Looking back at the crazy ride that was the crypto bull run which recently ended at the end of 2021, I have been able to identify two crypto fads that stood out very clearly for me. I think before we dive into them, I should clarify that these aren’t fads in the strictly traditional sense; that they flair up, run their course and then disappear into the annals of “what the hell were we thinking!’. We are talking about new ideas that burst onto the global stage and people jumped excitedly into them before anyone really knew what they were, how they work, or what they are(going to be) for. Only more time will be able to tell exactly what these things will become and where they will fit.
So, what are these new ideas that totally Fad-ed out™? NFTs and Node/Yield protocols.
100s of thousands of people bought digital art NFTs at the top of the cycle for eye-wateringly ridiculous amounts of crypto, only for it to be worth almost nothing now.
100s of thousands of people jumped into node and yield protocols near the top of the cycle only to find that the well dried up way too quickly when the plunge hit.
Does this make NFTs and node protocols scams and/or failed ideas?
I think not.
I’m not saying there weren’t scams and rug-pulls all over the place with both crypto fads, but the ideas aren’t scams. I think that they are ideas that are SO NEW, that we just haven’t figured out how they are going to work and what purposes they can be sustainably used for.
NFTs (Non-Fungible Tokens)
I was lucky not to get sucked into NFTs; I just couldn’t figure out what they were for. I am fairly certain though, that digital artwork of cartoon apes in sunglasses isn’t going to be it in the long term. But I have seen some very interesting examples of NFTs that actually represent the ownership of something real that can actually work.
My example is Satoshi Island. This is an island in the Vanuatu archipelago that has been purchased and is intended to become a global headquarters of sorts. They have already subdivided the island into lots and each lot is represented by an NFT. To purchase a lot you buy the NFT which gives you your ownership rights; to transfer those right of ownership to someone else, you sell the NFT.
I see this becoming potentially the norm for real estate and other things of this nature.
The term Internet of Things (IoT) is starting to become a bit of a buzz word. Although, like NFTs, what it will come to encompass is still a bit hazy. I do think that NFTs will shine in this space though; digital representation of the ownership of real things.
I did get sucked into Nodes, though.
I initially encountered nodes through a company called Strongblock. The idea is that the more quality nodes on a protocol’s network, the more stable and vibrant it becomes. So you purchase a node, in this case on the Ethereum network, and while that node theoretically serves as a transactional endpoint for the network you get rewarded at a set rate of generated tokens/day. In the case of the ETH nodes I bought, it would take approximately 110 days for the node to generate back the cost of the node. At which point you can either recoup the cost of your investment, or purchase another node which significantly lowers the time to recoup the cost; at which time you are faced again with the choice to either recoup your cost or purchase yet another node. When you look at the math for this, it’s pretty amazing how quickly this can blossom into a sizeable income stream with multiple nodes all generating that set amount of tokens/day.
The problem with every single protocol of this sort is that they are inherently unsustainable. This is where the term Ponzi-nomics comes into play. It works really well while new investors are coming into the protocol and purchasing new nodes because that cost is redistributed as rewards to existing holders. That’s why it’s called Ponzi-nomics; it’s a classic Ponzi structure. So why would anyone get into something like this? There are two main reasons:
- If you get in at the beginning and make your money back and more before it collapses, it can be really lucrative.
- Projects like Strongblock had a roadmap of building out their projects in such a way that revenue from other sources would be able to supplement the rewards pool and make it eventually sustainable.
The problem is that no one so far has been able to build out their projects to this point before the weight of the unsustainability crushed them. The timing of the end of the bull market in crypto was definitely also a major factor in this; it just sped everything up.
To this point in time, the sustainability problem has not been demonstrably solved.
One protocol that I am involved in, may be able to provide a solution though; the SAFUU protocol, which launched in March this year. It offers a brain melting 385,000% APY (that is not a typo).
Despite this, SAFUU is still flying in the face of all these other protocols who are crashing and burning due to having to pay out unsustainable rewards.
I think SAFUU has done a lot of things really right in two regards:
- The CEO Bryan Legend is a masterful marketer. Even through the gut-wrenching plunge the whole crypto market has seen in the past months, Bryan has been able to keep investor sentiment strong and his community vibrant and fanatical. His monthly competitions have not only encouraged most people not to sell anything from their bags, but to add to them. He has outshone, by far, the ability of any other compounding protocol to keep investors excited, not selling, and even buying. That is genius level marketing and something that he, himself is only too happy to tell everyone 🙄 . It doesn’t make it less true though.
- The second and most important thing is that he has found a way to transition this compounding protocol into a functioning layer 1 blockchain hopefully before the weight of the ponzi-nomics crushes the whole thing. Once the blockchain is launched and functioning, transaction and gas fees will add to the funding of the rewards pool. The reward rate will also be incrementally lowered to a sustainable level.
What we end up with then (theoretically still at this point), is a 15 month long ‘introductory launch period’ where early investors get very handsomely rewarded for helping keep the project running while it built and launched its blockchain. The true test here will be getting the protocol through the transition into the sustainable rates of the functioning blockchain, and then to get projects and developers building on it.
Will they be able to attract developers to build on the blockchain? You’d need a first class marketer to make that happen…..
I think that if they can pull this off, SAFUU’s example of using compounding rewards to help grow an investor base and launch a sustainable protocol, might be the direction that these compounding projects may go. Reward projects with zero plans for solving sustainability or building their projects into something more just won’t work anymore though.
The bottom line here is that it’s just really EARLY and we are all still experimenting with these new ideas and trying to figure out where, how, and if they fit.
What have I learned so far in all of this? Investing, especially investing in such a new and untested part of the crypto-verse, is not for the faint of heart, but it is cutting edge and damn exciting!
Welcome to the wild west that is crypto.