Degen Strategy Creation

Degen AF plays vol 1a…Degen fails

Before going over some of the recent strategies I spent weeks putting together that ultimately failed, I’d like to outline the basis for the strategy creation.

My background is in ecommerce and marketing, with a heavy focus on behavioral economics. The idea behind this being understanding why consumers behave the way they do would make me a better marketer (and it did).

Interestingly, buyer behavior is rather predictable no matter what is being purchased. Whether it’s a clock, a house, or a financial instrument. It’s also pretty predictable regardless of what economic playing field you are on, whether you’re broke, middle class, or wealthy.

That’s a point of contention with a lot of people, especially the ones who claim to divorce themselves entirely from “emotion” while trading (a topic for another day). I find that funny, however, as someone much smarter, wiser, and wealthier than me once said “the markets are just “rich people feelings.”

The underlying message there being that markets are very impacted by emotions from every level of investor. But I digress.

If you subscribe to the idea that people act like people, in every circumstance, like I do (and coincidentally like thousands of behavioral psychologists), then you’d conclude, like I did, that there should be predictable patterns in trading specific asset types.

Thus, the basis of my strategies revolves around patterns recognized for certain asset groups in their price charts.

Always Be Testing

This is a mantra trumpeted by marketers far and wide. Always be testing. Why is that though? What exactly does testing do?

The purpose of testing is two-fold. It is to see what experiments pay off, and to optimize the ones that do.

The truth is, regardless of whether you are an active trader or you just buy and hodl, every investor has a strategy. Your strategy might be holding long-term, or dumping short term. It might be relying on technical analysis, or doing deep fundamental dives into projects.

The question isn’t if you have a strategy, it’s are you sure yours is the optimal one?

The way to find out is to experiment, and when you find winners, optimize. You do this by back-testing, paper-trading, then trading with experimental money (very small bags).

It’s good to always be testing so that you can adapt quickly to the markets. The DeFi space moves notoriously fast and what worked six months ago may change. That’s actually part of what caused these strategies I’m sharing today to fail.

FAIL #1: Auto-stakers and Titano

Auto-staking, or auto-rebasing tokens are fascinating to me. The idea that you, as the retail investor, simply purchase a token, and then watch the amount of that token auto-magically increase in your wallet, is pretty cool.

The concept became popular after the incredible success of Titano. During the rise and subsequent crash of DAO rebase projects, followed by NaaS node protocols, Titano managed to thrive in the four months that all this chaos was occurring.

Titano continued to multiply it’s token while reaching an all time high of around $0.20 per coin. Those that got involved at launch made an absurd amount of money to say the least.

As NaaS node projects started falling out of grace, forks of the Titano contract became en-vogue. When I discovered the site TitanoForks.com I was thrilled and started diving into the charts. I wanted to see if there was any consistent behaviors with investors in this specific class of asset.

First, I chose ten projects, in a row, from the bottom of the list going up. Of those ten, four of them ended up being rugs. I included them because my thought was, if I use this list, I don’t know beforehand which ones will fail, so must count the good with the bad.

I created a hypothetic situation with which to test. Let’s say I were to invest just $100 in each of these protocols. Four rugs would equal $400 lost. Of the remaining six, I calculated their taxes, chose an “entry price” in between open a close 15 days prior, then I calculated number of rebases, price on open of the 15th day, and subtracted sell tax.

The premise here was checking; if I just invested $100 in every Titano Fork that launches on the TitanoForks website, could I be profitable? Based on the six remaining forks these were the results:

• Two lost about 30%
• One broke even
• Two were pretty decent gains (100% to 400%)
• One was a big gain (700%)

The end result? If I had invested $1000 into these ten Titano Forks I would have withdrawn $1,648.08. That’s over a two week period. WOW. Ok, it felt like I was really getting somewhere here.

So that was the back-test. The next step was to paper trade in real time. So I chose the only three projects that launched on the TitanoForks site that day. I tracked them for two weeks, but unfortunately their token price fell lower than the rebases.

What changed? Was it just that my sample size was too small? I needed to really check this.

Diving back into more recent Titano forks, I discovered that the behavior was different. Whereas before, shortly after a fork launched, price pumped pretty good and therefore the first couple of weeks typically showed a slight price increase, now many protocols were launching and immediately dropping in price.

This is all within three months. Wow…that was fast.

Ok, perhaps that is because of the increasing popularity of PinkSale pre-launches. So, if I could get the token at a deeper discount than anyone else, maybe there was still a chance. I started calculating pre-launch opportunities. Unfortunately, many of those projects were dumping well below presale prices at public launch.

The method, as it stood, simply wouldn’t work anymore. Now it was time to adapt it. If being there at launch didn’t work anymore, perhaps there was a method to choosing to get into a project a couple of weeks after launch if price didn’t continuously tank.

The next strategy then was built around looking at Titano forks that didn’t immediately dump in price on launch day, and trying to catch them after the correction. This would’ve been a sound strategy if the absolute bloody dumps of the entire market didn’t make it completely useless.

I was tracking several projects in real time and the numbers looked promising for a moment, but as of a couple of days ago after BTC dropped back below 40k, all the forks are in the red.

What I learned here is that every innovative smart contract idea goes through a fork season that basically equates to a fad. If you can get in early on the trends, you might be able to make money…but they come crashing down almost as quickly as they rise.

I’m not saying there are no good Titano forks, or that there aren’t any opportunities there. I’m simply saying that they are much fewer and farther between, and trying to pick which ones will make it is much tougher than looking at their daily charts.

FAIL #2: Tomb Forks

Tomb forks are another innovative contract concept, and I found another website called WhatTheFork.xyz that lists them all. Digging into the charts I discovered that these have more predicable investor activities than even Titano Forks.

If you are familiar with Tomb Finance, you know that it essentially has two tokens; Tomb (the stable pegged to FTM) and Tshare. It’s the forked version of the Tshare token that gets consistent action.

In 99% of cases (seriously…it’s insanely predictable), the price of their TSHARE version sees a huge pump within the first one to six hours.

And when I say huge, I mean an average increase in the thousands of percent. Sometimes in the tens of thousands!

The strategy here was simple: get in at launch, buy as soon as the contract is available, wait an hour or two, and sell at an absurd profit.

You wouldn’t even need to risk a big bag. You could easily turn $100 into thousands. It seemed too good to be true.

And guess what? You already know…..it was.

Anyway, the charts looked really good. So good that before testing this method myself (which I fully planned to do) I wanted to write a thread about it.

About two hours and three quarters into the thread I noticed something. The launch dates on the WTF site did not match up to the day Dexscreener showed the token went live.

This happened in a lot of them. Were these whitelists or presales? Sometimes, but many Twitters and Discords didn’t mention any.

Then I dug deeper into a couple newer protocols and discovered that not only had the token been live for about a week prior to the scheduled “launch” (and subsequently already reached its price high point) but some coins trading in the thousands of dollars barely had $200 in liquidity.

It would be hard to sell a $1200 token with only $250 in the liquidity pool.

Either way, the data source was not providing reliably useful information. Yet again.

The lesson here was that being early can have serious advantages, but without reliable data that ensures you actually ARE early, it won’t do you much good. Which brings me to my next point; the problem…

Reliable Data Sources

I think it’s great that these aggregate sites exist. They serve as a terrific means to keep the pulse of the industry. They just aren’t great for determining entries into volatile assets.

And reliable early data is a necessary component to gaining an edge in this industry. So if a random side-project website can’t give you that data, where do you get it?

Likely there are no short-cuts here (as nice as that would be). The data will come from community members in Discords, competent people on CT (Crypto Twitter) and, if you’re a super nerd like me, scanning new token pairs on Dexscreener.

So, Just Be Early?

Being early has been the tribal chant for crypto enthusiasts for ages. The problem is, everything isn’t “up only” the way it used to be.

As we saw with the Titano forks, you can now get in at presale prices, and still lose out. This also illustrates that asset groups can have their own behaviors. Take nodes for example. These are screenshots from different protocols…yet, notice how similar they are.

Regardless of the mechanisms that cause this (emissions leading to sell pressure, too high rewards, etc) the behavior is entirely predictable, and relatively unique to that asset type.

Be that as it may, early investors almost always have a larger advantage over everyone else if the project ends up being strong. So there is certainly an advantage to getting on whitelists or in presales.

Just keep in mind, the lower your barrier of entry, the less novel or valuable your position is to be.

The Conundrum of Behavior and Luck

I will continue to look for patterns in asset groups in hopes of uncovering predictable behaviors. I also understand (and I hope you do too) that not everything can be controlled. While yes, human behavior is predictable to a high level of accuracy, we lack the precision to pinpoint exactly which of a number of behaviors will win out.

That’s why the best technical analysis will always have chart movements going in both directions. Investors can send the price up or down, and there is no way to know which way it will go until it’s already happening. So effective analysis is more helpful for timing entries and exits than it is for attempting to predict the future.

Ultimately the charts will uncover for me (ideally) what behaviors are most probable, and when certain triggers are hit, what direction I should trade into. And I expect many more failures, but that is what happens when you test.