I Dump Coins on You
Confessions of a dev that sells crypto to pay bills
“Do you want those devs dumping on you to pay groceries?”
“I don’t want those coins flying up in my face!”
Ouch. As a dev (well, technical writer mostly, but I write some code too) in the Decred Decentralized Autonomous Organization (DAO), I get paid in crypto. And I do have to sell most of it to pay for groceries, rent and other bills every month. Comments like that sting. I’m not hurting you, I’m working for you. And taking a large pay cut too btw. But I get it. I am eating your sandwich. In this article, I explore the insights I’ve gained by trading my paycheck on volatile crypto markets every month. It teaches you quite a lot actually. About trading, the meaning of crypto community, and the nature of money generally. Things obscured from you when you get paid in a liquid, “stable” currency like the US dollar. Like, the simple truth that there’s always someone on the other end of a trade.
On Liquidity
Remember that famous report saying 95% of all Bitcoin volume was fake? Most “alt coins” are worse. There’s barely enough real liquidity to trade anything but small amounts. Submit a market order for any sizable amount and the slippage (the difference between the quoted price and what you get) can top 10%. You realize that CoinMarket Cap (CMC), that leaderboard cypto stares at all day every day, for what it is: advertising.
Many of the larger coins on CMC have no active development, no actual use case (other than as mini casinos for traders to play in, which is a real use case). Most of these coins, with market caps in the hundreds of millions or even billions, maintain their market cap only by heavy use of market makers, price manipulation and narrative management. Nearly every project hires companies that deploy market making bots (bots that always take the other side of a trade).
Sometimes, the less scrupulous of these firms get bonuses for maintaining a certain MC, or generating a certain amount of fake volume. This recent CoinDesk article entertainingly shows how a Russian engineering student will get small-cap coins listed on CMC for as little as $15k.
UPDATE: while Decred has historically shunned market makers (controversially and against the wishes of many in the community, as it has arguably kept the MC lower than comparable coins), the community is about to vote on proposals from several reputable market makers that don’t engage in market manipulation. If approved, these market makers will make the spreads illustrated below smaller.
As a result of this illiquidity, even relatively small trades can move the market, and thus market cap.
Below is a gif of me selling 30 DCR from my paycheck (~$1,000 USD worth at the time) on Binance (1 min ticks).
As you can see, my sell order caused the price to drop ~0.000007 BTC, or 700 satoshis. Multiply this by $30 (the USD price), and you get $0.0003. Multiply that by the number of coins in circulation (10,122,691 DCR) and you get the amount I moved the market cap (according to CMC): ~$2125.
A second later (possibly in response to my trade), another sell order (probably a bot) sends the price down another 300 satoshis, to 0.0031. So another ~$911 in market cap.
So, the DCR I sold for groceries (well, more like rent, I’m not that hungry), has just swung the market ~3X my order size. If someone from the community (or an investor) had come along right after me and sold their 30 DCR for USD, it probably would have moved the market down another couple hundred satoshis, giving them maybe $5–10 less USD than me. It’s like we’re both waiting in line at the grocery store, and I’m reaching into their cart, grabbing a sandwich and eating it in front of them. When I go on Binance to sell my paycheck, and hit that sell button to create a market order, and see that that little red bar on the chart as the price goes down, I feel a little pang. It feels like I’m taking a tiny little dagger and poking the community, drawing a drop of blood (ever wonder why down candles are red?). Now, I realize how ridiculous that sounds. I’m giving great value for my labor. More than I ever did to any startup. The price could have gone up 10 minutes later. And anyway, this is what money is for after all, paying other humans to do things for you. But still, this reaction gives me pause…
On Shilling
Ever wondered why the cryptoverse is so obsessed with shilling and FUDing? I certainly was, genuinely perplexed at first. But I eventually realized that yes, it does matter…Due to illiquidity and general volatility, moves in any direction are amplified by day traders, trading groups and bots (some of which use social media sentiment as a trading signal). Perhaps more importantly though, lacking proven valuation frameworks, cryptocurrency market caps are held up almost entirely by narrative. By the shared beliefs of a community, or cryptosociety. Challenge (or promote) that narrative, cause a few sells (or buys), and yes, individuals can move markets. When organized, groups of people can move millions #xrpthestandard #chainlink.
When you understand that your speech, like your trades, can also move markets, there is an incentive to shill. When you have a large position in a crypto that must be “unwound” over a long period of time, lest you crash an illiquid market with a large sell order, you are incentivized to further that narrative. Likewise if your income comes from a project (which is paid by those with larger positions).
Now, I generally hate advertising. NoLogo all the way. But I only joined Twitter (resisted all these years somehow) because I joined the DAO. This was partly because Twitter is (for better or worse) where the crypto conversation is happening. But also to “shill” Decred. I understood (without anyone telling me) that this was not necessary (many contributors aren’t on there at all), but that it was a way I could add value and connect socially. This is why it’s important IMO to actually believe in the project — to preserve your integrity. When I found Decred, I was at a point in my crypto journey where it was dawning on me what the entire value of crypto was. And that was Bitcoin. Flirting with Bitcoin maximalism (before that was a slur), I wanted to work on something permissionless, censorship resistant, and decentralized. And Bitcoin wasn’t hiring. Decred was.
On Trading
Getting paid in crypto forces you to trade, whether you want to or not. Even if you sell your coins as soon as you get them, most crypto has to go through a long, torturous journey through the financial system to reach your landlord, starting with trading it on an exchange. I typically go from Decrediton (the official DCR wallet) -> Binance -> BTC -> Coinbase -> bank account.
The volatility can be brutal. In the DAO, contractors get paid a USD rate, but their pay is in DCR and calculated based on the daily average exchange rate for the month they bill in. They then have to wait ~2–4 weeks for the invoice to be processed and paid. Meaning that at all times, I have at least one month’s pay locked in DCR. The stated reason for this is to separate rewards from work, and discourage contractors from holding off submitting work until the price goes up. It also, in my experience, makes you more emotionally invested in the project (more skin in the game). Glued to that price chart on CMC.
My first paycheck went down ~%50 before I could sell it, timed perfectly with a crash in the broader crypto markets. Oof. Since then, the markets have climbed back up though, and I’ve gotten +15–25% raises the last few months. I sell most of it, but still have an opportunity to participate in the upside. Side note: I am now obsessed with the idea of what would have happened to Uber if early drivers were paid in liquid Uber stock, which they could sell easily in the app for USD but also had the option to hold. But I digress…
Since I don’t have time to actively trade these days, I’ve created a low effort strategy to hedge my downside risk.
1) HODL a small percentage each month, confident in the long run
2) Only sell when DCR is ~ above the 7 day moving average
3) Diversify part of what I sell into other coins I believe in (Bitcoin, Ethereum, Monero, FOAM (my small cap long shot))
4) Leave the rest in USD.
On Volatility
Nicholas Taleb, author and academic responsible for you hearing “skin-in-the-game” all the time now, knows volatility well. He likes to point out that lack of variability is not the same as stability.
Crypto exemplifies this. The volatility in crypto markets is insane. But once you’ve been in the scene a while, seen a few cycles… you develop a weird calm about it. Number go up. Number go down. Over time it averages. Stay in crypto long enough and it typically goes up…You take gains along the way in USD to weather the downturns…
I was once paid ~4X more than I get paid now to work at a tech startup in SF, plus stock options. Sounds more stable than some obscure cryptocurrency DAO in the mid 30s on CMC, right? Actually, no… Forced into ultra high growth mode by VCs, the company, even though it eventually became profitable and was acquired for $100M, returned $0 to the common stock holders, my $10k investment wiped out (much less than the people that really bought in with years of their lives).
In typical Silicon Valley fashion, this was done via an employment contract with 10 pages of legalese containing all sorts of complex restrictions that shifted risk onto employees, accredited investor regulations that kept me from selling on secondary markets that were even more illiquid than crypto markets (not to mention the inability to invest in Uber instead), and strict secrecy around the company’s actual performance and financials. Most of my high salary went to paying SF rents, drinking booze to deal, and therapy for my PTSD. I left SF broke and broken, the only difference between me and an 1800s gold rusher the tightness of my jeans.
The Decred DAO, while more volatile in many ways, has been surprisingly, more stable. Instead of being started by founders and VCs looking for an exit as soon as possible, it was started by respected OG Bitcoin devs totally committed for the long haul, planning for decades, aiming for sustainability. Instead of being reliant on continual outside investment from VCs and other legally rich people, it is funded by 10% of the mining reward going into a Treasury, which is worth ~$16M at current exchange rates — some forward thinking VCs like Placeholder and BlueYard have invested, but it also has a large diverse base of other investors. Instead of decisions being made by a handful of board members, decisions are made via voting in a censorship-resistant proposal system modeled after Reddit. Instead of focusing on spending money as fast as possible, it has been frugal, spending less than it takes in from the block reward all but one month in its ~3 year existence.
Instead of spending millions on an office in an expensive city (and millions more in salaries to pay their employees’ exorbitant rent), it is entirely remote (and global). Instead of trying to find product-market fit, it is iterating on Bitcoin, the only crypto to date to credibly achieve it, and aiming to be an alternative Store-of-Value (SoV) and Bitcoin hedge. Instead of revenue which can go to zero, it will, like Bitcoin, never go completely to zero, only trade at a lower price. Instead of trying to up their burn rate to appease VCs, it has contingency plans to continue for years, even in a downturn. Instead of making contractual promises it may not be able to keep, it relies on tested game theory and trust built up by past actions. Instead of promising an IPO and liquidity in 10 years (maybe), it promises nothing and provides instant liquidity. Instead of its valuation determined behind closed doors by creative accounting methods known only by a select few, its valuation is determined daily by free markets. Instead of trading only on secondary markets accessible only by people that can prove they already have a net worth of $1M, it trades on numerous exchanges open to anyone, worldwide. Instead of 100X returns only possible for founders, a select few early employees, and VCs, 100X returns are still possible for anyone (DYOR). Instead of being highly secretive about its work, most work occurs in public chat channels open to anyone. Instead of binary employment (expensive full-time employee/contractor or nothing), it offers the freedom to work as much as you want, when you want. Instead of community being something cynically encouraged with free microbrew and food, with full knowledge that most of the relationships will be ended due to the company’s eventual failure (or success), it allows people the ability to invest in ongoing, long-term relationships where the people involved choose when it ends. Instead of being totalitarian (corporation), it allows contractors to organize themselves, akin to OSS or commons-based projects.
There are no guarantees of course. The dev fund could get hacked. My invoices could stop being paid one day. The volatility has been challenging, to say the least. As have other aspects. But as the months go by, I’m slowly coming to the realization that, this is actually more stable than any tech company I’ve ever worked for. The DAO is, like Bitcoin, antifragile.
On the Future
I recently started contracting part-time for a VC-backed crypto-adjacent startup, making ~2.5X per hour what I make in the DAO. The product is amazing, the team is great. And I started asking myself, “Why am I not working at some hip crypto startup again? Why am a shouldering all this volatility, for below market value?!”. A bit of soul searching later, and I had the answer. It’s because the DAO offers the possibility of something companies can’t: antifragility. The ability to work on OSS, when I want, how I want, building community with amazingly talented people, without having a corporation decide if I can continue to do so.
Now, there are no guarantees. It’s early days. Not everyone has the opportunity of stumbling onto some hard money pirate ship helmed by OG Bitcoin devs. Not everyone can (or wants to) shoulder the economic risk, volatility and anxiety I’ve gone through on my journey; indeed, I’ve thought about quitting multiple times. But as I start to come out the other side, and slowly gain more confidence in the model, the ground beneath me is beginning to shake…I can feel the change coming…As more DAOs emerge, figuring it all out, with real money and lives on the line…alternative careers will emerge. And once people experience that alternative, that control over their own lives, there’s no turning back.