Where are the real investment opportunities
Original title: Why Tokens Can't Compund
Original by Santiago Roel Santos, founder of Inversion
Original language: Luffy, Foresight News
WHEN THE ARTICLE WAS WRITTEN, THE ENCRYPTION MARKET WAS GOING DOWN. BITCOIN TOUCHED THE 60,000-DOLLAR THRESHOLD, AND SOL FELL BACK TO THE VALUE OF THE FTX LIQUIDATION AND THE ETA FELL TO $1,800. I'M NOT GOING TO DWELL ON THE LONG-TERM RHETORIC。
This article seeks to explore a more fundamental question: why a coin cannot achieve compound gains。
Over the past few months, I have maintained the view that, in basic terms, encrypted assets are significantly overvalued, that Metcalf laws do not support current valuations, and that the fall-down application of the industry to asset prices may last for years。
Imagine this scenario: "Dear liquidity providers, the amount of stable currency transactions has increased 100 times, but we've given you only 1.3 times the return." Thank you for your trust and patience. I don't know
What is the strongest of all these objections? "You're so pessimistic, you don't understand the value of tokens. It's a whole new paradigm. I don't know
I know exactly what the value of a token is, and that is the crux of the problem。
Double engine
The market value of Birkhel Khasawe is now about US$ 1.1 trillion, not because Buffet’s choice was accurate, but because the company has the capacity to reciprocate growth。
Each year, Birkhel reinvests profits in new businesses, expands profit space and acquires competitors, thereby raising the intrinsic value of each share, with subsequent high equity prices. This is the inevitable result, as the economic engine behind it continues to grow。
This is the core value of equities. It represents ownership of a profitable reinvestment engine. When management earns profits, capital allocation, layout growth, cost reduction, stock buy-backs, and each right decision becomes the cornerstone of the next growth, generating compound gains。
The US$ 1 increased by 15 per cent in 20 years to US$ 16.37; US$ 1 was deposited at 0 per cent for 20 years and still only US$ 1。
Equities can convert a profit of $1 to a value of $16, whereas the token can only convert a fee of $1 into a fee of $1 without any added value。
Show me your growth engine
What happens when a private equity fund acquires a $5 million annual free cash flow:
The first year: a $5 million free cash flow was achieved and reinvested by management in research and development, stable currency hosting and debt servicing, three key capital allocation decisions。
The second year: each decision yields returns and free cash flows increase to $5.75 million。
In the third year, gains from the previous period continued to recover, supporting a new set of decisions, with a free cash flow of $6.6 million。
It's a compound increase of 15% in business. The increase of $5 million to $6.6 million is not due to high market sentiment, but to the fact that each capital allocation decision made by people is mutually empowering and tiered. So insistent that in 20 years, $5 million will eventually be $82 million。
And look what happens with a $5 million-a-year encryption agreement:
The first year: to earn $5 million in handling fees, all of which are distributed to depositors of coins, with a total outflow of funds。
The second year: a $5 million handling fee may also be earned, provided that users are willing to return and are subsequently fully distributed and re-disbursed。
The third year: the amount of the proceeds depends on how many users of the casino are involved。
There is no compound interest, since there will naturally be no third year of growth wheel without any reinvestment in the first year. Subsidies alone are not enough。
That's how it works
This is not an accident, but a strategy design at the legal level。
In response, in 2017-2019, the United States Securities and Exchange Commission carried out rigorous checks on all assets that appeared to be securities. At that time, all the lawyers advising the encryption protocol team gave the same advice: the token must never look like a stock. No cash flow rights can be granted to token holders, no tokens can be granted governance over core R & D entities, no proceeds can be retained, and they are defined as functional assets, not investments。
So, the whole encryption industry, when designing tokens, deliberately disassociates it from stocks. There is no cash-flow claim to avoid seemingly red-hospitable; there is no core R & D entity governance authority to avoid seemingly shareholder rights; there is no revenue retention to avoid seemingly corporate treasury; pledge incentives are defined as the return of network participation rather than investment returns。
The strategy worked. The vast majority of tokens have successfully circumvented the recognition of the attributes of securities, but at the same time have lost all possibilities for compounding growth。
This asset class has been deliberately designed from its inception as a core action that cannot be achieved in the creation of long-term wealth — compound gains。
The developer owns the stock. You only hold the coupon
Each head encryption protocol is backed by a profit-making core development entity. These entities are responsible for developing software, controlling front-end interfaces, owning brand ownership and matching corporate cooperation resources. What about the bearers? Only the right to vote in governance, as well as the right to claim the floating revenue from fees and fees, can be obtained。
This pattern is pervasive within the industry. The core R & D entities have the right to talent, intellectual property rights, brand names, corporate cooperation contracts and strategic choices; currency holders can only obtain floating “interest coupons” linked to network usage and “privileges” to vote on proposals that are increasingly ignored by R & D entities。
It is also not difficult to understand why, when Circle acquires an agreement like Axilar, the buyer buys shares in the core R & D entity, not in tokens. It's not possible because of the dividends。
The lack of clear-intended regulation has led to such distorted industry outcomes。
What exactly are you holding
Leaving aside all market narratives, ignoring price fluctuations and looking at what a token holder can really get。
You get about 3 to 4% of the proceeds from the pledge, which is determined by cyberinflation mechanisms and adjusted to the dynamics of the pledge rate: the more the pledge, the less the pledge, the higher the proceeds。
This is essentially a floating interest rate coupon linked to the established mechanism of the agreement, not a stock but a bond。
It is true that the price of the inn can rise from $300 to $1000, but the price of junk bonds can also double because of narrow spreads, which does not make it a stock。
The key question is: What are the mechanisms through which your cash flow has grown
Equities have increased cash flows: management will reinvest in profits and achieve compound gains = capital return x reinvestment rate. You're a holder of an expanding economic engine。
Cash flows in tokens: depending entirely on the usage of the network x the rate of processing x the level of pledge participation, you get interest rate coupons that fluctuate with the spatial demand of blocks, and there is no reinvestment mechanism and no engine for compound growth throughout the system。
Large price fluctuations have led people to assume that they own stocks, but in terms of economic structure, people are holding fixed-income products with an annualized volatility of 60-80 per cent. It's both of them。
For the vast majority of tokens, the real rate of return, after discounting inflation, was only 1 to 3 per cent. There is no fixed-income investor in the world who would accept such a risk-benefit ratio, but the volatility of such assets always attracts a wave of buyers, which is the true picture of the "mute theory."。
The law of choice, not the law of compoundation
That is why tokens cannot accumulate value and compound gains. The market is becoming aware of this, and it is not stupid, but is beginning to turn to encrypted shares. First, the State debt of digital assets, then more and more money goes to enterprises that use encryption to reduce costs, increase revenues and achieve compound gains。
The creation of wealth in the field of encryption follows the rules of choice: those who earn a lot are bought early and sold at the right time. My own portfolio followed that pattern, and it was not without reason that encrypted assets were called "liquidity creation"。
The wealth creation in the stock sector is based on the principle of compoundity: Buffett does not buy Coca-Cola by choice, but buys and holds it for 35 years, making it work。
In the encrypted market, time is your enemy: for too long, the proceeds evaporate. High-inflation mechanisms, low-flow, high-total diluted valuation designs, combined with the current market situation of insufficient demand and excess space in blocks, are important underlying reasons. The exception for ultra-liquid assets is limited。
In the stock market, time is your ally: the longer you hold a compound-growth asset, the greater the benefits of mathematical patterns。
Encrypted markets reward traders and stock markets reward holders. In reality, there are far more people rich by stockholdings than by trading。
I have to double-count these data, because every mobile provider would ask, "Why not buy the Ether House directly? I don't know
It would be useful to pull out the movement of a compound-growth stock – Dannah, Constellation, Birkhel – and then to compare it with the movement of the Taifeng: the curve of the compound-growth stock is steadily climbing upwards to the right, because the economic engine behind it is growing every year; and the price of the Taifeng has skyrocketed, recycled, and the cumulative returns ultimately depend entirely on when you enter and leave。
Perhaps the final gains will be the same, but holding shares will keep you up all night while holding tokens requires you to be the prophet of the market. "Presentity is better than practice." Everyone understands that, but the difficulty is to really hold on to it. Equities make it easier for long-term holdings: cash flows are the bottom of the stock price, dividends keep you patiently waiting, and buybacks continue to yield profits while you hold them. The encrypted market makes long-term possessions extremely difficult: fees and fees are drained, market narratives change, you have no basis, no price bottom, no steady coupons, just one conviction。
I would rather be a holder than a prophet。
Investment strategy
The conclusion is self-evident if the token cannot be reciprocated, which is the core of wealth creation。
THE INTERNET HAS CREATED TRILLIONS OF DOLLARS IN VALUE, AND WHERE ARE THOSE VALUES FINALLY GOING? NOT TCP/IP, HTTP, SMTP. THEY ARE PUBLIC GOODS OF GREAT VALUE AND DO NOT OFFER INVESTORS ANY RETURN AT THE LEVEL OF AGREEMENTS。
The value eventually flows to the Amazon, Google, Genco, Apple. They built their operations on the basis of agreements and achieved compound gains。
The encryption industry is repeating itself。
WHILE THE STABILIZATION CURRENCY IS GRADUALLY BECOMING A CURRENCY AREA TCP/IP, WHICH IS EXTREMELY PRACTICAL AND HAS A VERY HIGH LANDING RATE, IT IS NOT YET KNOWN WHETHER THE AGREEMENT ITSELF CAN CAPTURE THE VALUE THAT MATCHES IT. THE USDT IS BACKED BY AN EQUITY ENTERPRISE, NOT A MERE AGREEMENT, WHICH CONTAINS IMPORTANT INSIGHTS。
Firms that integrate stable currency infrastructure into their own operations, reduce the payment of frictions, optimize operating capital and cut foreign exchange costs are the real providers of compound growth. A chief finance officer who saves $3 million per year by switching cross-border payments to stable currency corridors can reinvest the $3 million in sales, product development or debt servicing, which will continue to increase in value. As for the agreement that led to the transaction, only a fee was earned and no benefit was recovered。
The fat agreement theory suggests that encryption protocols can be more valuable than capture in the application layer. But over the past seven years, the public chain has accounted for about 90 per cent of the total market value of the encrypted market, with the percentage of fees falling sharply from 60 per cent to 12 per cent; the application layer contributed about 73 per cent of the fees, while the value was less than 10 per cent. Markets are always efficient, and this data already illustrates everything。
Today, the market is still committed to the idea of a fat deal, but the next chapter in the encryption industry will certainly be written by encrypted-enabled stocks: enterprises that have users, generate cash flows, and that manage to optimize their operations with encryption technology and achieve higher recovery rates will perform well beyond currency。
Robinhod, Klarna, NuBank, Stripe, Revolut, Western Union, Visa, Blackrock, the companies ' portfolio, must be better than a basket of coins。
These enterprises have real price thresholds: cash flows, assets, customers, and no currency. The magnitude of the decline in contemporary currency valuations, based on future income being fired to an disproportionate number, is known。
Multi-encrypted technology over the long term, careful choice of tokens, and the rebalancing of corporate equities that can leverage the advantage of encryption infrastructure to achieve compound gains。
The desperate reality
All attempts to resolve the issue of coin-gaining are inadvertently corroborating my point。
Decentreized self-government organizations that attempt to allocate real capital, such as MakerDAO, buy state debt, create sub-autonomous organizations, and appoint specialized teams in the field, are slowly reshaping the business governance model. The more an agreement seeks to achieve compound growth, the more it has to be brought closer to business patterns。
The problem could not be solved either by the digital assets treasury or by the token stock packaging tool. They are only on the same cash flow, creating a second claim and competing with the bottom token. Such tools do not allow agreements to be more proficient in terms of compoundity growth, but simply reallocate to the holders of coins whose earnings never hold the instrument。
The destruction of tokens is not a stock buy-back. The destruction mechanism of the Taifeng, like a thermostat with a fixed temperature, remains the same; and the stock buyback of apples is a flexible decision by management in the light of market conditions. Smart capital allocation, the ability to adjust strategies to market conditions, is at the heart of the dividends. Stereoty rules do not yield compound benefits and flexible decision-making skills。
AND REGULATION? THIS IS ACTUALLY THE MOST WORTH EXPLORING. THE FAILURE OF THE TOKENS TO RECIPROCATE TODAY IS ROOTED IN THE FACT THAT AGREEMENTS CANNOT OPERATE IN THE FORM OF ENTERPRISES: THEY CANNOT BE INCORPORATED, THEY CANNOT RETAIN THE PROCEEDS AND THEY CANNOT ENTER INTO LEGALLY BINDING COMMITMENTS TO THEIR HOLDERS. THE GENIUS ACT PROVES THAT THE UNITED STATES CONGRESS CAN INTEGRATE TOKENS INTO THE FINANCIAL SYSTEM WITHOUT STIFLING THEIR DEVELOPMENT. WHEN WE HAVE A FRAMEWORK THAT ALLOWS AGREEMENTS TO OPERATE WITH THE ENTERPRISE'S CAPITAL ALLOCATION TOOLS, IT WILL BE THE LARGEST CATALYST IN THE HISTORY OF THE ENCRYPTION INDUSTRY, WITH MUCH MORE IMPACT THAN A BITCOIN SPOT。
Until then, intelligent capital would continue to flow to equities, while the compounding gap between coins and equities would continue to widen every year。
This isn't an empty block chain
I would like to make it clear that the block chain is an economic system that has unlimited potential and is bound to be a bottom-up infrastructure for digital payments and smart business. My Inversion company is developing a block chain precisely because we believe in it。
The problem is not the technology itself, but the economic model of the coin. Today ' s block chain network is simply a transfer of value, not a build-up and reinvestment to achieve compound gains. But this will eventually change: regulation will continue to improve, governance will mature, and there will always be an agreement that will find a way to retain and reinvest value as good firms do. When that day comes, the token becomes, in addition to its name, a stock, and the engine of compound interest will be officially activated。
I'm not looking at the future, I'm just judging its timing。
One day, the block chain network will achieve compound value growth, and before that, I will choose to buy into businesses that use encryption technology to achieve faster compound growth。
I may have made mistakes in choosing the encryption industry, which is an adaptive system and one of its most valuable features. But I need not be absolutely precise, but to judge in the broadest direction: the long-term performance of compound-growth assets will ultimately prevail over other assets。
And that's the charm of compound interest. As Mang said: “It is amazing that people like us have gained such a huge long-term advantage simply by working so hard that they will never be stupid, rather than seeking to be smart. I don't know
Cryptography reduces the cost of infrastructure significantly, and wealth will eventually flow to those who take advantage of these low-cost infrastructure to achieve compound growth。
