosystem exists outside of the asset or pledged collateral. That is to say lenders can scientifically analyze the parameters to measure how much capital can be returned for a future stream of payments, and weigh the distribution of outcomes.

Meanwhile, it may also be worthwhile to discuss the topic of duration. Frank posted an excellent thread here for your reference.

A big part of finance is moving money, the part on moving risk along with money is often overlooked. There are benefits to risk diversification. Diversification only works when parties feel different about the different things they hold. If all parties feel the same way, the benefits of diversification is limited. All parties will be forced to take a directional view.

Can we find an intersection between fintech and DeFi here? That remains to be seen. In addition, even if there were large enough communities and use cases, the scalability of crypto lending could still be held back by its own design features. As an example, it may be too costly to apply basic data science to interpret anonymous (or pseudonymous) crypto wallets. Banks such as Silvergate specialize in vetting a network of businesses (e.g. custodians), and are able to extend loans beyond the native asset. However, we are still talking about over-collateralized loans, using Bitcoin exclusively as collateral.

Irreversibility is a feature not a bug

To better understand these communities, it may be more rewarding to identify common features and understand why those features exist in the first place. For most of us mere mortals, a confounding one is irreversibility.

The year is 2022. Consumers feel warm and fuzzy every time we are able to recover a password, reverse a transaction, etc. Yes, it is rather convenient to be lazy, but that’s not really technology’s doing - it’s trust.

We all have vivid memories of getting off the phone with IT or helpdesk, feeling all warm and fuzzy inside, because someone on the other end of the call reset your password after asking you a bunch of questions. Right, you even said thanks.

Now, rewind to another episode where you started the day with a similar problem, only this time it ended with you slamming the phone, or yelled at a chat bot, or both. In my personal experience, the difference in emotions had largely to do with the outcome. i.e. I thought I owned something (or entrusted someone to provide a service), but was denied.

Everything comes at a cost. If you value your privacy, you can opt in to self-custodial solutions, and experiment what responsibility looks like - i.e. when losing something means losing something. Yes, if you punch in the wrong address, there is no undo button. It is worthwhile to state that these technological solutions provide utility for millions of people around the world. Whether we find the features useful or not, this is technology that is slowly becoming available to us. In this case, irreversibility is the feature. We should all be asking when we will require this feature.

Communities first, product second (C1P2)

To be honest, this is an interesting observation, but we have yet to see a scalable form emerge. Admittedly, there is tailwind and motivation to build communities first and formulate rules, deliver products later. On this topic, Balaji Srinivasan has done a great deal of work and you can find lots resources online.

What I find interesting with fintechjunkie.eth’s journey is his revelation that he finds most online communities friendly and willing to help. That would be my experience as well. Specifically, while everything feels clunky, members of different communities share their experiences and tools to solve a problem. Often, there are many solutions but communities tend to look at technology as a common good, and work on building a collaborative, and sometimes an open-source world.

From what I can tell, the C1P2 culture is very new and unique, and pushes communities to be 100% “problems-looking-for-solutions”. Not the other way around.

As far as tokenomics, benefits of DAOs, and other topics such as the role of NFTs go, I think those are important and potentially very rewarding innovations. I will skip the discussion here as I do not want to dilute the simple message above. Also, this is the fun part of the journey, and everyone’s experience will be different.

Concluding thoughts

The motivation for writing this post is manifold.

For myself, I often find getting to know about someone, and learning through different mediums fascinating. Getting to know Frank through his collections, and listen to him speak live any given Sunday has been fun. This post serves as mental notes for myself. Specifically, the gap between self-custodial and third-party solutions for Bitcoin is the most interesting area for me.

For anyone else, one size does not fit all, but there is really no reason to deprive oneself from any tool or community. Give it a go, more likely than not, you will find like-minded groups that are less toxic than you had imagined. Observe, contribute, and enjoy. There are many professional resources and more comprehensive guides here ✌️

As an investor, I tend to agree that a turnkey solution to return NFT holder value would be quite rewarding. I do not think I have much to contribute in this area, yet.

Frank seldom openly discuss philosophical topics. Perhaps we can get a glimpse of that as we work out exit rights, i.e. “how to kick people off DAO islands” 😂. In terms of tech, here and there, I learn that he is actively advising portfolio companies on making use of privacy tools like Zeroknowlege proofs. This in turn is my mental gauge on how practitioners operate, which I find helpful in tracking the rate of tech adoption.

https://twitter.com/ThHappyHawaiian/status/1546527570748899328?s=20&t=LiiwtMy--cuEFnyB1Y9SYA

Key takeaways from my attempt to botch the chart

• (1) There is hope: Through technology, we clearly managed to innovate our way into a new paradigm of trust and collaboration, and solved a post-war dilemma, (maybe partially). We may be able to pull it off, again. In that case, the squiggly blue line (RHS) marches further Northeast, well beyond the red-dotted lines.

  (2) Not all doom and gloom:

  • (a) Binary outcome: “Bust” soon, fix later. Not sure where squiggly line lands.

    • It all depends on degree of the bust. Pick your poison(s) for the fix:

      • (i) scaling 60/40 stock/bond allocation all the way up to 100/0 and/or;

      • (ii) pegging gold and/or Bitcoin.

  • (b) Kick the can: Thank your lucky stars the largest Central Bank in the world is still in a position to provide liquidity to the market, and the economy. We can’t take this for granted - some Central Banks from other developed nations have already lost this tool. This may suggest, we have yet some time to keep playing within the sandbox until we either:

    • (i) inevitably end up in 2(a) scenario, or

    • (ii) innovate back to (1).

  • Back to 2(b), the key question is, liquidity in what form?

Knowing thyself is extremely powerful as I often find myself a mere statistic, but never quite “average”. How I consume data, and knowledge has changed drastically. I suffer from decision paralysis. I do not have a good handle on how to engage socially. I am an introvert.

Who is “they”?

Firstly, high level. Very few people care about me. But, “they” don’t have to be my enemy. The conspiracy is not against me, but an imagined group to which I may (or may not) belong. The key here is mobility - I only have a stance on very few things in life, and I can become “them”.

Secondly, I am not “them”. That is simply how I work. There are very complex systems that has evolved through time, and thus these systems and I have very little in common. The key here is just to identify “them”, and learn when to opt in or out - who is your enemy’s enemy?

Be mindful of two differences with them: (1) time horizon: institutions can survive longer than families which can outlive a human life. “They” operate very differently. (2) size: humans are social animals, when humans gather and form groups beyond a certain size (see Dunbar number), these groups start to operate differently and take on a life of its own.

Time is the only scarce commodity

If I spend 1 to 1,000 hours on a topic, I generally refrain from making any life-changing or investment decisions. Instead of making a decision, I generally highlight the most interesting factual takeaway from the time I have already spent on the topic. Generally, that piece of information is useful for me to decide if I should spend more than 1,000 hours on the topic. Be very specific.

Spending 1,000 to 10,000 hours on a specific topic is a real commitment. Zooming in is fun but challenging. I am still working on this part. I refrain from making decisions based on my findings before I hit the 10,000 hours part. Before hitting that magic number, I found “Inversebruh” to be a very good life-hack (do the opposite of whatever decision you were going to make).

Once I have spent more than 10,000 hours on a specific topic, I start to lean into the cultural and social aspects. Markets become more important, and I’m ready to take on risks. To confirm my bias, I engage in polarizing groups on digital social platforms to check where I sit. Conclusively, I find it easier to understand and identify different groups. I rely even more heavily on some key mental models. I find myself spending a lot of time dealing with my own shadow, and having to clean house over and over again.

Essential mental models

Second order thinking first…

Chesterton’s Fence is always the most important mental model. When I see a hence, I assume it is there for a reason. Fences do not grow out of the ground.

… First principle thinking second

Logic through math, Physics in the known universe. For a midwit, this is secondary. Again, 10,000+ hours on a topic might help, but that’s hard work; Occam’s Razor helps alleviate the pain, sometimes.

家訓

From my mother: 修身齊家治國平天下

From my grandmother: 吃得苦中苦方為人上人

My interests:

(1) Time, (2) The Constitution of the United States, (3) Bitcoin