"The Master of Narratives" is a new essay by Arthur Hayes. Brief retelling

In this article:

1. We are all speculators

2. How it works in the crypto market

3. What do I really do

4. Time for shitcoin stories

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Disclaimer: An approximate summary of the content of Arthur Hayes's essay is presented for informational purposes only.. The opinions expressed below are the personal views of the original author. His opinions may not reflect those of the Incrypted editors.

Former head of the BitMEX cryptocurrency exchange Arthur Hayes has published a new essay – Chief Story Officer. The author explains how narratives help us form opinions about the outside world and how they are created in the first place.

Hayes notes that his main task as the investment director of Maelstrom is to disseminate narratives dedicated to both general trends in the financial system and the crypto market, and specific projects. He also points to a shift from global stories to specific trends and tokens in future essays.

The Incrypted team has prepared a short retelling of the text.

We are all speculators

Every moment of our life is filled with uncertainty, and in order to overcome it, our brain constantly builds a probabilistic picture of the world around us.. Our actions are not based on facts, but on perceived probabilities of various outcomes.

A relevant example for me is the risk of getting caught in an avalanche while skiing.. The most comfortable routes for me are located in areas with a slope of 35°-40°, and this is the ideal gradient for an avalanche.. Therefore, my guide makes a preliminary assessment of the likelihood of an avalanche, taking into account the appearance of the snow, weather conditions, as well as recent observations of other guides. If the risk is too high, we won't start riding.

The story you tell yourself about certain actions and possible consequences shapes your perception of risk.. I call these stories narratives.

For social creatures like humans, narrative relies primarily on the “wisdom” of the crowd, so its power grows with the number of people who believe in it. At the same time, the narrative is also created by objective facts – in most cases these are individual events indicating the riskiness of certain behavior (the fact that skiers die in avalanches is a fact). Stories, opinions and objective facts come together to create a cohesive narrative.

We require this combination because it is difficult for an individual to know the number of skiers killed by avalanches on a 40° slope compared to the total number of runs. We have no way of establishing exact data, so we rely on the experience of other people.

For example, I know that avalanches are more likely on these slopes. But my guide, who has extensive experience and skills in identifying avalanche slopes, believes that this particular route is safe. “Safe” in this case does not mean that an avalanche will not occur, it only implies that the probability of its occurrence is low enough to be acceptable. So, trusting in my guide's knowledge, which has evolved from the experience of thousands of other mountaineering guides, I will follow him down this slope.

The way we distribute probabilities depends not on the facts or technology themselves, but on their perception. Perception, in turn, is built on what other people, who (we assume) are more experienced or educated, think about the subject that interests us.

How it works in the crypto market

Let's say a new project offers technology to solve a particular problem.. This problem is well known, and tokens from other projects working in the same direction are highly valued.

You trust that the project developers are smart and talented enough to create an effective solution. This belief is based on the fact that their advisors are other developers who have launched successful products, and the team members graduated from prestigious technological universities and have experience working in successful companies. Because the startup seems like a winning combination of narrative and technology, you invest.

But if you dig deeper into your thought process, what influenced your decision more: narrative or technology?

Narrative is always more important than technology. Your perceived probability of success is based on what other people say about the problem and the team's competence. It's very rare that you can evaluate a technology at a fundamental level, so most of the time you trust other people who you think have a better understanding of whether it can solve the problem.

Although your technical skills are often not enough to properly evaluate a project, you can easily understand how good the narrative is. And it is good if more and more people tell each other about it.

It's great if the story has a positive perception, for example, “in this cycle, all traders will switch from CEX to DEX”. But even if it is negative, like “traders will never trade CEX for DEX,” the story of the flow of trading volume from centralized to decentralized exchanges continues to spread.

I don't care if people believe the narrative, I just want them to share the positive or negative version of it. And since longs always bring more profit than shorts in a cycle, optimism still wins. It's just how the human brain works.

What am I really doing?

Although I hold the title of Chief Investment Officer of Maelstrom, I am actually the Chief Narrative Officer. I tell stories. The better and more concise they are, the faster they spread, affecting the price of the tokens associated with them.

Actually, technology doesn't matter. All of Maelstrom's financial professionals are graduates of the University of Pennsylvania's Wharton School of Business with degrees in finance.. While we understand the potential applications of cryptography and blockchain technologies, we are not cryptographers, distributed ledger specialists, or have in-depth technical knowledge. When we conclude transactions, we delegate the technical audit to competent specialists.

Our main task is to determine which project has the highest probability of success, given its narrative, which consists of “macro” and “micro” aspects.

The biggest returns come from tokens associated with narratives that change our perception from “impossible” to “maybe.”

I would rather invest in a token with a 0.01% chance of success and an innovative, growing narrative than an asset with a 50% chance of success and a well-known story. If, due to the viral effect, the success rate of the first one increases to at least 1%, I will multiply my money 100 times. To achieve the same effect in the second case, the results of the project must be simply amazing. Will explain:

  • When you invest in a narrative that will change people's perceptions from “never” to “maybe”, the project's success value is low.. The market does not expect much because it is confident in the failure of this trend and the token associated with it. Because expectations are low, even mediocre results will have a significant effect on the price;
  • When you invest in a trend that will change the perception from “maybe” to “definitely”, the value of real development increases. Market expectations are high, so results that would have been considered stunning in the previous stage will now seem mediocre. Now a project must be truly revolutionary in order to grow.

But let's return to the already mentioned components of the narrative.. The macro story tells the story of the overall trend and how a particular project can benefit from it.

For example, derivatives trading is shifting from CEX to DEX. BitPerp creates a DEX with a perpetual swap, which means the BitPerp token will grow, since its macro history is still little known, but has viral potential.

The microstory tells why this particular project will be the best within a particular trend.

For example, BitPerp is advised by Arthur Hayes, who helped invent perpetual swaps. When others hear about Hayes' involvement, they assume that the project will receive amazing advice that will help it outperform the competition.

I usually post macro narratives on this blog.. Most of the time I tell stories about thieving central bankers and politicians who destroy the value of time and human labor by printing paper money. And also that Bitcoin and cryptocurrencies are protection against this theft.

But since this is also a trading blog, I also tell micro-narratives about trends in the industry and how the assets I highlight will grow as more people hear my story.

I don't often write stories about anything other than Bitcoin or Ethereum, but it's a bull market right now.. I've put a lot of effort into creating narratives that will drive the adoption of cryptocurrencies, and now it's time to unpack my bags.

Time for shitcoin stories

The purpose of this essay is to provide readers with an understanding of the conceptual framework that guides Maelstrom's activities.. In the coming months, most of the essays will focus on specific tokens held by the fund and their macro and micro narratives.

These tokens have launched or are scheduled to launch soon, so I will try to spread my stories as much as possible. I don't care if you buy or sell any of the assets mentioned. It is important to me that I present a story and argument that is so provocative that you will discuss it with other people in a positive or negative context.

I will consider it a victory if I see something like:

“Have you read Hayes's latest essay? This guy is fucking stupid. Pendle will never become the largest derivatives trading platform on the market or overtake Binance. I don’t even know what an interest rate swap is, and neither do other cryptocurrencies.”


“Have you read Hayes's latest essay? Damn it, we still haven't bought Ethena. Tether will collapse and Ethena will definitely be the best stablecoin pegged to the US dollar.”

Below is a rough list of macro and micro narratives that I plan to tell in the near future:

  • Retail derivatives trading moves from CEX to DEX. Related projects – dYdX, GMX and possibly another contender;
  • the launch of ETH staking will trigger an increase in interest rate swap trading volumes in DeFi. Related project – Pendle;
  • Opportunity to invest tens of billions of dollars in low-cap tokens to increase quant derivatives trading volumes on DEX. Related project – Krav;
  • liquidity on the DEX chain will be provided by middleware that will eliminate intermediaries in the form of market makers. Related project – Elixir;
  • DEXs are playing an increasing role in price discovery, so online oracles providing quotes for settlement and liquidation will increase in importance. Related project – Flare;
  • we can create fiat-pegged stablecoins without relying on TradFi and banks like Tether does. Related project – Ethena;
  • solving the problem of cross-chain transactions without creating a bridge. Related project – Axelar

Right now, the market's energy and attention is focused on the staggering amount of Bitcoin that US spot ETFs are accumulating. Against the background of the global depreciation of fiat currencies, this will lift Bitcoin to new heights, and the upcoming launch of Ethereum-ETF in the US will also lead to an increase in ETH quotes.

I have both Bitcoin and Ethereum and could buy more, but my focus is now shifting to tokens that have the potential to outperform these fundamental assets. And this is why we at Maelstrom plan to learn as much as possible about the projects and tell amazing stories.