Digital Slowmad newsletter (DFK special)
2 May 2022
Crypto portfolio update
Invested in: USDC, NEAR, ETH
Net return: 743.5%
In light of recent events I've made a big change to my portfolio with regards to the portion invested in DFK.
This decision was made quickly, but the conditions leading to it had been brewing for months.
To understand my perspective, here's some history/context:
- I got into DFK in Sep '21 (and made this video about it)
- In Oct '21 I decided to go "all in" on the Gen0 mint, as detailed in this tweet. Since then, I've spent numerous hours each day on the game, thinking about it, creating content, and participating in the community Discord/Twitter channels. I did this daily and never took a single day's break, not even on weekends.
- I was a big advocate of DFK and was subsequently invited to join the 'Bard' program. As an official content partner I was regularly communicating with SpicyMapleCat and the other content creators (HighIndian, Tosh, Sarah etc). A few months later, the Bard program was shut down. During my stint, I had a brief but insightful peek into some of the inner workings of DFK.
- I continued making videos about DFK until a new generation of content creators came along and started publishing some very good videos and medium articles. As I sensed this niche was being fulfilled, I slowly phased out production of my own videos; I didn't want to add to the noise by talking about the same things as everyone else. And so I began to shift my focus towards a - in my view - more interesting topic: gaming/ investing/speculating alpha. I believe I was the first person to suggest adding to hero VIT/INT stats during their early levels. Today, this has become common practice.
- In Jan/Feb '22 I began to sense a major shift in the priorities of the DFK devs. As the price of JEWEL exploded to $20, the devs' ambitions for the game grew as well. I started getting the impression that they were spending significant resources on many other things that had little to do with the original focus of the game (combat). I expressed my concern about this in this newsletter:
- Moving on to a different point, I was also concerned about another issue: the incentive structure of the game. I wrote about it in this newsletter, the tldr being that (1) the most committed DFK players had been the least rewarded (and sometimes even punished), and (2) the devs either hadn't recognized this, or have elected not to do anything about it.
For many months, those who bought heroes - especially Gen0's - watched in envy as JEWEL holders and LP providers made significantly more money than they did. That the devs didn't change this incentive structure concerned me greatly. Because why would anyone invest long term in the game when the short term rewards are much more lucrative? The predictable outcome of such a dynamic is highly volatile prices where everyone rushes in during good times and rushes out during the bad. This is what inevitably happens when commitment is not rewarded. This is #1.
- The devs' (in)ability to balance in-game rewards is also revealed in the price difference between miners and other professions (which I've also written about in this newsletter). Often, a miner would sell for double that of a hero of any other profession gene. At first, I thought this was a kink that the devs would iron out, but it quickly became apparent that they didn't even see this as a problem.
Today, hero miners continue to trade at a large premium over all other heroes. This is firstly not a good sign because it suggests that people are more interested in cashing out their locked JEWEL than investing in the future of the game.
The bigger point here is that given everything I've seen, I don't think the devs will be able to properly balance the soon-to-be 18 hero classes in combat (and with more classes to come). Veteran gamers will tell you that the biggest challenge of any MMORPG is the balancing of character classes, and based on the devs' choices so far I'm not confident that they'll be able to pull this off.
- It's been >7 months since DFK was launched, and the core gameplay mechanic (combat) has yet to be released. I won't elaborate further on this because I've already talked about it in this newsletter. The point is that until combat is rolled out, DFK assets have zero utility and the whole game economy is effectively a giant ponzi fueled entirely by the hope of a brighter future.
Now put short-term mercenary thinking + a ponzi together, what do you eventually get?
- This is the same story that has played over and over again in various guises, with a recent example being OHM forks. On the surface they may seem like entirely different things, but their fate was ultimately caused by the same fundamental issues.
- The failure of the Crystalvale expansion to attract new players is #2. This is a big issue because without an influx of new users to soak up the ever-inflating JEWEL/hero supply, prices will fall.
There have recently been a surge of hero sales transactions in the Tavern, suggesting increased game adoption. Upon closer inspection however, we see that the number of new DFK profiles is trending down - fewer and fewer people are joining the game. Most likely, what we're seeing is an exodus of players who are selling their heroes to get out. This is not a good sign.
- The points I've covered so far were the main reasons (red flags) that convinced me to sell my JEWEL bags early on during the two major crashes in January and April (see tweet history for proof).
Predictably, the DFK maxis heckled me for not "investing for the long term". It seems they have still not realized the game is set up to reward short term participants at the expense of the long term players. They continue to console each other with slogans and memes about being "in it for the long term" while they bag-hold their JEWEL down to $2 and the value of their heroes erodes.
- Meanwhile, I walked away from the Crystalvale pump with a tidy profit, and got out of my position before the subsequent dump. I learned the hard way that it pays better not to be a long term investor in DFK. This is the type of mindset that gets rewarded, which is fatal for the long term prospects of the game.
- Despite knowing all this, I stubbornly held on to my heroes. I held out hope for DFK to turn out to be a fun, engaging and rewarding game. But as the saying goes, hope is not a strategy. Two things happened recently that forced me to reconsider my position.
- First, an industry-wide bear market took hold in late April. Altcoin prices collapsed across the board, with GameFi tokens being some of the worst hit. The price of JEWEL crashed so badly that it looks unlikely to meaningfully recover any time soon.
- Second - and this is the more significant issue -, a locked JEWEL exploit was discovered. It turns out that some whales had been mining locked JEWEL at a rate far greater than the devs intended, and that this had been going on for months.
- Developer mistakes are common in this business so I was not too put off by this alone. What I was put off by, however, was the devs' response to it. Basically, there was none. They simply allowed the exploiters to get away scot free. It would have been trivial to identify the wallets that ran the exploit, but there was not even a governance vote to hold these whales to account. The devs made the deliberate decision to allow the exploiters to get away with cheating, even as everyone else (i.e. you and I) played by the rules.
This was unacceptable to me. I couldn't understand why the devs allowed those exploiters to be rewarded. This effectively amounted to an open invitation for cheating. As I wrote in the previous newsletter:
- This is a dangerous precedent that effectively guarantees a game-breaking exploit to eventually occur. If you don't deter cheaters, they will keep trying and eventually succeed. This is #3.
- I later learned that one of the biggest whales in the game had informed the devs about this exploit in January, but that nothing was done about it, so the whale proceeded to use the exploit to his own advantage.
If you've been in the DFK community for some time you'd know that many whales in this game have links with the devs. That's all I'll say about this, and I leave you to draw your own conclusions. For me, this was the final straw to walk away from DFK as a genuine supporter.
- Not gonna lie, I made a bunch of money investing in DFK and am immensely grateful for the opportunity. This being said, the risk-reward of staying invested has dramatically shifted. 7 months ago, DFK had no serious competitors. Today, this is no longer the case. The GameFi landscape has changed significantly, and I think DFK has not made good use of its early lead in the space.
- I want DFK to do well, but given everything I've experienced I can't say that I think it will. Between the issues of poor balancing, bad incentive structures, no new player interest and the devs' refusal to punish cheaters, I don't think the game has what it takes to attain the valuation that would make it worth investing in today.
- This is not to say I think the value of DFK assets won't go up. I'm only saying that, from a risk-reward perspective, I believe I can get a better return elsewhere.
With all this in mind, I've sold most of my in-game items and heroes, including all my Gen0's.
(I still have a bag of locked JEWEL that serves as a call option should things turn around.)
My portfolio, therefore, looks very different today:
Note: Since the last newsletter (a few days ago) I've added to my NEAR position during the dip.
Thanks for reading, and have a great week ahead.
P.S. If you have any questions or feedback, let me know at: chris[at]digitalslowmad[dot]com
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