Building <-> Trading/Investing
Building and trading/investing are two sides of the same coin. Being a more active trader/investor has made me a better builder. Here's why.
One of my greatest regrets in crypto was not being active in liquid markets sooner. Let me explain.
I got into crypto through a very venture/builder mindset. My first roles were at Polychain and then Dragonfly (with some consulting work for protocols in between) before I went to go build new types of markets at Alkimiya. When I joined crypto around 5 years ago, I was 18 and honestly didn’t have a lot of cash. For some reason, being focused on long-term illiquid investments/operations made me scared to risk the cash I did have, and so I was very, for lack of a better word, lazy in deploying/risking that to try products.
Of course, I did some DeFi farms/arbs and bought spot long-term holdings, but I wouldn’t have classified my self as an on-chain power user (at least, not on my PA).
In hindsight, this was one of the worst mistakes I could make early on.
At the time, there was this sentiment that it was negative signal for a builder to be trading actively. It was viewed as a detraction from the work they should be doing. More recently, it seems that sentiment has gone back to neutral. Sure, trading can genuinely be distracting/fry your dopamine and that means that a lot of traders have a hard time adjusting to the longer time frames that building requires.
But it doesn’t change the fact that some of the best products in crypto since then have been built by investors/traders (or other types of power users).
Not sure when exactly it was, but something snapped mid-way through last year going into Q4. It was some combination of talking to close friends (many of which are active liquid participants/traders) and the realization that:
Any builder that intends on launching a protocol must be very aware of liquid dynamics if thinking on a multi-year horizon (and not how to grift out at TGE)
I’d be an absolute fraud if I was working with builders on Ritual and wasn’t a power user of products myself. Of course, not every product on us is trading/on-chain focused but all products on a chain touch the underlying monetary dynamics core to crypto.
So I started a bit here and there. First with major spot to test the waters, and then really fell in love/got excited about on-chain trading/memecoins. In particular, I was able to multiply my PA significantly off the AI memecoin meta, played the metas that followed before moving to perps/understanding markets beyond on-chain. At the end of it all, I’ve made a decent chunk, round tripped a bunch more, but most importantly walked away with a perspective I never would have had.
I don’t think it’s an exaggeration to say that this significantly improved my ability to think strategically about building Ritual.
Trading/investing is, to me, fundamentally a discovery game. It directly incentivizes participants to understand a combination of capital flows, narratives and mimetics, and underlying protocol features/quality to find winning trades (or in the case of a short, the absence of those things). It also forces you to use new tooling; from understanding the products you’re betting on to all of the infrastructure around different markets. You learn some of this in venture, but actively investing/trading I think forces the point much earlier.
But how does this relate to building? I think that the “Golden Zone” as an operator in crypto comes when you’ve spent time doing all three well (or striving to).
I often say that being a venture investor first was a 1.5x multiplier on being an operator because it helped train a birds-eye view of markets, mimetics + gave a nice network for distribution.
Being an operator probably made venture investing 3x easier because I could:
Empathize and understand the nitty gritty of what went into building an enduring business
Hone my ability to understand what went into great talent (as it turns out, companies are made or broken by their talent which means trying to hire the best and recognizing the best when doing early-stage VC is very synonymous).
But trading 5x’ed both of those because it forced me to understand:
The types of products/assets the market is keen on (or not) on different horizons (especially on long-term horizons; your protocol’s journey doesn’t end at TGE but rather starts again)
Attention capture
What being a power-user of protocols actually meant. In particular, being a user helps you more quickly recognize the user patterns that you would want to see and where there are unrecognized market opportunities for applications to come in (and the same is true beyond trading/investing, which is why I make it a point to use as many AI applications as possible to inform my decisions around Ritual; that’s an article for another time).
Now the hard part is reconciling the time frames of those three things. With building and venture investing, you are (ideally) operating on very long time horizons, multiple years. With investing/trading that’s sometimes the case, but you are also sensitive to shorter term dynamics i.e. market-moving events and seasonality.
This is where one of my favorite mental frameworks comes in. It’s from Alfred Lin at Sequoia, who in turn was inspired by F. Scott Fitzgerald, who said
“The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”
Essentially, Alfred talks about holding the extremes of ideas in tension and that the right answer is somewhere in the middle. I think of investing/operating in the same way.
By holding what’s desirable as an end investor/trader in tension with the everyday of being an operator, it’s been a helpful framework in working backwards to figure out:
What’s noise in the short term and how do I avoid playing those games (because they’re often -EV in the long term)?
How do I build something people actually believe in (both fundamentally and long-term narratives)?
Whether that’s Ritual itself or working closely with the teams building on top, I think about my decisions through these lenses (among others). It has helped greatly shortcut how I think about what’s desirable from a product, strategic, and operational perspective. In retrospect, there’s a lot of projects with tokens or liquid assets out there that would have benefited from doing the same. Whether it works or not, only time will tell, but I’ll be damned if I don’t try everything.
There’s a lot of nuance that obviously goes unsaid here about both categories but the point is this: at the end of the day, the best trade/investment any operator will make is the project they’re working on and have an outsized stake in early. In both cases, you think you see value or an opportunity where others do not, and you capitalize on that.
The execution may be different, the time horizons may be at the extremes, but the idea is the same. So why not try and learn both and synthesize what’s in the middle?
This was something that was in the back of my mind for a while, but more recently inspired by a convo with 0xAnteater; they’re quite insightful and would recommend a follow.
If you’re a builder thinking about your next project, hit me up (even if its not on Ritual). If you’re a trader and you resonate this, hit me up too; more persepctives are always better.