Ethereum Killing Spree
The hot topic of this week was Layer-1 blockchains. The staggering gains of Solana, Terra, and a handful of other general-purpose networks kickstarted yet another round of discussions about how slow and expensive Ethereumis.
Note: Phantom is Solana wallet.
The argument is as old as the blockchain space, and since 2015 Ethereumremains the most used Layer-1 platform in the space despite people poking at its weaknesses. In my opinion, this time is no different.
I won’t deny expensive transactions and slow confirmation; we all know the drill. However, we have had fast and cheap blockchains since as early as 2016, and only XRP could take second place on the market from Ethereum. Not for long, though.
Apparently, it’s not about speed and cost in the first place. It’s about user experience.
Users are sticky. If they like a product, they are unlikely to migrate anywhere else unless the alternative is 10x better. Unfortunately for Ethereum’s competitors, their user experience is far from 10x of Ethereum. Sometimes, it’s below 1x.
Sure, transactions on Solana are fast and cheap. But, if you ever used the network, you most likely encountered failing transactions and data errors.
I’d rather pay $20 for a Uniswap transaction knowing that it will execute as expected rather than try to send multiple cheap transactions on Solana just to get one through.
Ethereum is already convenient for developers and users and is getting better every day. Yes, it’s slow, but apps look pleasant and don’t throw errors every five seconds.
If you take the speed and cost issues away, Ethereum becomes unbeatable. And if the transition to PoS finally happens at the beginning of 2022, the speed and cost will no longer be a problem.
While Ethereum Killers are moving fast, their target is not standing still. So, to close the gap, they need to move much faster and provide a 10x experience to lure users away. So far, it’s not the case.
So, even if you have a good time speculating on the prices of Solana and Terra, try using them occasionally and compare the experience to that of Ethereum. That’s how you will know what to hold with diamond hands.
SIMETRI Portfolio – Importance of Liabilities
Today we’ll discuss how important it is to account for liabilities when constructing a portfolio. Let’s start with a simple example.
Imagine you have your money in one of the largest U.S. pension funds in 1999. The stock market is booming, and you feel comfortable about the future. That’s until December that year.
In December, the tech bubble bursts, and the market takes a plunge. Some of your pension fund’s money was allocated to the NASDAQ index, which went from over $5,000 to slightly over $1,000 in a matter of three years. Your pension fund went from surplus to deficit.
At the same time, the interest rates were decreasing, which put your pension fund into a more difficult position. Its assets decreased in value while paying debt off was becoming harder.
The situation I outlined actually occurred. From December 1999 to May 2003, S&P 500 pension plans went from a $239 billion surplus to a $252 billion deficit. The same situation happened in 2008.
Let’s bring it to a more personal level. Imagine you have to make regular payments on your mortgage. Now, if you have a variable rate and it goes up while the assets you hold plunge, you won’t be able to pay your debt off.
Fortunately, some strategies focus on generating cash flows for investors to meet their liabilities. They are called Goal-Hedging Portfolios. A retirement bond portfolio is an example of this.
Cash flows of a retirement bond portfolio
Source: The Harvard Law School
A retirement bond pays out fixed sums of money over some period, presumably retirement. The bond’s price is volatile, but you are more safe holding it than holding cash if you account for the cash flows and liabilities.
That’s because of the funding ratio, which is assets divided by liabilities. If you substitute assets with cash, then your assets aren’t volatile. But, your liabilities are volatile, and cash doesn’t help much to meet them over the long term, whereas the retirement bond does.
Again, we come to the realization that every portfolio should be constructed according to individual needs. There’s no universal solution because different people have different goals and liabilities.
Let’s stop right there, and next time I’ll show you how the management of liabilities affects investment in risky assets. Now, it’s time to look at SIMETRI Portfolio performance.
