Meltem Demirors Profile picture
Sep 7, 2018 22 tweets 9 min read Twitter logo Read on Twitter
1/ in markets, investor psychology is everything. i shared my thoughts on greed, investor psychology, shitcoin, and market cannibalization at @dezentral_io in berlin and wanted to share some of these ideas here...

option b: skip directly to slides here:…
2/ investors in the crypto ecosystem saw everything go up and to the right. everyone in the market is feeling good, and worth a lot on paper. everyone outside the market is feeling FOMO, and wants in on some juicy returns. the narrative is "blockchain, make me money!"
3/ everyone starts looking for the next #bitcoin, #ethereum, #ripple. people begin to believe that the market will go up and to the right forever, and investors flush with paper returns from the crypto casino rush to multiply their money at the shitcoin roulette wheel.
4/ but there's a pecking order at play here. bitcoin sits at the top. altcoins sit below. there's a big, old stinky pile of shitcoins, and then there's all the stuff people are trying to shove into the crypto universe that really doesn't belong in the same category.
5/ but the realities of this market are pretty interesting:
- raising money is still as easy as its ever been
- building shit is still as hard as its ever been
- any time there's even a mild market rally, more shitcoins flood the market and consume all value
how is this possible?
6/ simple. supply and demand. you have sellers and buyers who have to play the game. let's break it down.
on the sell side, issuers are going to continue pumping out tokens until the marginal cost of producing, marketing, and selling tokens > proceeds from sale
7/ there are way too many projects being "tokenized." not to pick on Dentacoin, but this token for the dentistry industry with a very obscure value proposition had a peak market cap of $2.1 billion. it's now 1/20th of that - but still too much.

most ideas don't need a token.
8/ it's way too easy to print your own money. the cost of capital matters a lot to founders, and raising token financing is the fastest, lowest cost, and least dilutive manner of fundraising. it comes with no accountability, no investor rights, and no obligations. irresistible!
9/ lastly, every project treats token holders (ie humans) like machines. as @_jillruth likes to say, tokenomics would have you believe if you put a token in a human, you get out a function. that's not how people work. no amount of free dentacoin will make me use dentacoin.
10/ so the sell side drivers are clear -
- every idea that can be tokenized has been or will be tokenized
- printing your own tokens is fast, cheap, and irresistible
- tokenomics are a poor and highly imperfect attempt to engineer human behavior like a logic function
11/ let's move on to the *buy* side. so there's a lot of crap out there. even if no one is using these tokens, people keep buying them. why?
there are big pools of capital that were raised for crypto "funds." these funds need to keep allocating. and shitcoins still look sexy.
12/ it seems no investor is immune to the siren song of shitcoins, because the caliber (social signal + virtue signal value) of investors in the space keeps increasing. every month, it seems more brand names are openly disclosing their interest in buying shitcoins.
13/ looking at the macro landscape, it actually makes sense. there's increasing pressure on VCs, HFs, and other alternative asset managers. returns across asset classes are squeezed. everything feels overpriced. a few 100x crypto investments can make a fund. so why not try?
14/ so what do you get when a bunch of financially motivated speculators get their paws on tokens? the shitcoin waterfall.

as an investor - you can only control your entry price. so you enter at the lowest price and redeem your principal (and profit) as soon as possible.
15/ so let's sum up the buy side:
- there's too much money floating around, and managers live for the 2, not the 20. gotta allocate to get paid.
- everyone wants to lock in profit, meaning no conviction and no HODL
- no one wants to be the buyer of last resort - and retail is out
16/ so here we are.
everyone who can sell a shitcoin will sell a shitcoin as long as there's money to be made.
everyone who can buy a shitcoin will buy a shitcoin as long as there's money to be made.
but market confidence is shot. issuers and investors alike are feeling the FEAR.
17/ we can see this in the market. as the unit of account for ICOs, $ETH is getting hit hard with the FEAR.
in the last month, $ETH has shed half its value
in the last quarter, $ETH has shed 3/4ths of its value
(yes, bitcoin has seen similar moves BUT over a different time frame)
18/ so what now? a few ideas, from someone who bought more than a few shitcoins in her day.
on the sell side, projects should focus less on vanity metrics like price and fundraising and social signal investors and focus more on creating exciting, compelling user experiences
19/ is the ICO really the best form to raise capital? i'm not sure. can we evolve the form factor to ensure the ends justify the means? are there capital formation strategies that keep incentives in check and minimize the ability to exploit the market?
20/ i'm still really excited about cryptocurrencies, capitalizing protocols and projects in new ways, and building new types of networks without companies to rule them. but - it's still *so* early. we have so much work to do to move beyond speculation.
21/ for now, i'm spending a less time on "tokens" and more time thinking about "infrastructure" - who is going to build the stuff that helps make these tokens and networks usable, sustainable, and efficient. there's a wide open field. and a lot of money to be made...
22/ and lastly, using Fama and Coase's theory of the firm, we can start to implement better practices on both the buy side and the sell side to reduce the residual loss in the market. i'm focused heavily on thinking through what i could build here as a services business.

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More from @Melt_Dem

Sep 24, 2018
1/ let's talk about today's @MakerDAO / @a16z announcement. for those who missed it, A16Z's crypto fund bought 6% of Maker tokens for $15M, at a 25% implied discount to the current price of $MKR.
2/ according to a blog post, the $15M will be used to fund the next 3 years of operating costs. i'm sure people think this is a great sign for the project - being able to recruit high quality capital. but, i think this is a massive failure in governance and project management.
3/ no vote was conducted on this matter, despite governance being a core tenant of the project:

instead, a team decided to sell a large portion of tokens to one single investor without consulting other $MKR holders or communicating with their community.
Read 10 tweets
Sep 7, 2018
1/ a quick thread on protocols focused on location. location data is leveraged by many consumer services (Google Maps, Uber), but also by military and industrial applications. now teams are #blockchain-ing this data to make it tamper-proof (secure), verifiable, and trustless.
2/ furthermore, new applications like self driving vehicles, AI, and increasingly digitized consumer, industrial, and military services will rely on secure location information services to deliver service. example - in 2012, a military drone was hacked and "stolen" by students...
3/ several projects are working on a new form of consensus called "proof of location" to design new mechanisms for collecting, verifying, storing, and sending data about location to the services and applications that consumer this data. let's dig into proof of location.
Read 11 tweets
Aug 19, 2018
1/ decentralization is a myth. we use "decentralized" without any specificity as to what that *actually* means. let's untangle the idea of decentralization. i developed a basic grid that breaks it down at the protocol, network, and app layer (dated april 2018)
2/ a good chunk of the data comes from - the brainchild of @ummjackson - who was continuously harassed by some of the projects on his site that are... ummm... clearly not "decentralized" in any manner while marketing that narrative ad nauseum
3/ there are many different ways to view "decentralization" - @SarahJamieLewis wrote about this as well - great tweetstorm here

Read 9 tweets
Aug 8, 2018
1/ security tokens may be interesting, but i think we are far from a world where there is demand for millions of tokenized assets. let’s dive into “why” - promise this will be fun 😈
2/ i’ve been spending the last six months deeply immersed in the institutional investor community. for simplicity, let’s say the US cohort of “institutional” investors - or the TAM - for tokens is $28 trillion in AUM. (ignore new demand creation)
3/ currently, these investors allocate to things like venture and hedge funds (15%), private equity (10%), real estate (20%), equities (30%), and the remaining 25% is commodities, debt, developing markets, FX, and cash.
Read 4 tweets
Aug 2, 2018
1/ re-visiting Howard Marks' @Oaktree comments on liquidity, very relevant to crypto, and especially thinly traded or centrally owned, alts:

the key criterion [for liquidity] isn't "can you sell it?" it's "can you sell it a price equal or close to the last price?"
2/ liquidity is ephemeral. it can come and go. the liquidity of an asset often depends on which way you want to go... and which way everyone else wants to go. if you want to sell when everyone wants to buy, you're likely to find your position is highly liquid.
3/ if you want to sell when everyone wants to sell, you may find your position is totally illiquid;
selling may take a long time
require accepting a big discount
or both.
it's not illiquid or liquid; it's entirely situational.
Read 12 tweets
Jul 30, 2018
1/ as you may already know, i love developing new frameworks around various matters in #crypto and drawing analogs to existing concepts in traditional finance (recovering consultant, I know 🙄)

my latest target: the @tezos experiment and token holder activism
2/ full disclosure: I'm a #tezos token holder and will be delegating my stake to the baking crew at @tezzigator (what up josh and bo)

Here's why:…

now what is "baking" you may ask? a great place to start it turns out.
3/ where #bitcoin has Proof of Work and mining, #Tezos has (delegated) Proof of Stake and baking. in tezos, “bakers" participate in consensus and earn the right to create blocks when a tezos "roll" (10,000 $XTZ) that they own or manage is randomly selected to create a new block
Read 20 tweets

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