Musings on Splinterlands, Arbitrage, and Patience

Not Financial Advice

It's a rare occurrence to get real arbitrage opportunities. They tend to close up just as quickly as they open. When bitcoin was new you could mine it for pennies but you couldn't sell it for enough to cover those pennies so it seemed like a loser and most people quit mining it.

If you believed in it or you just enjoyed playing around with the tech enough to eat the cost for a while, you eventually got rewarded handsomely. And that's the point.

Many of us in crypto look at everything as if its supposed to be a wide open arbitrage opportunity all the time even though that makes no sense. Like if you can't put $3 in and immediately pull $4 back out that its a scam. We see 1000% APR and think its real. If an NFT project doesn't run up like they all used to, we call them rugs. I heard a Youtuber call Splinterlands a rug pull the other day because he didn't like the staking requirements.

Arbitrage opportunities usually happen at the edges, not straight down the middle for all to take advantage of. They happen during a launch of a project or during events. They usually happen when a system is new, when its breaking down, when something major is changing, or at the outer edge of skill and resource availability.

They can usually be attributed to a lack of efficiency in a system and they usually close up very quickly as people rush in to capitalize on those inefficiencies.

During that time some people get totally screwed while other do very well. The arbitrage opportunities that stay open are those that can only be captured by a small group of people due to it requiring a large dedication of resources, timing, or unique skills needed. Like high speed trading on Wall Street where institutions spend billions to get the order a fraction of a second faster than the institution next to them. Until its instance, there's inefficiency to be arbed. But if you don't have the specialized skills, knowledge, starting infrastructure, risk appetite, and capital, you aren't getting in on it.

The Bot Farm Arb

Consider the bot farms in Splinterlands as an arbitrage opportunity. The reason I wasn't concerned about soulbound reward cards creating new bot farms is because cards aren't the barrier to entry. Making a few cents per season makes no sense if you have to pay $10 per account for the spellbook and you don't know what changes tomorrow will.

The farms started when DEC was 1.5 cents and you could make 25 cents per battle in bronze using ghost cards. That's when they multiplied rapidly because they paid for themselves quickly. Once they paid for themselves, they were almost free to keep running and arb those pennies later.

When 25 cents a battle dropped to a few cents per day, it was still a good opportunity to run 10k bots if you'd created them already. Creating new ones at that point would have been nuts. The arbitrage opportunity at that point was only exploitable by those who were already in the door.

Splinterlands has always had another arbitrage opportunity that has never closed. If you got in big during alpha and rolled your profits as the game went along, you are still very profitable.

But for those of us that can't go back in time and buy in big during Alpha, there's one big arbitrage opportunity staring us in the face. It's the opportunity to buy at the bottom.

Just like Bitcoin, as the price of SPS goes up, so do the tools to mine it. If you've ever heard the phrase, sell picks and shovels, it means it's usually more profitable to be to seller of the mining tools than to actually get out there and try your hand at mining.

But if you bought the tools when no one cared about mining and the tools were dirt cheap, thats a different story. In this case not only can you buy the tools for cheap, but you can mine like crazy before anyone even knows its here.

And here's what many people aren't looking at when it comes to SPS. With new SPS staking requirements, SPS is now a mining tool that is needed to mine more in the future. You are mining the mining tools and the gold at the same time and there's no where else to get them.

If you believe in this game and economy (and honestly I don't know why you wouldn't at this point if you believe in crypto, gaming, and crypto gaming), the arbitrage opportunity isn't to mine tools and sell them cheap. It's to mine tools and wait until other people need them badly enough that they'll pay a ridiculous price for them. It's to have all the tools you need at this price so when SPS is $1, you can profitably mine it because you spent 1/50th the price on the tools you need to mine it with than everyone else running in to try to get some.

The Edge Case

Arbitrage opportunities happen at the edge cases and you will then be the edge case. You will be one of the few who was here mining SPS no one cared about it. They won't be able to go back in time and get 2 cents SPS and you won't need to (although you'll wish youd gotten more).

I know it seems ridiculous now but if the Splinterlands team reaches its goals for the platform of Splinterlands (not the game), SPS will not just get to $1. It will be multiple dollars. I can easily see a day when it gets to $3-5 or more, market cap be damned. Not to say it has to get there. For all we know, today's 2.3 cents is the highest its ever going to go again but the upside potential is worth the risk of holding for me. DYOR

But imagine for a second SPS gets to $5. Look at your daily SPS earnings and imagine SPS at $5, assuming you didn't sell any of it. (also, not financial advice but you should have definitely sold some before it gets to $5) How much would each of these days of winnings be worth to you? How much would the cards you have now be worth to those trying to get $5 SPS later?

For me, I like playing around with the tech. It's a game. I also believe in the project and I'm fascinated by its direction. I'm here willing to hold and reinvest and even bring in some outside funds. It may pay off and it may not but for me, this is my version of mining bitcoin when it wasn't profitable and holding it anyway.

Posted Using LeoFinance Alpha