Oct 26, 2020
Introducing Alpha Farmer
The Inefficient Market Hypotheses
Reinventing the wheel is often an exercise in futility. The current explosion of decentralized finance (“DeFi”) applications, however, are often predicated on their claims of reinventing the wheel of traditional economic and financial concepts. The current prototypes range from automated liquidity and collateral protocols (“automatic market makers” or AMMs) to investment mechanisms that seek capture returns in the crypto DeFi space through dynamic yield capture (colloquially better known as “yield farming”).
But there is nothing wrong with traditional economic and financial concepts in the first place, while many DeFi alternatives lack rational economic and financial models. For example, yield farming faces two challenges from proven economic and finance concepts:
- Yield itself is not an investment indicator, but rather a compensatory payment for risk. Investors determine whether the yield is sufficient enough to cover their capital risk in order to derive a risk-adjusted return.
- Any rational and sophisticated investors seek “alpha” and not yield. Alpha can be best thought of as the excess return of any assets to its appropriate benchmark.
In other words, a yield is certainly not an alpha, let alone even a return.
Alpa Farmer is not reinventing financial history. Instead, it will apply traditional economic and financial concepts in a distributed manner to give access to benefits to all. It has been designed to deliver a truly decentralized on-chain system that will effectively mimic the traditional alpha seeking asset manager.
The project is built around a sound economic model with a governance token that:
- determines crypto portfolio selection and construction through its voting algorithms;
- facilitates consensus on the price/cost of alpha through its staking features for all users;
- contains a rational incentive structure that aligns the interest of the stakeholders with the ecosystem itself.
In essence, the platform will bring together for the first time crypto traders who are seeking capital and crypto investors seeking “alpha”.
Alpha Farmer will democratize access to superior digital asset investing by aligning crypto traders who want to capitalize on their skills with crypto investors who want to invest but fear the crypto knowledge asymmetry while desiring a ration and fair price discovery of alpha.
The concept of asset management is not new. Neither is the rational economic desire for alpha by investors. What is also not new, is that seeking alpha generation through traditional asset management is only open to those institutions and individuals who are ultra-high net worth. And even for them alpha generation is often mispriced as traditional asset management business is not structured rationally and dynamically.
Asymmetric information and access define the prevailing economic and financial modalities. This means that those selected few with the large enough capital base are able to take advantage of the asymmetry to take a lion’s share of gains and benefits from the traditional economic and financial markets. Similarly, a career in traditional asset management is often a difficult and elitist path that requires the “right” schools, jobs, and connections. Opportunity and access clearly are not distributed equally in our world.
But talent and desire are equally distributed. Alpha Farmer utilizes that distribution, along with its blockchain innovation and technology to democratize digital asset investing from both sides.
The on-chain toolsets and processes are combined with a community-driven social intelligence network to improve and enhance digital asset investing for all, through a rational and truly fair price discovery mechanism for capital access and alpha generation. Alpha Farmer will be the first truly decentralized social crypto asset management network owned and governed by its community.
PROBLEMS/SOLUTIONS
Crypto traders looking to capitalize their skills:
There are many talented traders and analysts who don’t work in few legitimate crypto institutions or do not have the so-called “pedigrees” to be able to find a foothold in such institutions. Alpha Farmer is a trustless on-chain platform where non-custodial smart contracts will allow emerging crypto traders to connect with investors, by giving performance metrics that are immutable and accurate.
Crypto investors looking to overcome asymmetry in access, opportunity, cost:
As an emerging assets class, crypto investing can be difficult, with many new investors simply lacking the technical skillset and information/knowledge edge to overcome the massive asymmetry inherent in the space. With Alpha Farmer, community consensus achieved through stakeholder voting allows these investors to provide whatever capital they can risk and stake tokens to realize alpha on their capital by selecting the top traders in the ecosystem to manage the portfolio.
Democratizes access to rational crypto investment vehicles:
Alpha Farmer will create a decentralized and distributed access to a rational alpha generation process, which is both more democratic and efficient than the high cost and elitist traditional asset management process, historically opened to those who are ultra-high net worth.
Creates a true community for understanding and assessing cryptos:
Along with the social trading process, Alpha Farming will build a social intelligence network. Where traders, analysts, investors, and others in the community can post information, views, and insights about various crypto and other projects and ideas. The information/views/insights are then voted on by the community and the most relevant and pertinent information, according to consensus, will be rewarded through tokenized incentives.
NEXT STEPS
The overall disparity and asymmetry in the current economic/financial system have failed most of us. Things are not getting better. This is not due to some fundamental weakness in traditional economic and financial concepts. Rather, it is due to the unfair and concentrated application of these concepts to only benefit the select few.
New crypto investors want or need a better investment process. Emerging crypto traders should be able to showcase and capitalize on their skills and talents. They all deserve to participate in a transparent, rational, and efficient crypto investing process to benefit all. Alpha Farmer is the solution.
Over the coming weeks, we will describe and explain the components of the Alpha Farmer ecosystem. The technology, the token economics, the various stakeholders, and the interactions between them. We are planning to launch the public beta network by early next year.
We hope you join us and stay tuned for further updates as we progress. We appreciate our budding community and all of the fantastic feedback so far.
