Digital Slowmad newsletter
4 February 2022
Crypto portfolio update
Invested in: Jewel (JEWEL), USD Coin (USDC)
Net return: 467.5%
Comments: We now find ourselves is a highly uncertain time in the markets; The S&P500 dropped 12%, dragging down Bitcoin and consequently the whole crypto market.
I published a video about this here:
The equity markets have since begun to recover, but Bitcoin (and the overall crypto market) has remained at depressed levels:
So the question now on everybody's mind: Is the crypto selloff over? Have we seen the bottom?
Put bluntly: I have no idea.
However, I believe we are closer to the bottom than we are to the top.
Keep in mind that this does not mean I think JEWEL will start rallying soon. Nobody knows when (or even if) that will happen.
In my mind, JEWEL could very well go below $6 and stay there for a prolonged period of time. So even if JEWEL further declines in price, I will *not* be adding to my liquid JEWEL position, at least not yet.
Keep in mind that the majority of my JEWEL holdings are currently in the form of (illiquid) DFK heroes; My overall exposure to JEWEL is thus quite large so I'm not looking to add more to my portfolio at this time.
Next topic: I've been asked by DFK newcomers about whether it's a good idea to buy heroes in this bear market. And here's my two cents (not financial advice):
- You first have to decide if you intend to play this game over the next 6 months (and preferably for much longer).
- If yes, it's not a bad idea to invest in heroes now according to your "willing to lose" budget. Keep in mind that this would be a longer term play as the immediate investment return on heroes is minimal. The game is designed such that heroes will only start to pay off at higher levels.
- If no, a shorter term play would be to simply join the JEWEL liquidity pools while the APRs are still high. Another option: a medium term play would be to *slowly* DCA into JEWEL in anticipation of the Crystalvale launch. When that happens, the single-staking JEWEL pool could be high enough to warrant the risk you're taking now.
Bottom line: If you've been waiting on the sidelines to get into DFK at a good price, now might be a good time to *slowly* DCA in, provided you can stomach the risk of a further 30% - 50% decline. My best guess of the potential upside is (at least) a 2x to 4x return over the coming year. As with anything in crypto, please only invest an amount you're willing to completely lose.
And now, some healthy skepticism on the progress of DFK.
As a crypto investor first, and gamer second, my inclination right now is to avoid taking on more DFK exposure. I still think DFK is one of the best projects out there, but as the scope of the game expands, the risk of staying invested increases. DFK is already the most complex game in crypto, and adding more complexity (via new game mechanics, expansions etc) means that it's going to be a herculean task to keep the game balanced.
Now don't get me wrong, I think the dev's are very capable and have been doing a great job. It's just that some of their recent decisions have me questioning the likelihood of the game reaching a $5bn market cap.
For example, right now there's a clear imbalance between mining gene heroes vs all other heroes. Often, a miner hero will sell for 2x the price of a non-miner hero. This is a function of market demand, yes, but the demand is a direct result of the comparatively poorer rewards found in the other professions, which is decided upon by the dev's.
I'm a little concerned that heroes are insufficiently balanced even just at profession quests. When combat quests, PvP, and more hero classes are released, everything will be much more difficult to manage.
Another issue (also mentioned here) is the treatment of Gen0 holders. Gen0's are supposed to be some of the most valuable heroes in the game, and their holders are taking on the largest (illiquidity) risk among all players. I believe it's safe to say that Gen0 holders are the biggest supporters of the game.
However, the recent airdrop incentives have left these players out to dry. Coupled with the dropping JEWEL price of Gen0's AND the dropping USD price of JEWEL, many of these previously-enthusiastic players are now left with a bitter taste in their mouths. Imagine investing $100k in a Gen0 (5,000 JEWEL at $20 JEWEL), only to have that investment value fall by 70% within a couple of weeks, and then watch the dev's reward all other players with airdrops and nothing for Gen0 holders.
I must emphasize: It's *not* that I'd expect Gen0's to always be profitable; It's that the most committed players (those taking the biggest risk in supporting the game) are being rewarded much less than the least committed players. And I don't think this is a healthy incentive structure.
The dev's have mentioned in numerous AMA's that they actively make game mechanics decisions to incentivize player behaviour. I don't know if they're aware of it, but right now they are incentivizing Gen0 holders to dump these heroes and perhaps quit the game altogether.
I've been monitoring the Gen0 marketplace and am seeing previously-prominent DFK advocates now selling their Gen0's at floor prices. Personally, I am also inclined to let go of some of mine. After all, why take the biggest risk only to be the least rewarded for my commitment?
This is a dangerous mentality that (if not corrected via proper incentives) will lead to fewer players willing to support the game over the long term. In such a scenario, people are incentivized to participate only for short-term gains, much like they would a typical pump-and-dump DeFi farm.
So all in all, these are the two biggest issues I'm seeing: Game-balancing challenges, and the increasing loss of some of the biggest long-term supporters of the game.
I'm not a game developer myself, but I can't imagine losing your strongest advocates to be a good thing no matter how you look at it.
Are these game-ending problems? Probably not. At least, not immediately. But these are significant hurdles that at least have to be overcome for DFK to grow to a $5bn market cap.
Will JEWEL ever hit $50 like I had estimated? From where I'm standing, I see a lower likelihood of it now. And looking at how far JEWEL prices have now dropped, I'm not even sure if they can surpass the current all-time high by the end of this year. I can only hope to be pleasantly surprised.
The potential bright spot on the horizon is the upcoming Crystalvale launch. It will be a important indicator of the future of DFK, so I'll be watching it carefully.
Bottom line: I remain heavily invested in DFK for now, but I'm less bullish on its future than previously. There are two major pain points that need to be addressed before I'd continue to allocate most of my capital into the game.
My current portfolio allocation:
DeFi Kingdoms Stats
Users (30 days): 127.1k (-30%)
Transaction volume (30 days): $1.43b (-21%)
Number of xJewel wallets: 36,838 (+12%)
Discord members: 80.9k (+8%)
- If you missed the previous newsletter, you can read it here.
Rug pull reaction (NSFW)
I will never not laugh at this streamer's reaction to a live rug pull.
Quote of the week
The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.
- Charles Bukowski
Thanks for reading, and have a great weekend.
P.S. If you have any questions or feedback, let me know at: chris[at]digitalslowmad[dot]com
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