A zero-sum game is one where one player's gains equal another’s losses. In dice, poker, chess, or futures trading, the total amount of money in the system remains constant because one trader’s profit is another’s loss.
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The cryptocurrency market tend to follow the same logic. Every profitable trade for you has someone on the losing end. When you look at the order book, you will see the makers and takers. For every maker, there is a corresponding taker and it makes cryptocurrency trading behaves as a Zero-Sum system.
Does that make cryptocurrency as a whole a zero-sum game?
The truth is cryptocurrency is broader than just trading and that will change the narrative for zero-sum game analysts.
The Zero-Sum Layer: Speculation and Exchange
As a trader either on centralized or decentralized exchanges, the liquidity pool is fixed at any moment and the price increases or decreases based on individual participation.
Token A with A/USDT liquidity at 100A/100USDT mean if I buy with 20 USDT, theoretically, new pool will be 80A/120USDT and a price increase. The same goes if I sell, after someone purchases, I profit from the person purchase.
Liquidity providers earn fees from liquidity pool changes, exchanges earn spreads and aside this, no external value is added.
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So when next you trade a memecoin, you are playing the zero-sum game before it rugs and the dev cashout.
Leverage trading is another good example of the zero-sum game especially with futures and options. They simply take from people who longed their position to those who short or vice versa.
When you see news like shorters gain millions of dollars due to a dump in bitcoin, it's not the exchange paying them, it is longers that bet on bitcoin pump.
This layer is what you see on social media because traders post their wins, PNL percentage and all. The winners are mostly visible than the losers.
Despite all this, it is only a fraction of cryptocurrency ecosystem. It doesn't solely determine if cryptocurrency a zero-sum game.
The Non-Zero Layer: Utility and the Underlying Protocol
Cryptocurrency is not just about trading. It is more than that. According to coinmarketcap, the total market cap for cryptocurrency is $3.87 trillion, a 63% increase from $2.36 trillion in one year.
This is value not just from trading but from the financial infrastructure powered by cryptocurrency, the applications, developers, miners, witnesses, validators, networks, and protocols.
Their activities generates values not redistributed wealth.
Examples
Hive: Hive is a direct example of a cryptocurrency not designed just for trading or being a zero-sum game coin. It is for social interaction and content based platform. Users publish, interact, and curate while getting rewarded in the process. Hive converts digital participation into measurable output.
Developers, writers, content creators, and curators receive reward from their engagements not from another trader's loss. This is how the ecosystem expands and we now have different DaPPs on Hive.
We have layer 2 tokens, communities that add function to the hive cryptocurrency and increase the network utility.
These is in contrast with zero-sum speculation. No Hive user must lose for another person to gain.
Hive has shown how cryptocurrency networks can grow beyond redistribution of wealth into creation of wealth. It shows the non-zero aspect of cryptocurrency.
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Ethereum: Ethereum smart contracts was a game changer. It brought decentralized finance, NFTs, tools, decentralized storage, Layer 2 platforms, and many others. They are utilities that exceed beyond mere speculation.
Stablecoins: USDT with $183.22 billion market cap is another example of cryptocurrency that is non zero-sum. You don't need for someone to lose before you gain. The utility value of stablecoins are immense. From facilitating cross-border transfers at a lower cost to increasing transactions efficiency, the utilities are limitless.
These developments attract external capital and development. Developers, participants, hardware manufacturers, validators, writers, designers, and service providers earn income that originates outside the crypto trading cycle. This flow changes the zero-sum game narrative for cryptocurrency into an open market one.
The Transition Point: Market vs. Infrastructure
Cryptocurrency is dual-layered.
- The market layer is zero-sum: speculation, margin trading, and short-term arbitrage.
- The infrastructure and utility layer are not.
People look at the whole cryptocurrency ecosystem and analyse it based on the price behavior neglecting the underlying network.
Market speculators supply liquidity and are involved price discovery. Builders supply technological growth and advancement. Users supply adoption. When these forces align, value creation exceeds redistribution of wealth or zero-sum game.
However, when speculation dominates and utility stagnates, the system reverts toward zero-sum dynamics. This is why we should keep building and urge users to adopt or rather build for the users so it makes adoption easier.
Final Thoughts
Cryptocurrency trading is a zero-sum game but the cryptocurrency ecosystem is more than that.
Price speculation redistributes wealth but the underlying protocol generates wealth.
Both speculation and building can co-exist but it is ideal for the underlying protocol to surpass Speculators to create an open market.
Posted Using INLEO
Enjoyed the article. I wrote something that puts it a little differently and is part of a much larger series on how to make loans happen on Hive. I haven't posted yet as I only have 2 of 5 pieces written so far. But here is a little snippet from :
"The power of a million voices".