Strong winds can’t bring in money, so where does the money for liquidity mining participants come from?

Original title: " The strong wind can't bring money, where does the farmer's money come from ?"

Original source: Li Hua Mechanical Clock

The farmers seem to be picking up money, but strong winds can't blow away any money.

One situation/explanation is to cut leeks, which is easy to understand. The farmer digs out fake ginseng, for example, and then sells it to the buyer at a high price. In the end, the buyer gets a bunch of fake ginseng and the price goes to zero. The farmer's money comes from the buyer.

Is there any other situation?

Imagine a situation where a farmer dug up a huge amount of fake ginseng and sold it for a total of 100 million yuan. The buyer took over the 100 million yuan, but the price of the fake ginseng did not return to zero. The total price of a bunch of fake ginseng was still 100 million yuan, circulating in the market. At this time, the farmer had an extra 100 million yuan for nothing, and the buyer did not lose any money. Where did the money come from?

I think it may come from inflation . Let’s compare the fake ginseng with the additional banknotes: the additional banknotes themselves are a pile of white paper in the workshop, without any value, and then they are printed with patterns and anti-counterfeiting labels and pushed into the market, which is a pile of money. The same is true for the fake ginseng that is dug out. It has no value at all, but as long as everyone accepts its price, it is a pile of money.

If there is no backing behind the additional paper money, such as the over-issuance of Venezuelan currency, who loses out? Everyone who holds Venezuelan currency.

If the fake ginseng dug out has no support, who will suffer the loss? Roughly speaking, it is every holder of the currency in the monetary system , because the monetary system is inflated and 100 million yuan is newly printed.

Suppose we call this system a cryptocurrency system. If there is no influx of external funds during the craze of digging fake ginseng, then inflation will occur within the cryptocurrency system. If there is only Bitcoin in this system, then Bitcoin will depreciate. The extra 100 million yuan for the farmer is the 100 million yuan lost by the Bitcoin holder.

But there are many currencies in the cryptocurrency system, and inflation does not fall evenly on all currencies, but on the currencies that are least able to resist inflation. For example, there is a currency called Radish Coin. Everyone doesn't like to eat radishes anymore, so it will quietly depreciate under the craze of digging fake ginseng. The extra 100 million yuan of Farmer is the 100 million yuan lost by the holders of these currencies that are difficult to resist inflation.

If external funds enter the fake ginseng digging craze, then inflation will occur in the entire monetary system of the world, diluting the money of the outside world. Perhaps in a sense, many cryptocurrencies, including Bitcoin, are a kind of additional issuance under the world monetary system, and can also be understood as a kind of currency competition.

This reminds me of two points that I hadn’t realized before:

1. Although these tokens in the cryptocurrency system (excluding NFTs) have various attributes, such as some are pure currencies, some represent equity, some represent governance rights, etc., their first attribute is currency. This does not mean that their purpose is to be a medium of transaction, but that whether they like it or not, they have to participate in a brutal currency competition.

Therefore, from the perspective of inflation and currency competition, if a project includes a token, then in addition to pursuing the value of the project itself, the project must also seriously consider the monetary attributes of the token in its design and planning.

2. From the perspective of inflation and currency competition, the benefits of tokens of projects that can truly create value are not only that the value created leads to an increase in token prices, but also that they can resist inflation. This may be the reason why value investing is more important in the blockchain world, because the additional monetary attributes of tokens will bring them an additional monetary risk.

It seems that looking at the games in the blockchain world from the perspective of currency competition, some previously vague and unclear phenomena will become clearer. I hope this article can help you, but I am not a researcher in currency, finance, or economics. The above is just an understanding from a purely personal perspective. And this article must not be used as investment advice or investment reference.

However, as a token investor, you must be cautious, because when you and everyone else are surprised that the wind has blown in a lot of money, you don’t know that the money came from you.