Evaluate protocols systematically
Things aren't looking pretty in the Crypto space. I remember how boring it was in the 2018 bear market cycle. And I made the biggest mistake ever: I left the space. I got bored out of my mind.
I won't be repeating that mistake again.
In Today’s Email, We’ll be Covering:
- Evaluating Protocols: A framework for seeing if it’s 💎 or 💩
- News: GMX suffers from price manipulation, Wintermute hacked for $160m, and more
- Tool: An easier way to find Token Unlocks
Let’s Dive in!
📈 THE MARKETS
- Total Crypto Market Cap: $961 Billion (+0.1%, 7 days)
- BTC Price: $18,995.18 (-6.1%, 7 days)
- ETH Price: $1,284.14 (-21.4%, 7 days)
- TVL in DeFi: $53.11B (-1.86%, 7 days)Fear & Greed: 22 (EXTEME FEAR)
The markets are bloody. Fed raises interest rates by 0.75 percentage point for third straight meeting.
Remember one of my golden rules: "Don't fight the fed."
“The desire to perform all the time is usually a barrier to performing over time.” — Robert Olstein
👨🔬 How You Can Systematically Evaluate Protocols
What’s your process like for evaluating projects?
I’ve spoken to a few people about this.
It’s usually either:
- They don’t have a process, and rely on other people’s analysis. This is what leads to people getting used as exit liquidity.
- They rely on their “gut instinct.” While that can be valuable, you can be a victim to various cognitive biases. And it takes a LOT of experience before your gut instinct becomes reliable.
- Or they have some sort of a checklist system they go through.
I heard a quote a long time ago that resonated with me:
“The process for making decisions is more important than the decision itself.”
If you have a system, you can analyze what went wrong with your decision.
I want to introduce a tool that I’ve been using for the past few years - it has really helped me become a far better investor.
It’s called a Weighted Decision Matrix.
Here’s a quick example:
This comes in handy when you're directly comparing two similar protocols.
How’s How You Can Make Your Own:
- Figure out all the major criteria for evaluating a project. You should include Tokenomics, the Team, How it Stacks Against the Competition, Narratives, Roadmap, etc. Keep things as simple as possible.
Once you gain more experience, you can make it more detailed.
- Weigh the Criteria. Is the Founder's track record important? Yes. Are established partnerships important? Yes. But they aren’t equal. IMO, I weigh the founder's experience more than partnerships. So weigh the criteria according to what you think.
- Score the Project. This is where you score each project. Multiply the score times the weight. Add it all up. The higher sum wins.
- Iterate. DeFi is a little over two years old, and it’s still innovating You will have to adapt your system over time as you learn more.
Imagine if you did this for your next project, and it ends up tanking. You now have a detailed record of how you made the decision. You can make adjustments, and become a better investor overtime.
“How do you use this for NFTs?”
I don’t invest in NFTS but I don’t see how it’s any different. Create a list of criteria such as Utility, the Team, Community, Roadmap, etc.
“Is your weighting a personal experience thing or based on metrics? How do you know what weight to allocate.”
Experience and constant iteration.
For example, I used to weigh VC investment a 9. If a VC invested, then they’re probably smarter than me and have access to more resources. Quite a few VC backed protocols I liked underperformed. And a few other projects I liked performed despite not having any VC funding.
So I’ve adjusted the “weight” from a 9 to a 7.
“Do you give a 0 for anon teams?”
Not all anon teams are created equal.
A 0 score is someone that came out of nowhere. No reputation in the community. No partnerships or VC investment. Sounds suspicious.
Whereas I could give an anon team a higher score:
- There’s a working product
- Known in the community
- They’ve already created a successful project in the past
- Prominent seed or VC investments. The ecosystem gives them a grant.
Give it a shot and let me know what you think.
I know this is hard. But take it as a sign that you haven't thought enough about your investment process, and see it as an opportunity.
👨💻 TOGETHER WITH DEFI SAVER
An Automated Way to Limit Your Losses
"Rule 1: Never Lose Money.
Rule 2: Never Forget Rule Number One"
DeFi Saver has a new feature that will limit your losses (and help you lock in more profits).
First, what’s a stop loss?
- You buy ETH at $1500.
- You set a stop loss of $1200.
- If ETH ever dips before $1200, your position’s sold.
Remember how ETH dipped to $900 back in June? A stop loss would’ve helped.
There’s a more efficient version called the Trailing Stop Loss.
What is a Trailing Stop Loss?
While the standard stop loss is a fixed $ amount, the trailing stop loss is a percentage drop from the peak.
Here’s an example from September 2021 with a 15% trailing stop loss for ETH.
Instead of being static, the trailing stop loss follows the upward market movement by 15%.
This helps you lock in profits while the prices are increasing.
DeFi Saver has implemented trailing stop losses for MakerDao & Liquidity on ETH Mainnet!
Automatically Limit Your Losses with DeFi Saver
🍿 DeFi Bites
Wintermute Hacked for $160M. Evgeny Gaevoy, the company CEO said that the hack happened in its decentralized finance (DeFi) operation however, Cefi and OTC services were unaffected.
Voyager Digital Seeks to ‘Unwind’ $200M Loan to Alameda Research. Alameda would receive $160M in return for repaying the loan in the pledge collateral.
Coinbase Could Earn $1.2B in Revenue. JPMorgan analyst told clients that this is due to the increase in short-term interest rates that could help to drive income revenue in 2023.
FTX Intends to Raise More Capital. The fundraising will be carried out after a shopping spree during the digital-assets market rout in July.
Gensler Comments on Proof-Of-Stake Assets. SEC Chairman Gary Gensler said that it may be subjected to federal securities regulation, which includes the $200B Ethereum network after it completed shifting to the PoS system.
Tribe DAO votes to repay Rari Capital hack victims once again. It is inclined towards a full reimbursement with 99% upvote to those affected by the Fuse Hack.
Canto DAO passes the proposal of a ~54% reduction in emissions and liquidity mining incentives. New parameters will also be added for the purpose of capital efficiency and being align with Canto’s stakeholders.
Ribbon finance introduces Ribbon lend, which enables depositors to lend unsecured funds to institutional market makers with good liquidity and high yields.
Aztec Integrates with Yearn Finance. The integration allows users to deposit $DAI into Yearn’s vaults.
Kujira Launches Stablecoin USK. After the collapse of Terra Blockchain, it now launches on Cosmos blockchain and will be “soft-pegged” to USD.
A bad actor took advantage of GMX manipulating the AVAX token price. It's estimated they talked away with $565,000. This was feasible because GMX offers zero slippage via oracle pricing, but got its pricing data from centralized exchanges. GMX has since fixed this by capping
Sometimes a protocol raises seed and venture capital rounds. This might be a risk to you.
Imagine a VC invests in a round at $.04 back in 2020. It’s locked for two years, and now the token are worth $2 each.
What do you think’s going to happen once the token unlocks? They might sell and take some profits. This could cause the price to drop.
The problem for guys like us? It’s hard to find and keep track of all this information.
There’s a site that aggregates some of this data.