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The expression dog-eat-dog comes from the Latin proverb, “a dog does not eat the flesh of a dog.” Now, this phrase has nothing to do with dogs. It first appeared in English print in 1543 but only got famous in 1732 in Thomas Fuller’s book entitled “Gnomologia.”

https://grammarist.com/

Crypto Cannibalism

The title of this post is purposefully crafted to provoke a reaction, and I hope that readers connect with something from this post on an experiential level. I am not an expert. Much of my learning comes from reading, participation in discussion spaces, and being personally involved as a DeFi project team member. We are all competing for the same money. This causes projects and communities to cannibalize one another, while simultaneously scaring new money away. DeFi is messy, and its comparison to the American “Wild West” remains an accurate depiction of the space. People lie, steal, and take risks for a chance at life-changing wealth. Anonymity allows bad actors to ride off with little fear of accountability. Blockchain doesn’t lie, but it doesn’t protect either. It’s up to us to protect ourselves and our resources.

This current bear market is shouldering the blame for a lot of greed, incompetence, and a lack of innovation. It’s natural for people to want to protect their own self interests. No project developer or team wants to go broke trying to create something worthwhile in this space, but I’m seeing a whole new breed of developers. When things get tough, they take what they want from the project, using holders as exit liquidity. If holders are lucky, we get some sort of explanation, but only after the developer has pillaged the project and left holders in ruin. There is no longer a “going down with the ship” mentality. Projects are launched with poor planning, only to fold due to “bearish market conditions”. It’s all BS in my opinion. I’ve lived long enough to experience tough markets, and what I know is that great innovation usually comes from tough times.

We Still Haven’t Figured It Out

There are things in this space, done by projects, that just don’t make smart project planning, investment, or business sense – things like burning supply at launch. Mismanaging supply is prevalent in DeFi, and there are a number of ways this occurs:

• Irresponsible burns
• Irresponsible team token allocations
• Irresponsible allocations to centralized exchanges
• Irresponsible staking allocations
• Irresponsible liquidity pools at launch

How teams handle token supply is a key indicator of the project’s likely success.

Token Burns

I don’t get it. Burning supply assumes that there’s a present or future demand that will cause value to increase. In my uninformed days, I invested in a project that burned 70% of it’s supply at launch. Sadly, the project still failed. Burn doesn’t create demand. It’s analogous to a developer building thousands of homes in an area with declining population. It doesn’t matter if the developer destroys five hundred of those newly built homes. There was no market demand for them anyway. On the other hand, I am impressed with token buyback, or even better, buyback and burn. Paying for tokens at least impacts the chart positively and aids liquidity.

Team Tokens

I’m not a fan of team members controlling a significant portion of supply. To me, it doesn’t matter whether the tokens were allocated or purchased. Even in my role with Zeleboba, the amount of team member tokens held is a big sticking point for me. Teams, not whales, can often be the biggest threat to a project’s success, especially when they over allocate or accumulate tokens. As an investor, I hesitate when I see a huge amount of supply in the hands of a few, especially team members. It amounts to a form of greed. In order to help investors make an informed investment choice, I believe team members should be transparent with the community when it comes to the amount of tokens they hold.

Rushing Exchange Listings

Listings do not equate to success! Communities can sometimes pressure teams into allocating supply and financial resources to Central Exchanges (CEXs) for listing purposes. For some reason, holders mistake availability with demand. I too often see exchanges abuse projects by dumping a significant supply of tokens that they didn’t pay for on the market. As a result, the exchanges benefit from the cash listing fees and the sell of tokens, while the project and true project believers suffer great loss. My general rule of thumb is this:

• If you need a CEX for volume, they’ll abuse you, but if your token is popular enough for them to seek you out, you may be able to broker a better listing deal.

Staking

Nothing says 2020 like a new token adding staking to its offerings, especially when the holder count is small. I get it. Teams feel the need to offer something of value to holders, but staking is costly, especially with a low holder count filled with whales. It’s basically giving away supply to those who already have a significant amount. The worse kind of staking is no-lock staking. It’s a one-sided venture that adds no benefit to the token. Even when projects add deposit and withdrawal fees, they aren’t significant enough to deter transactions, and the fees never make up for the overall costs.

I’ve been a sucker for no-lock staking, and I can say with a high level of certainty that none of the projects that solely offered this form of staking are around today. They have all folded or rugged. To be clear, staking is not the lone reason for their downfall, but it does point to a level of poor planning that made failure inevitable. If you’re going to offer staking, demand a lock period.

Liquidity Nightmares

A lot of new projects have that one holder who dropped a couple hundred bucks at launch when the project’s liquidity was weak. A few others threw in fifty bucks here and there and suddenly we have a $90,000 market cap, $800 in liquidity, a ton of whales, and a supply that’s out of whack. At that point, every $10 to $20 buy or sell sends the chart into wild swings. Holders falsely think their $50 investment is worth thousands based on price action, but the liquidity doesn’t even support the price of a car payment. I’ve seen this more than a few times, and it is a difficult situation to recover from. The project is plagued from its foundation, and unless greed is put aside, it will die. Projects are not stablecoins, so 1:1 is near impossible, but 10:1 is considered respectable in this space. When I evaluate projects these days, I ask questions like, “How many thousand dollar or million dollar profit takers will the liquidity support?” If I don’t like the answer, I generally steer clear. I do not want to be exit liquidity for investors who dropped a few coins in a project with weak liquidity.

The Bold And The Useless

In time there’ll be a DeFi project that cracks the code, a project that develops something truly innovative and game changing. For now, we are left with cookie-cutter whitepapers that reintroduce the same reskinned dApps and products to users.

Staking platform…seen it.

Swap…because we don’t have enough already.

Marketplace…yippee…another one.

Rewards tracker…how original…I’ll connect my wallet.

NFTs…what makes them special?

Decentralized exchange…we’re getting warmer.

Blockchain…is it a fork?…’cause we don’t need another fork.

P2E Game…please don’t cut corners…gameplay first, profit second.

AI bots…ok…tell me more.

I’m being harsh. Some projects do great things, even with existing products. They piece utilities together into a seamless ecosystem that makes sense and improves token value. I’ve seen projects attempt some really good things like new financial instruments, new ways to approach access to housing, or real-world voting platforms just to name a few. There are projects trying to push the limits of smart contract design and blockchain technology. Now that Artificial Intelligence (AI) is finding footing, things in DeFi should get interesting over the next few months to a year.

On the other side of that are projects that tease investors with “secret” groundbreaking products or utilities that never come to fruition. These projects are forever stuck in a cycle of testing, bug fixes, redesign, and delayed delivery. After all is said and done, more is said than done. I can think of several projects that fall into this category.

What’s the Endgame?

If we continue welcoming bad actors who deceive and steal, DeFi will continue turning away new investors. They’ll opt for safer avenues. DeFi will retain the “Wild West” status until strict bans or regulations rob us of fun and true innovation. There will always be gamblers, those hoping to turn a few bucks into millions, but if you’re like me, you believe there’s a better way. Let me stop playin’. If I catch a degen play that earns big, I’ll probably dive in, but my time, money, and mental investment will be in better projects.

I’ve been encouraged lately. There are projects working together for the benefit of their communities. People are starting to set aside greed and take a thoughtful and measured approach to long-term sustainability. I know there are some good projects out there that I’m not aware of…yet.