Alpha Sitting In Broad Daylight: The Digital Social Graph
Every person in the Web3 industry, builder or not, seems to be focused on finding consistent fountains of alpha. Following an ever-evolving strategy, we’ve watched as individuals have gone from copy-trading to being pumped and dumped to following free mints and more.
The hoops one has to jump through to stay on the winning side of the knowledge asymmetry become more cumbersome and high effort every day.
But what if I told you there was a way to find alpha every day for free?
In today’s environment, there is one place that you can go to find exactly what a person truly thinks and supports: The social graph.
With the increased usage of tools like NFT Inspect, it’s possible to track high-influencer members of the NFT industry (with minimal effort.) The extent to which one utilizes the available data seemingly boils down to the amount of effort one is willing to devote.
Raw and repeatable profit not enough to be motivating…?
With the ever-increasing growth of the facade that digital identity is, the ability to find demographic-defining information sitting out in the public has become incredibly easy.
Many have resorted to copy-trading individuals and institutions for so long in the market. Yet, anyone copy-trading is merely serving as exit liquidity. There is little long-term viability in merely reacting to the plays you deem suitable. Playing the market like this is like getting a gun showdown and waiting to dodge the incoming bullets instead of shooting your gun. It’s a fool’s strategy. As the quality of a market participant improves, so does their likelihood of playing the market, their following, and you.
- How often do you see an influencer talking about a project launching soon that they are huge fans of?
- How often do you see an influencer fudding a project only to wind up with a massive bag the next day?
Yet, like you, every influencer had to have their moment to find the project or opportunity. So, instead of sitting on our hands attempting to react to lightning-fast actions, let’s change the dynamic.
Setting the Bait and Collecting Your Prey
It starts by first identifying the market participants that we want to watch. With a bit of short-frame backtesting, you can immediately find all collections with profit-generating members, but the collections you want to spotlight will depend on you.
Due to the massive level of personal preference, I won’t go into my guideline or the collections I spotlight beyond the mention of: At all times, several collections within the market have the social consensus to massively manipulate market rates. These projects are rarely a good long-term investment, so I will refrain from mentioning any current ones directly.
With your collections identified, all we need to do is watch the top members of that collection and keep track of when they follow a new account or receive a new follower. Immediately, we can step into the social graph of this person without needing to spend a second of time.
With a constant watch on the social graph of each collection member, we can determine the exact overlap. This means that if secret alpha is making its way through a community, you will be among the first to know, generally knowing long before the majority of the community.
For this, I have an open-source repository containing a few longtail strategies. Aptly named Longtails, all strategies are designed to be combined and serve as a consistent faucet of alpha using long-tail advantages.
Managing a raw stream of Twitter data is difficult due to the API architecture. However, by adjusting our thinking, we can roll with the punches and make sure everything runs as smoothly as possible. So, before we build a solution around data intake, we should consider how up-to-date the data needs to be.
- Do we need to catch changes live?
- Is it okay to capture the live data when we sync the database?
Alpha is rarely so fleeting that you miss the arrival and departure of an opportunity. Generally, an opportunity will form over the months, giving you plenty of time to best position yourself in the future market. A ship only takes one leak to sink, which is precisely what happened here. A recent example of this is the partnership between Moonbirds and Tableland.
Tableland is a metadata protocol that enables dynamic, verifiable, and queryable metadata. It is a genuinely astounding product with incredible potential on its own. (Congratulations to anyone that has a seed position.)
The opportunity for the retail trader in Tableland came through a network of follow-backs that was immediately obvious. The newly created Tableland account had only recently started following Moonbird representatives.
Paired with the oh-so-much teased dynamic metadata of Moonbirds, many solutions have been explored, and Tableland is potentially the most remarkable solution that exists (if you’d like an article on this, let me know.) Whether or not any person knew if Moonbirds “would” announce a partnership, the odds were almost at the point of being a certainty. For months, one could learn about Tableland, be part of the community and find themselves very well positioned for an extraordinarily cheap entry into the trade.
It was only a matter of minutes following the mint before the exit liquidity swept everyone who had been planning their move for months.
- If you go back in the Tableland Discord around the start of the marketing ramp-up, you will see just a few familiar faces. I wonder why?*
This is not a one-off experience. Approximately ~3 significant “NFT partnerships” are announced weekly in the industry. Just frequent enough to keep your eye on the ball and position yourself in a place that allows you to flip the traditional roles of the crypto market.
The thing that many forget is that rarely are whales or institutions minting. They are buying off the secondary market meaning all you have to do to win in this market is beat them at their own game. For a top-tier project, rarely can a large holder mint their entire position. That means the winning strategy is rarely as simple as buying the same projects as your favorite nft-shiller. Instead, place yourself in a position that allows you to sell to them; we all know they will be the top.
Holding blue chips will always be the most profitable market strategy that one can play. Yet, to gain access to that opportunity, it is an absolute requirement that you know about the project early enough to build a sizable bag. So, instead of waiting until your favorite influencer starts talking about a project, build your position before they’re willing to talk about it.
Before heading out, I should cover a few things.
- This is not watching or analyzing the existing flow of money. There is little value in knowing where one’s money went. However, it is precious to know where their money will go (Hence Longtails.)
- For now, Longtails is solely watching the state of followers and following. Have an idea of a social graph strategy you’d like to see? Let me know on Twitter @nftchance.
The maximum impact in the social graph largely depends on one's own ability to decipher noise from signals. There is an opportunity because not everyone has this skill, but taking your time and going through the compiled lists will quickly reveal the current market meta.
You can use Longtails and stay ahead of the information curve. I’ll be making a few more strategies public in the coming weeks, so ensure you stay up to date with future releases if you fork the repository.
Now, get out there and find the alpha! You can find all of the open-source code on GitHub to run any piece of longtail strategies yourself or edit the code to work how you want.