dusty Flut

An Ethereum OG dumped 10,702 $ETH($16.86M) at $1,576 again after 2 years of dormancy. He received the $ETH as early as 2016, when the price was just $8. Interestingly, he never sold when $ETH was above $4,000 — but always chose to sell during major dips. etherscan.io/address/0x0f52…

Be careful, @ohmzeus ‘s account got compromised on X. There is no airdrop.

Introducing Sora, our text-to-video model. Sora can create videos of up to 60 seconds featuring highly detailed scenes, complex camera motion, and multiple characters with vibrant emotions. openai.com/sora Prompt: “Beautiful, snowy Tokyo city is bustling. The camera moves through the bustling city street, following several people enjoying the beautiful snowy weather and shopping at nearby stalls. Gorgeous sakura petals are flying through the wind along with snowflakes.”

Speed Running Financial History, Lessons from TradFi for DeFi Part 2: Why Did Investors Stop Demanding Dividends? 1600s-1900s: What Does the Stock Do? 2020s: What Does the Token Do? DeFi needs more awareness of our TradFi parallels. Many of our problems, discoveries, life cycles, etc. are not new. The point of this series is to predict the future and clarify the present, by looking to the past. Crypto is not reinventing human behavior or financial axioms. We’re creating superior environments for them to take place. Remember, DeFi users aren’t some new breed of enlightened human. We’re not changing the state of man with atomic swaps and L2s. We’re seeing the same greed, fraud, leverage, innovation, and hard lessons of our financial ancestors. That’s what happens when a lot of value is being created in a permissionless, open system: it attracts all types, good and bad. “Speed running financial history” means we can glean historical wisdom from lessons that have already been learned. We would be wise to learn from them. An instance of said speedrunning that’s happening right now: fee sharing. AKA staking. AKA “utility”. AKA “if the token doesn’t have yield, what does it do?” TradFi has a name for this, it’s called dividends. Back in the day, they didn’t care much for abstract notions of equity in the business, they wanted cold hard cash for holding your stock. Right now, DeFi is of a similar mindset. Parallels. 1600s-1900s: “If it doesn’t pay dividends, what does the stock do?” 2020s: “If it doesn’t let you stake for yield, what does the token do?” We’re doing the speedrunning financial history thing again. Flat circle. Let’s review historical examples of what TradFi already experienced, and what DeFi will eventually make peace with. Before diving in, I want to emphasize the first part of this series: Governance Tokens, Tech Stocks, Dividends, and "Utility” (QT’d). It goes into very literal detail that shows deconstructing a stock that pays no dividends and has no book value… is just a governance token. This is important to internalize. If that feels viscerally wrong to you, read Part 1. Unless you’ve amassed enough stock to launch a hostile takeover, your equity is not equity. -- STOCKS 1.0: WHY WERE THEY OFFERED IN THE FIRST PLACE? -- Our TradFi ancestors shared many of the sentiments and feelings DeFi presently does, and at one point stocks with no dividends were unacceptable! They used to demand ‘real yield’ (a cut of earnings), because what else does the stock do!? TradFi’ers once saw stocks from this lens, and yet now only 50% of the Nasdaq pays a dividend… how did we get here? The instinct to tie the value of an abstract, intangible asset to something recurring and concrete is logical. There are a lot of scams out there, and proof of profitability via payouts is a solid heuristic for avoiding them. However, this heuristic now carries inverted utility for growth investing. In modern finance, if you’re paying a dividend that means you don’t have enough growth prospects to invest in, so you return money to shareholders. If you’re rapidly growing, you keep your earnings and deploy it back into the business. I’ll cover this in more detail at the end. -- A BRIEF HISTORY OF STOCKS AND DIVIDENDS -- The first instance of an IPO and publicly tradable stock in financial history came in 1602 from the Dutch East India Company, ticker VOC for Vereenigde Oost-Indische Compagnie. The reason for VOC stock provides insight into business models and investor expectations from that era. VOC needed big chunks of capital for specific reasons: to finance voyages for its massive spice trade. VOC issued stock and bonds to fund highly uncertain expeditions, which could either pay out a lot or nothing at all. If the voyage was successful then everyone got paid, if not then no dividend. Capital markets used to view stocks essentially as junk bonds. They paid a dividend that was greater than the debt coupon, however it was junior in the payout waterfall and contingent on certain degrees of success. Here’s an example prioritized payout structure: - 1st: Bondholders receive interest payments (eg 4%) - 2nd: Preferred shareholders are paid next. More than bonds, but less than common stock (eg 6%) - 3rd: If there’s remaining profit, then common stock gets paid. This dividend was the most uncertain, but also the largest (eg 10%). Fun fact: sometimes dividends for VOC holders were in the form of pepper, nutmeg, cloves, and other kinds of spices! Imagine dividend day arrives and you get a big chunk of oregano in the mail. RETVRN. Older companies issued equity for specific endeavors that required a large amount of money at once: we’re going on a voyage, we’re building a factory, a railroad, etc.. Growth was achieved in chunks, not increments; this is not how growth works today. In modern times, businesses can use their profits for generalized, gradual expansion; you can do something productive with $500k or $50M. The old-school mindset was “we need $20M for an investment we think will make X amount of money, and we’ll pay you Y if it does”. If a voyage costs $20M, keeping only a fraction of that as retained earnings doesn’t do you much good. Growth came more in waves, less in persistent increases. Here are excerpts from the brilliant @ByrneHobart that are very much worth your time. He’s incredibly insightful on dividend evolutions and the reasons behind them; I deeply appreciate this kind of nuanced analysis and draw heavily from it. Today, retained earnings facilitate incremental reinvestment that wasn't practical or possible in the past. Capital gravitates to its most efficient uses, and it makes intuitive sense to me that earnings distribution vs deployment would evolve in a way that favors deployment. For the same reason water takes the most direct path downhill, capital eventually flows to its most productive uses. -- INVESTOR EXPECTATIONS AND RETURNING CAPITAL -- A company can do two things with earnings. Two. You can: - Reinvest the money into the business - Return the money to shareholders There are tech companies that raise money in big chunks for multiyear continuous growth: early stage VC-backed ones. And these startups are well-known for paying fat dividends…. 🙃 Do you know how many startups pay a dividend? Zero. Why? Because they use that money to 1000x by investing in growth. Pre-revenue, positive unit economics, it doesn’t matter, you do one thing with that money: grow, aggressively. (I’ve only heard of one previous startup paying dividends: Kickstarter. And they’re extremely weird and not a big growth story.) If growth investors wanted a dividend, they’d buy a tobacco company or bonds. We’re here for capital gains, not 4% yields. Paying a dividend would essentially be a sign of failure for a growth business… “Here take your money back, we can’t find enough productive things to do with it.” Empirically, investors now value growth above all else, and would rather management keep the money if it can be redeployed into expanding the company. Investors just don’t care about “real yield” like they used to. The environment for what modern businesses need to grow is much different than VOC times. Earnings can now be productively reinvested into the business and have a higher ROI to the company than paying them out, and modern shareholders are more than ok with this. GrowthCo’s do not pay dividends, and they’re the most richly valued stocks. OldCo’s need to entice you with dividends, because performance isn’t cutting it anymore. DeFi projects (crypto startups) have no such VOC-style limitations of yesteryear, yet the cultural demands act as if we’re going on a spice expedition. -- Financial Natural Law, 100x or 5%: Pick One -- Do you buy a hypergrowth company for a 5% yield or a 100x capital gain? You know how you’re going to get that 100x? By the company growing rapidly. Do you know how the company will grow rapidly? By spending a lot (a lot) of money on marketing, product, marketing, employees, product, and marketing. It’s expensive out there. DeFi is constantly hunting for the next 100x gem while also asking “do we get a yield too?”. That’s speaking out of both sides of your mouth. You can’t be a long-distance runner and a bodybuilder simultaneously. If someone promises you both… recall the saying on “free lunches”. The growth-vs-dividends dichotomy feels tantamount to finance natural law. No reward without risk. No huge gains without volatility. To want 100x and 5% is to seek stability and volatility concurrently. To want reliability and wife-changing returns from one asset. It’s a contradiction. Devs have not outprogrammed the rules of leverage nor have they reinvented axioms of economics. I’ll end with an interesting cultural insight: in the 19th century and earlier, wealth was often measured in terms of annual income, not the value of your assets. The historical emphasis on dividends makes a great deal of sense when you consider this social-signalling component. It’s the exact opposite today. The ultra-wealthy only speak in terms of capital gains and asset prices. Even lower classes look to asset-based net worth as the barometer of wealth, not your salary/dividend streams. Considering that absolutely no one in crypto measures their wealth in staking yield, I don’t think it will take all that long for us to speedrun the dividend thing. DeFi is currently in its VOC phase. This too shall pass.