kaledora@kaledora
1. My original tweet referenced the cost of holding positions. Many understood this to refer to the cost of longs specifically. I was referring to short positions. I could have been clearer in my language, but it didn’t occur to me that this would be misinterpreted.
2. Others, while understanding my point, criticized the spirit of it, claiming (1) it is unfair to extrapolate an annual cost that only persisted for a short period of time, and (2) open interest was capped, leading to limits on arbitrage capacity. (2) is fair. (1) is (in my view) a moot point: extremely volatile funding in either direction is undesirable from a trader’s perspective. I’d never suggest that +365% is a steady state rate; the problem rather is the fact that that value swings so high/low in the first place.
3. Since my post (3h ago), funding has flipped from -365% to +170%. This further goes to show that FRs on these markets are extremely volatile, and are likely to remain so for the foreseeable future with this market structure. This is a different game than crypto perps given the alternatives in TradFi and I would not expect web2 traders to tolerate this level of unpredictability in holding costs.
4. I’ve been quite vocal about this for a long time, but think it bears repeating that HL is a great product. It works great for crypto. I just don’t think it’s the right architecture to bring TradFi assets onchain. I believe the right model is to quote directly from the underlying market, more akin to a decentralized broker, than try to natively recreate limited orderbook liquidity from scratch onchain at the exchange layer. I am confident the market will eventually prove this thesis correct.
