Good crypto, bad crypto

Writing about stickiness in the context of protocols

Introduction

I’m back. Thought I’d write something up and discuss protocol stickiness since we’re in a bear market. You’ll often run into people on CT who describe the experience of a token down 99% that has room to run down another 99%. For a while, many didn’t understand what this experience could be like until they looked at the charts of their favorite DeFi 1.0 tokens and alt L1 Ethereum Killers. Look at us now, just a bunch of vaporware bag holders trying our best to pump what’s left of our precious future of France tokens on Twitter dot com.

The vast majority of alts are over 75% off their ATHs (if they’re lucky), while a surprising amount are hanging out in the -90% and beyond range. As the technology has gotten considerably cheaper, we’re now wondering who is out there to bid on these undervalued coins. Projects that were once the darling of CT’s eye are dead in the water, with 24h trading volumes getting lower and lower each day except for the occasional spike on the news of a major exploit or large sell block. New protocols are struggling to attract users as their previous tricks don’t work anymore. There’s no reason to hop into a shiny new farm on an L2 if you know the token rewards are just going to be diluted by 0xSisyphus 5 days after launch. On-chain shenanigans are a shell of their former self, leading to many leaving the space or taking “hiatuses” due to the hard truth that there isn’t much opportunity for the 99% of us who don’t have any edge.

Over recent months, I’ve been taking time to learn more about crypto and its many shortcomings. It’s really easy to have tunnel vision in a bull market as every token you buy is almost guaranteed to 5x. If you got in early enough to new tokens or protocols just six months ago, it was fairly easy to book a profit with little to no work. We had an influx of researchoooooors citing the numerous reasons why the umpteenth Uniswap or Aave fork on SquidGameChain was going to change the world, all while being represented by a token with $750k in liquidity at its peak and a $75m market cap to book. I can’t even describe how wild the substackooooor / threadooooor meta was at one point, with everyone and their mom writing about why the coin prices going lower was a good thing and how you, oh wise reader, could survive the bear market. It doesn’t help that many of these threads were hardly based in reality, written by many who had created a Twitter account three months ago and hit a 100x on their portfolio simply by being early.

I won’t kid myself, I just started this crypto thing a little over nine months ago, but I feel like I’ve always been honest. Many of us will not make it, this is just the nature of the twisted game we play. I’ve never written an article or a thread telling you that x token is going to the moon, let alone told you to buy the token. I’ve never told you that the bear market is a good thing (because it really isn’t) or that you can “survive” the bear market after you’ve already lost 85% of your trading funds. In fact, I’ve barely traded my own portfolio, for better or worse. Most of the bull market I was still mowing lawns and swing trading AMD / NVDA every week. I missed basically every run-up of 2021 simply because I was too unaware of the money printing frenzy happening in crypto. I can’t even speak accurately on market cycles because I’ve barely even been here for a full cycle, let alone profited immensely off of anything I’ve written about. Crypto is a fun video game, and I’ve always treated it like that.

I find it kind of disingenuous to be shilling tokens and strategies to followers or readers as I’m not actively trading myself, and I think I’ve done a good job of explaining my writings are pipe dreams; assorted thoughts of mine thrown into semi-coherent ramblings about why the world is going digital and how this could affect our less than regulated internet casino. In a perfect world, I’d love for BTC to trade at a million dollars - but this isn’t likely to happen in the next five years unless some very whacky events transpire outside of the metaverse. Instead of thinking about price targets, I try to come up with what might be the most logical outcome for the most illogical events.

If you want to long the right tokens that will 1000x the next cycle, you need to be thinking outside of the box. Would economists have ever expected the Fed to print as much money as they had over the past two years? Probably not. Would anyone have expected growth stocks to rip as hard as they did from 2020 to late 2021? Maybe not, unless they had predicted the money printer go brrrrr. Would early cypherpunks have predicted crypto to be sitting at a $1.3 trillion market cap only a little over a decade after the creation of Bitcoin? Maybe not, but hopefully my point is coming across. The markets favor those who think differently than the rest by rewarding early adopters. We like to think that BAYC holders are idiots, but we should take a look in the mirror - who’s the one who didn’t 250x on a dumb jpeg of a cartoon ape? Who’s the one who faded weird generative art NFTs and who’s the one who didn't buy the immature dog tokens? Who’s the investor who didn’t buy weird ideas like electric car manufacturers, online book stores or computers made out of a couple teenagers’ garage?

The markets have gotten a lot trickier for the average crypto investor, and I expect many tokens to draw down pretty heavily from here as we shake out a large number of tourists who still remain in the industry. You won’t make money DCAing garbage tokens with every shittier tokenomics, that time has passed. Just as the tech bubble burst and lit 99% of the world’s worst tech companies on fire, the same will occur with crypto in the next year. Did the internet disappear after the bubble burst? Of course not! That’s why we’re still here today.

I’m afraid I’ve gotten too off topic, so let’s explore how to navigate the markets as they get a little less silly and a little bit more mature.

Betting on the right horse

As I said earlier, the tech has gotten cheaper. But how do we know what tech is good to buy and what tech will get replaced by the best tech? That’s what I’m here to write about today.

Crypto is separated into five sectors:

• L1s

• DeFi

• Metaverse

• Gaming

• NFTs

This is a very loose description of crypto in its entirety, but it sums up most coins on the market. There is probably a great deal of alpha for those who focus on building their knowledge base in one of these categories, as each one holds the potential to offer tokens that could become industry leaders. I like comparing crypto in its current state to the internet / tech companies of the early 2000s, mainly because there are so many similarities to the two periods. The internet had many haters in its infancy, with people making fun of wunderkinds like Bill Gates for even toying with the idea of a World Wide Web and computers. Venture capitalists were foaming at the mouth for these shiny, new tech companies, with valuations going through the roof. Markets were going nuts, with everything from pets dot com to eToys dot com fetching these ridiculous valuations and tearing apart retail investor dreams in the process. Does any of this sound familiar?

While I don’t predict a ton of carnage across major tokens, I think we overestimate the potential for many of our beloved DeFi protocols. Just because there’s TVL, doesn’t mean it’s going to be useful. I like to think that the current crypto market provides many of us an opportunity to pick up $10,000 bills in front of a steamroller driving at 2 miles per hour. Obviously not all of these $10,000 bills will be cashed out into our bank accounts, but of them, maybe 25% will. There are thousands of tokens currently traceable, with maybe a couple hundred (if that) which will remain beyond 2022 - here’s what to look for in them.

Utility

When looking at a protocol, it’s helpful to put yourself in the shoes of someone who might not be very familiar with crypto or someone who’s never even used Metamask or Uniswap. The majority of us use DeFi on a daily basis, often because we’re trying to make money or farm airdrops or earn some kind of yield - what are the reasons future retail investors might flock to our dApps and buy the overvalued tokens? Thinking about a project’s utility is useful because it forces you to remove any bias you absolutely have and adopt a “fIrSt PrInCiPlEs” mindset. I’m serious, try and come up with just three reasons anyone would want to use something like (insert dApp that nobody really enjoys) and get back to me. There are a lot of projects out there that not only don’t make sense, but provide no value to users beyond speculative money flipping. There are, of course, more than a handful who provide value, whether this is an Aave, Uniswap or Yearn. Try and dig through the rubble and find tokens of protocols who might shapeshift into the previously mentioned titans of DeFi. Find whatever it is you believe will catch the most adoption, whether it’s a Uniswap fork on an L2 or an “eat-2-earn” Stepn clone. Hell, maybe it’s Bored Ape Yacht Club 2.

Valuation

It doesn’t make sense to throw all your money a token simply because it’s cheap - the question is how cheap is it right now, and how much cheaper is it going to be in the near future? It’s always mentioned that buying AMZN / GOOG / NVDA back in the days of old could have netted you 100x-200x investments had you simply held - but it wasn’t this easy! Even today, those that believe in the future of many tokens are stuck with -50% positions after they bought in under the assumption a bottom was close. I like a ton of tokens, but I’m not ready to fully deploy my funds into them. I’m going to sound like a stupid value investoooooor here, but it is seriously in your best interests to diversify and DCA over the next year. Why is this?

In my opinion, many of the tokens we laugh at today will grow to become powerhouses, assuming crypto survives to another cycle and mass adoption blows past ATHs. It’s always been in anyone’s best interests to bet on growth and the increasing dominance of technology - crypto is the same. There could easily be a future where all of our payments across the world are processed via blockchains, with our dApps abstracted away behind better wallets with clean UX. Nobody will know they’re using crypto, it’ll just be; this is similar to how many have no idea what’s inside of their computers or iPhones, they just use them because they are irremovable from our lives.

Swag

Okay, this category is way more qualitative then I’d have liked it to be, but bear with me. Tokens that do well in crypto typically have a few non-quantitative factors that benefit it, these being: crazy / genius founder, cult-like community, good UX, clean branding - you know the deal. Think about tokens like ETH, TRX, SOL, YFI, SPELL, the list goes on and on. Looking at the community, you can get a gauge for how intelligent the collective group backing the project is. The lower this collective IQ appears to be, the more bullish. A project is only as good as its UX, visible through easy to use protocols like Uniswap and Yearn. The less clicks there are for users, the better. Marketing is very important as well, mainly because we all like to see pretty gradients behind our tokens’ logos along with a website that gives you anxiety and decision paralysis.

If something isn’t cool, it doesn’t matter how revolutionary it is. In crypto, it’s all about attracting funds (TVL) and showing off against competitors. Well, at least it feels this way. Nobody will care that x bridge is better than y bridge because x bride is 2x faster for standard token swaps. If y bridge has over 10x the TVL and 100x the daily volumes of x bridge, then there is no competition - y bridge has already won the race.

Conclusion

I hope my brief thoughts on horse racing within the space of financial technology has helped you gain a better idea of what to choose going forward. The world isn’t ending, but the internet and social media can sure make you feel that way sometimes. It doesn’t hurt to do some research on tokens you might want to buy, as we probably have a while until crypto becomes a risk-on environment once more. Don’t dump your money into a token all at once just because you think it will be the future of France - maybe it will, but it is more than likely it draws down 50% or more from this point on. Be smart about your portfolio, and make sure you separate the trades from the long-term holds.

Peace out.