Innovation, Speculation & Manipulation

The Valuation Games people play follow a predictable life cycle based on how pools form and change over time. This life cycle is made up of three distinct stages: innovation, speculation and manipulation.


An alpha-generating innovation is what kicks off the creation of pools, such as when someone invents something or comes up with a new way of doing business. It's the transformation of hopes into reality, where all the risk taking pays off for the alpha creators.

Here is where there is an opportunity to convert hopes and dreams into concrete reality. What may have started as an idea on a napkin can be converted into real resource power. It's a do-or-die moment: if the new way of doing things doesn't work, the pool will never hit a critical mass needed to move on to the next step. The stakes are high, especially since Contenders have the best opportunities to become Commanders here.

External messaging for Valuation Games at this stage is focused on the future. With a new innovation, the pool and its controllers look set to conquer the world—don't you want to be part of that? There may be some concrete successes included in the pitch to support that marketing, but that's not necessarily a requirement. It's common for such stories to be left out entirely in order to focus attention on future potential.

Certain market conditions and unscrupulous players can create the appearance of innovation and still trigger the creation of a pool through pure hope-based marketing. The tech boom of the late 90s, when venture capitalists and investment banks dumped money into companies with zero revenue, is one example. Another is how Sam Bankman-Fried used fake volume on his exchange to attract VC money and create a fortune for himself and other insiders at now-bankrupt FTX.

This is a dangerous place to be for both Contenders and Commanders. Contenders' livelihoods often depend on their ability to play Valuation Games well at the Innovation stage, while Commanders have to sort through optimistic smoke and mirrors before investing. Sometimes a valuable innovation simply gets ignored because the Valuation Games weren't played correctly, which is a tragedy for both types of players.


Once a pool hits a certain growth rate, players start to speculate about how big it'll get and how fast it'll get there. While the Innovation stage represents a conversion of hope into reality for the originators of the pool, the Speculation stage is a clear shift back into hope-fueled behaviors.

The Valuation Games here are based on two simultaneous pitches:

  • This asset is the present: It's proven to be a winner, so future returns are guaranteed.

  • This asset is the future: There's still plenty of growth left, so climb aboard the rocket while you can.

The prime example of this is the initial public offering (IPO), when the creators of a company and other insiders use the speculative hopes of market investors to generate exit liquidity. IPOs are sold as opportunities for everyone else to claim some share of the value created by the company, but the reality is that a company which makes it to the IPO stage is already quite mature—which is paradoxically part of the pitch. It's both growing and proven.

Those who make real money on the IPO are people who had shares ahead of time, as it gives them a gigantic payday for all their work in the Innovation stage. Regardless of that truth, the market is created for those shares. Investors and traders can then start the dance buying and selling with each other in an attempt to profit off of the direction of the company.

Speculation represents the stage of the game where the original alpha creators often take their gains and ride off into the sunset. The fate of the pool then starts to shift more and more into the hands of professional managers and market participants. It's a middle ground where the pool's controllers may still feel an obligation to do things differently, but that feeling begins to weaken as it approaches the third stage.

Contenders on the outside can still play this game to some degree, although to a much lesser extent and with returns that resemble gambling rather than investing. It is where Commanders begin their domination takeover.


Once a pool has an established position in a market and the biggest idiosyncratic gains have been captured, the game shifts into Manipulation. The Commanders at this stage don't care so much about growth or the underlying assets in the pool, they just want to keep the machine humming as long and as profitably as possible in order to exploit it.

The Manipulation stage is where real power plays come into the picture. Commanders, armed with substantial resources and market influence, can sway market trends, shift public perceptions, and even alter the fundamentals of the market to their advantage. They might use their clout to create artificial scarcity, spread misinformation, or engage in strategic partnerships to manipulate the pool’s value.

It's also where Value Extraction tends to take over. This is when companies start to transform into firms that specialize in financial engineering rather than the production of valuable goods and/or services they were built on. Stock buybacks, insider trading and other forms of extraction are valuable when the pool is so big and it has such a strong, defensive position.

Contenders, although at a disadvantage, can also play this set of games to some degree. The best they can often do is act as information brokers, spinning narratives that push the pool's value in a direction favorable to them.

This is a hard path for Contenders though, as Commanders have the resources and the influence to counteract and even crush these attempts. It's about converting power over the pool into real, material benefits. Since Contenders lack meaningful power by definition, they're excluded from most of what's possible here. For the most part, it's a game played by Commanders for the benefit of Commanders.

Although Manipulation go on for extended periods of time—decades in some cases—it signifies the end stage of a pool. If Commanders without vision continue to run it, the pool will get drained and then destroyed for the benefit of those who manipulate it. Many great companies and fortunes have died as a result of extended periods of manipulation without any counteracting interventions to stop it.

Last updated