Galaxy brain resistance

Sat Mar 07 2026

Apologia for bad finance

In crypto, you often hear bad arguments for why you should throw your money into various high-risk projects. Sometimes, they are smart-sounding arguments about how a project is "disrupting" (ie. participating in) a trillion-dollar industry, and how this particular project is really unique and doing things everyone else is not. Other times, it's just "number go up because celebrity".

I am not opposed to people having fun, including having fun by risking some of their money. I am opposed to people being encouraged to put half their net worth into a token that the influencers all say will definitely go up, when the most realistic outcome is that two years later the token is worth nothing. But what I am even more opposed to is people arguing that speculative token games are morally righteous, because poor people need that rapid 10x gain to have a fair chance in the modern economy. Like, say, this:

This is a bad argument. One way to see why it's a bad argument is to approach it like any other argument, and deconstruct and refute the claim that this is actually a meaningful or helpful form of "class mobility".

The core problem with the argument is: casinos are zero-sum games. As a first approximation, each person who goes up a social class, there's a person who goes down a social class. But if you dig deeper into the math, it gets worse. In any standard welfare economics textbook, one of the first ideas that you will see is that a person's utility function in money is concave. Each dollar is worth less to you the richer you already are.

An example of a utility curve. Notice how the slope (value per dollar) decreases the more dollars you have.

This model has an important conclusion: random coin flips, especially large ones, are on average bad for you. Losing $100,000 is more bad for you than gaining $100,000 is good. If we take a model where you currently have $200,000, and each 2x change in wealth pushes you up or down a social class, then if you win a $100,000-sized coin flip, you go up about half a social class, but if you lose the coin flip, you go down a full social class.

Economic models created by people whose motivation is to, well, study human decision making and try to find ways to improve people's lives, pretty much always output conclusions like this. What kind of economic model outputs the opposite conclusion - that it's good to throw in all your money in search of a 10x? Stories told by people whose goal is to feel good about pumping coins.

Here, my goal is not to blame people who actually are poor and desperate and are looking for a way out of their situation. Rather, my goal is to blame people who are financially doing quite well, who are using "poor and desperate people who really need that 10x" as a meme to justify creating situations that encourage poor and desperate people to get into even deeper trouble.

This is a big part of why I have been pushing for the Ethereum ecosystem to focus on low-risk defi. Escaping your money being zeroed out by a political collapse, and getting first-world interest rates, is an excellent thing for people in the third world to have access to, and can work wonders at pushing people up social classes without pushing people down social calsses. Recently, someone asked me: why not say "good defi" instead of "low-risk defi"? After all, not all high-risk defi is bad, and not all low-risk defi is good. My response was: if we focus on "good defi", then it's easy for anyone to make a galaxy-brain argument that any particular type of defi is "good". But if you say "low-risk defi", that's a categorization that has teeth - it's actually hard to make a galaxy brain argument that a type of activity that is clearly regularly causing people to go bankrupt in a day is "low-risk".

I certainly do not oppose high-risk defi existing - after all, I am a fan of prediction markets. But it's a healthier ecosystem when low-risk defi is the mainstay, and high-risk defi is the side dish - something fun or experimental, and not meant for people to put half of their life savings into.

Final question: is the idea that prediction markets are "not just gambling", because they benefit society by improving access to accurate information, itself just a galaxy-brained retroactive rationalization? Some people certainly think so:

I will offer my defense against this charge. The way that you can tell that this is not retroactive rationalization is there is a thirty-year-old intellectual tradition of appreciating prediction markets and trying to bring them into existence, which long predated any possibility of making a serious profit off of them (either by creating such projects or by participating in them). This kind of pre-existing intellectual tradition is not something that exists for memecoins, or even more borderline cases like personal tokens. But, once again, prediction markets are not low-risk defi, and so they are a side dish, not something for you to put half your net worth into.