Jane Street

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Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud by Ben McKenzie, Jacob Silverman

algorithmic trading, asset allocation, bank run, barriers to entry, Ben McKenzie, Bernie Madoff, Big Tech, bitcoin, Bitcoin "FTX", blockchain, capital controls, citizen journalism, cognitive dissonance, collateralized debt obligation, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, cryptocurrency, data science, distributed ledger, Dogecoin, Donald Trump, effective altruism, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, experimental economics, financial deregulation, financial engineering, financial innovation, Flash crash, Glass-Steagall Act, high net worth, housing crisis, information asymmetry, initial coin offering, Jacob Silverman, Jane Street, low interest rates, Lyft, margin call, meme stock, money market fund, money: store of value / unit of account / medium of exchange, Network effects, offshore financial centre, operational security, payday loans, Peter Thiel, Ponzi scheme, Potemkin village, prediction markets, proprietary trading, pushing on a string, QR code, quantitative easing, race to the bottom, ransomware, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Robinhood: mobile stock trading app, Ross Ulbricht, Sam Bankman-Fried, Satoshi Nakamoto, Saturday Night Live, short selling, short squeeze, Silicon Valley, Skype, smart contracts, Steve Bannon, systems thinking, TikTok, too big to fail, transaction costs, tulip mania, uber lyft, underbanked, vertical integration, zero-sum game

In order to advance Sam’s EA aspirations, MacAskill offered him a piece of advice: Apply for an internship at Jane Street Capital. The prestigious Wall Street trading firm is known for hiring the most brilliant grads from elite universities. Sam got the internship, excelled in it, and was offered a full-time position following graduation. At Jane Street, Sam could apply his considerable quant skills to figuring out ways to arbitrage minor differences in price to produce massive profits. He was tasked with providing market-making services trading global exchange-traded funds (ETFs). The specifics of that field are not important for us here, just the obvious: At Jane Street, Sam Bankman-Fried was still playing games.

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“So if you aren’t holding the Tethers, maybe you’re not so concerned about whether Tether could collapse. I mean, do you worry Tether could fall apart?” “So I wouldn’t say not at all concerned. . . . It is important to have a nontrivial amount to be an active market-maker in crypto.” Sam launched into a long-winded explanation of how market makers like Alameda and Cumberland work in crypto. He moved on to stablecoins, and how he thought two of them, USDC and Paxos, were safe. Eventually he turned to what he described as “the other end of the spectrum” risk-wise: Terra, the algorithmic stablecoin that blew up a few months prior.

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Most people wouldn’t risk too much and will avoid the worst of it, but others who went all in on this crypto madness could lose everything. Lives would be destroyed, and for what? So we could all gamble on fake money? So criminals and fraudsters and Silicon Valley venture capital firms and Wall Street hedge funds could make out at the expense of regular folks? What are we even doing anymore? It’s getting to the point that we, as a country, never hold white collar criminals or politicians accountable. Maybe we’re still in shock from 2016, I ventured. We were scammed by the biggest con man of them all, and our collective exhaustion was blinding us to an obvious, dangerous fraud happening right then, live on cable TV and Twitter and TikTok for all to see.

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits by Kevin Roose

activist fund / activist shareholder / activist investor, Basel III, Bear Stearns, Carl Icahn, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, discounted cash flows, Donald Trump, East Village, eat what you kill, eurozone crisis, financial engineering, fixed income, forward guidance, glass ceiling, Goldman Sachs: Vampire Squid, hedonic treadmill, information security, Jane Street, jitney, junk bonds, Kevin Roose, knowledge worker, Michael Milken, new economy, Occupy movement, off-the-grid, plutocrats, proprietary trading, Robert Shiller, selection bias, shareholder value, side project, Silicon Valley, Skype, Steve Jobs, tail risk, The Predators' Ball, too big to fail, two and twenty, urban planning, We are the 99%, work culture , young professional

The financial firms in attendance were using largely the same vague pitches I’d heard years earlier at Wharton. One bank advertised its “global transaction advisory for the new economy.” Another offered students a chance to “bring your career into focus.” Jane Street Capital, a medium-sized hedge fund, had a banner promising its recruits a “dynamic, challenging environment. Rapid advancement. Idea-driven meritocracy. Informal fun and open atmosphere.” (Oh, and last on the list: “Generous compensation.”) I walked around the gym for an hour, listening to recruiters attempting to reel in students with time-tested come-ons: “I love my job, and I love what I do.”

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Patrick wouldn’t say how much money this strategy has made the group, but he did tell me that they haven’t lost money—which is more than many professionally run hedge funds can say. Despite some minor disagreements, there was no yelling or table pounding at the Black Diamond meeting. In fact, the whole thing felt more like an international relations seminar than a hedge fund meeting. “Why would we run to metals if the economy is improving?” Bryce said at one point, after Patrick suggested investing in platinum to take advantage of low prices. “Does anyone think the economy isn’t improving?” Later in the meeting, the group video-chatted with a hedge fund trader from San Francisco, a Harvard Business School graduate who serves as an informal advisor to the group.

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For many incoming Goldman analysts, who spent their lives acing standardized tests and excelling in varsity sports, the desk scramble represented the first time they ever struggled to measure up. Jeremy had started the scramble with a rotation on Goldman’s prime brokerage desk, a group that provided basic services for hedge funds who held their money at the bank. It was a cold desk whose work amounted to little more than acting as bank tellers to hedge fund managers, and he’d quickly grown bored of it. His second rotation, in equity sales, was slightly better, but still something a trained chimp could do. But his third rotation, in the commodities division, had redeemed the failings of the first two.

DeFi and the Future of Finance by Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Vitalik Buterin, Fred Ehrsam

activist fund / activist shareholder / activist investor, bank run, barriers to entry, bitcoin, blockchain, collateralized debt obligation, crowdsourcing, cryptocurrency, David Graeber, Ethereum, ethereum blockchain, fault tolerance, fiat currency, fixed income, Future Shock, initial coin offering, Jane Street, margin call, money: store of value / unit of account / medium of exchange, Network effects, non-fungible token, passive income, peer-to-peer, prediction markets, rent-seeking, RFID, risk tolerance, Robinhood: mobile stock trading app, Satoshi Nakamoto, seigniorage, smart contracts, transaction costs, Vitalik Buterin, yield curve, zero-coupon bond

Order-book DEXs also often have large spreads due to the presence of low-sophistication market makers. Whereas traditional finance is able to rely on sophisticated market makers including Jump, Virtu, DRW, and Jane Street,21 order-book DEXs are often forced to rely on a single market maker for each asset pair because of the nascency of the DeFi market and the complex compute infrastructure required to provide them with on-chain liquidity. As the market evolves, we expect these barriers to break down and more traditional market makers to enter the ecosystem; for now, however, these obstacles create a significant barrier to entry.

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A platform that facilitates token swapping on Ethereum in a non-custodial fashion is a decentralized exchange (DEX). There are two primary mechanisms for DEX liquidity: an order-matching approach and an Automated Market Maker (AMM). Order-Book Matching Order-book matching is a system in which all parties must agree on the swap exchange rate. Market makers can post bids and asks to a DEX, and allow takers to fill the quotes at the previously agreed on price. Until the offer is taken, the market maker retains the right to remove the offer or update the exchange rate as market conditions change. The order-matching approach is expensive and inefficient because each update requires an on-chain transaction.

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Table of Contents COVER TITLE PAGE COPYRIGHT FOREWORD PREFACE I INTRODUCTION FIVE KEY PROBLEMS OF CENTRALIZED FINANCIAL SYSTEMS IMPLICATIONS NOTES II THE ORIGINS OF MODERN DECENTRALIZED FINANCE A BRIEF HISTORY OF FINANCE FINTECH BITCOIN AND CRYPTOCURRENCY ETHEREUM AND DeFi NOTES III DeFi INFRASTRUCTURE BLOCKCHAIN CRYPTOCURRENCY THE SMART CONTRACT PLATFORM ORACLES STABLECOINS DECENTRALIZED APPLICATIONS NOTES IV DeFi PRIMITIVES TRANSACTIONS FUNGIBLE TOKENS NON-FUNGIBLE TOKENS CUSTODY SUPPLY ADJUSTMENT INCENTIVES SWAP COLLATERALIZED LOANS FLASH (UNCOLLATERALIZED) LOANS NOTES V PROBLEMS DeFi SOLVES INEFFICIENCY LIMITED ACCESS OPACITY CENTRALIZED CONTROL LACK OF INTEROPERABILITY VI DeFi DEEP DIVE CREDIT/LENDING DECENTRALIZED EXCHANGE DERIVATIVES TOKENIZATION NOTES VII RISKS SMART CONTRACT RISK GOVERNANCE RISK ORACLE RISK SCALING RISK DEX RISK CUSTODIAL RISK ENVIRONMENTAL RISK REGULATORY RISK NOTES VIII CONCLUSIONS: LOSERS AND WINNERS NOTE ACKNOWLEDGMENT REFERENCES GLOSSARY INDEX End User License Agreement List of Tables Chapter 6 Table 6.1 The Problems That MakerDAO Solves Table 6.2 Problems That Compound Solves Table 6.3 Problems That Aave Solves Table 6.4 Problems That Uniswap Solves Table 6.5 Problems That the Yield Protocol Solves Table 6.6 Problems That dYdX Solves Table 6.7 Problems That Synthetix Solves Table 6.8 Problems That Set Protocol Solves List of Illustrations Chapter 2 Figure 2.1 Western Union transfer from 1873 Figure 2.2 Iraqi Swiss dinars and new dinars Chapter 4 Figure 4.1 Linear bonding curve Figure 4.2 Superlinear bonding curve Figure 4.3 Logistic/sigmoid bonding curve Figure 4.4 Different bonding curves for purchases and sales Figure 4.5 The mechanics of automated market makers Chapter 6 Figure 6.1 The Mechanics of MakerDAO's DAI Figure 6.2 Collateralization Ratios in Compound Figure 6.3 Savings and Lending Rates in Compound Figure 6.4 The Mechanics of Compound's Equity Token (cToken) Figure 6.5 The Mechanics of an Aave Flash Loan Figure 6.6 The Mechanics of a Uniswap Automated Market Maker Figure 6.7 The Mechanics of a Flash Swap in Uniswap Figure 6.8 The Mechanics of Fixed-Rate Borrowing in the Yield Protocol Figure 6.9 The Mechanics of Arbitrage with dYdX Figure 6.10 Perpetual Futures with dYdX Figure 6.11 The Mechanics of Synthetix DeFi and the FUTURE of FINANCE Campbell R.