22 Crypto Lessons Learned in 2022 (avoid these costly mistakes):
Locking Tokens isn't Worth it
ve style locking mechanisms became popular in DeFi
You lock your tokens up for a while, and you gain extra yield or utility in exchange
Some people watched their locked tokens go down by -90% in the bear market
I prefer keeping my tokens liquid
ve style locking mechanisms became popular in DeFi
You lock your tokens up for a while, and you gain extra yield or utility in exchange
Some people watched their locked tokens go down by -90% in the bear market
I prefer keeping my tokens liquid
There's no "Smart Money"
All the "smartest" people in the room didn't know shit (3AC, Alameda, VCs)
Chess skills, MIT degrees, and cheat codes weren't enough to stop greed and bad risk management
Don't invest in a project just because a big name backs them
All the "smartest" people in the room didn't know shit (3AC, Alameda, VCs)
Chess skills, MIT degrees, and cheat codes weren't enough to stop greed and bad risk management
Don't invest in a project just because a big name backs them
Nothing's Too Big to Fail
• 3AC
• FTX
• Luna
There was a feeling that if things collapsed, a larger company would come bail them out
1) There weren't any government bailouts
2) There's no fund big enough to rescue some of these companies
The companies were big and failed
• 3AC
• FTX
• Luna
There was a feeling that if things collapsed, a larger company would come bail them out
1) There weren't any government bailouts
2) There's no fund big enough to rescue some of these companies
The companies were big and failed
Question the Treasury Practices
A protocol's treasury is its life blood - no money means no more protocol
1) 3AC secretly managed a few protocol treasuries
2) Some founders were secretly trading with their treasuries
Bad treasury management practices ruined good projects
A protocol's treasury is its life blood - no money means no more protocol
1) 3AC secretly managed a few protocol treasuries
2) Some founders were secretly trading with their treasuries
Bad treasury management practices ruined good projects
Are Protocols Built for the Bear?
Bull market's easy, but not every protocol can survive a crypto winter.
Ask:
1) Is their treasury diversified outside of its native token?
2) Do they have enough runway to survive 2+ years?
3) Are their costs reasonable?
Bull market's easy, but not every protocol can survive a crypto winter.
Ask:
1) Is their treasury diversified outside of its native token?
2) Do they have enough runway to survive 2+ years?
3) Are their costs reasonable?
Protect Yourself if There's Insolvency Rumours
• "steady lads"
• "the chance of FTX insolvency is near 0%"
Bank run? None of your concern
When shit's about to hit the fan, protect your funds. No one else is going to do it for you
• "steady lads"
• "the chance of FTX insolvency is near 0%"
Bank run? None of your concern
When shit's about to hit the fan, protect your funds. No one else is going to do it for you
Cult of Personalities
"Power tends to corrupt; absolute power corrupts absolutely"
Every single main character fell this year
• Daniele Sesta
• Do Kwon
• Zhu Su
• SBF
You can ride with them on the way up but get off the 🚀 before the inevitable crash
"Power tends to corrupt; absolute power corrupts absolutely"
Every single main character fell this year
• Daniele Sesta
• Do Kwon
• Zhu Su
• SBF
You can ride with them on the way up but get off the 🚀 before the inevitable crash
Algorithmic Stablecoins Remain a Pipedream
• UST collapsed
• Bean Exploited
• FEI / USN shutdown
• USDN / USDD are trading below its peg
People will keep trying to make these experiments work
I rather hold fiat backed stablecoins and watch the algocoins from far away
• UST collapsed
• Bean Exploited
• FEI / USN shutdown
• USDN / USDD are trading below its peg
People will keep trying to make these experiments work
I rather hold fiat backed stablecoins and watch the algocoins from far away
Cross-chain Bridges are Dangerous
Vitalik warned us about security issues with cross chain bridges
• Axie's Ronin Bridge ($624m)
• Solana's Wormhole ($326m)
• Harmony Bridge ($100m)
• Nomad Bridge ($190m)
You're adding on additional risk when using a cross-chain bridge
Vitalik warned us about security issues with cross chain bridges
• Axie's Ronin Bridge ($624m)
• Solana's Wormhole ($326m)
• Harmony Bridge ($100m)
• Nomad Bridge ($190m)
You're adding on additional risk when using a cross-chain bridge
There's No Such Thing as Free Yield
• 20% Anchor UST
• 5% Bitcoin Yield through CeFi
Companies marketed these products as if they were as safe as banks
The yield came at the cost of high risk (-100%)
It's perfectly fine to hold coins in cold storage & not earn any yield
• 20% Anchor UST
• 5% Bitcoin Yield through CeFi
Companies marketed these products as if they were as safe as banks
The yield came at the cost of high risk (-100%)
It's perfectly fine to hold coins in cold storage & not earn any yield
Crypto's Still Tied to Macro
Ethereum's merge was one of the biggest technological achievements in Crypto
Unfortunately, the macro headwinds were too strong for ETH to fly away
The fed's policies and interest rate decisions dictate Crypto's marketcap for now
Ethereum's merge was one of the biggest technological achievements in Crypto
Unfortunately, the macro headwinds were too strong for ETH to fly away
The fed's policies and interest rate decisions dictate Crypto's marketcap for now
Be Careful of Halo Effects
• SBF was on the cover of Forbes
• FTX bailed out BlockFi / Voyager
• FTX sponsored Arenas and A-list athletes
The Halo Effect meant people weren't doing their due diligence
Nobody asks the tough questions if you throw enough money around
• SBF was on the cover of Forbes
• FTX bailed out BlockFi / Voyager
• FTX sponsored Arenas and A-list athletes
The Halo Effect meant people weren't doing their due diligence
Nobody asks the tough questions if you throw enough money around
Don't Try to Time the Exact Tops or Bottoms
You'll never have perfect timing, and trying to time things can be detrimental
A simpler strategy is to DCA out in a bull market, and DCA in during a bear market
Keep it simple
You'll never have perfect timing, and trying to time things can be detrimental
A simpler strategy is to DCA out in a bull market, and DCA in during a bear market
Keep it simple
Bear Market Plays
There are still some plays in a bear market.
We saw the real yield narrative take off around the Summer. People early to GMX and GNS were heavily rewarded.
There are fewer narratives in the bear - being sidelined until the macro improves works too.
There are still some plays in a bear market.
We saw the real yield narrative take off around the Summer. People early to GMX and GNS were heavily rewarded.
There are fewer narratives in the bear - being sidelined until the macro improves works too.
Adoption Happens when Crypto's Invisible
Most people on Reddit HATE anything related to Crypto
Yet Reddit's "Collectible Avatars" sold out
The key is to deliver value while making the crypto part invisible and frictionless
Most people on Reddit HATE anything related to Crypto
Yet Reddit's "Collectible Avatars" sold out
The key is to deliver value while making the crypto part invisible and frictionless
ETH Layer 2s are Here to Stay
Ethereum Layer 2s are siphoning TVL from Alt L1s
(Both Arbitrum and Optimism are in the top 10)
zk rollups such as Starknet and zkSync are coming.
The future seems to be a battle between ETH layer 2s and app chains
Ethereum Layer 2s are siphoning TVL from Alt L1s
(Both Arbitrum and Optimism are in the top 10)
zk rollups such as Starknet and zkSync are coming.
The future seems to be a battle between ETH layer 2s and app chains
Extended Cycles Theories
Historically, Crypto operates in 4-year cycles.
Near the end of the cycle, you'll see people try to extend it.
• S2F charts
• The "Supercycle"
• Bitcoin Lengthening Theory
People are financially incentivized to make you think it'll last longer.
Historically, Crypto operates in 4-year cycles.
Near the end of the cycle, you'll see people try to extend it.
• S2F charts
• The "Supercycle"
• Bitcoin Lengthening Theory
People are financially incentivized to make you think it'll last longer.
If You Don't Know the Source of Yield, You're the Source
Do you remember all those node projects? No one could answer where the yield was coming from
The yield was from newer entrants
Make sure you understand how value is generated before investing
Do you remember all those node projects? No one could answer where the yield was coming from
The yield was from newer entrants
Make sure you understand how value is generated before investing
History Doesn't Repeat Itself, but it Often Rhymes
• Mt. Gox → FTX
• Bitconnect → Terra Luna
We'll have exchanges collapse in the next cycle
We'll have a new class of cult leaders
It's hard to change human nature
It's up to us to warn the next generation
• Mt. Gox → FTX
• Bitconnect → Terra Luna
We'll have exchanges collapse in the next cycle
We'll have a new class of cult leaders
It's hard to change human nature
It's up to us to warn the next generation
Seek the FUD
It can feel like an echo chamber when a token's hot.
The mob mentality makes it hard to have honest discussions.
• They attack your character
• They dig up any old tweets that can be used against you
Seek the FUD when you're investing
It can feel like an echo chamber when a token's hot.
The mob mentality makes it hard to have honest discussions.
• They attack your character
• They dig up any old tweets that can be used against you
Seek the FUD when you're investing
People Failed - DeFi Didn't
The biggest diasters this year were failures by people: greed, risk management, fraud, and bad decision making.
When CeFi companies were insolvent, DeFi loans were the first one they paid back.
Trust code instead of humans
The biggest diasters this year were failures by people: greed, risk management, fraud, and bad decision making.
When CeFi companies were insolvent, DeFi loans were the first one they paid back.
Trust code instead of humans
Finally...Not Your Keys, Not Your Coins
It looks like we'll have to learn this lesson every single cycle.
Any coins on an exchange is an "IOU."
A token isn't yours unless a hardware wallet secures it.
(I'm using a Ledger Nano X now, but eager to try out the new Stax)
It looks like we'll have to learn this lesson every single cycle.
Any coins on an exchange is an "IOU."
A token isn't yours unless a hardware wallet secures it.
(I'm using a Ledger Nano X now, but eager to try out the new Stax)
The craziest year in Crypto (so far)
These are some of the lessons I've learned.
It's a little FTX / Luna heavy because they affected the industry the most in 2022.
Share some of your biggest lessons this year in the comments!
These are some of the lessons I've learned.
It's a little FTX / Luna heavy because they affected the industry the most in 2022.
Share some of your biggest lessons this year in the comments!
1. I took a few months off from writing threads, but I'm back now. Make sure you're following @thedefiedge so you don't miss out on my future ones.
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Bonus
As DeFi becomes more complex, the number of ways we can get fucked keeps getting more creative.
• Liquidation Cascades
• The DFK Jewel Exploit
• Insider, non-obvious exploits
• "Highly Profitable Trading Strategies"
• Slow rugs (High salaries and lack of updates)
As DeFi becomes more complex, the number of ways we can get fucked keeps getting more creative.
• Liquidation Cascades
• The DFK Jewel Exploit
• Insider, non-obvious exploits
• "Highly Profitable Trading Strategies"
• Slow rugs (High salaries and lack of updates)
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