We all have this one friend — we will call him “Fred” — Fred got into the “industry” sometime in 2017 and rode many “coins” to the top. Now in the depths of the bear in 2018, Fred likes to joke that he has the most “steady hands” in the industry. Fred never dumps. He is a true believer and watches them go up… and down and maybe up again (but does he dump then?)
So the point of this article isn’t necessarily about Steady Hands Fred, who jokes to give him all the allocations because he will never dump them. Fred loves his coins so much he says he is “married to them.” But more so this is about the constant villainization of dumpers. Being the CEO of a company that is issuing a token (and obviously wants to maintain a strong Utility), I get to hear it from all sides. Literally I can talk to entities A,B,C,D and E and they all will, like clockwork, accuse the others in the environment of being “dumpers.”
When we were in Shanghai meeting with people and funds, all they could do is talk about the “expert dumpers in Beijing” and when we were in Beijing — they told us to “be careful of Shanghai funds…”
Here are a few examples that I have heard specifically in the last month as we continue to secure funding for Unification.
- Don’t give an allocation to XYZ Syndicate because they are all retail and they will dump.
- If XYZ Fund is involved I wont invest because it is well known that they take 90% discount with no lock and then pummel the market.
- Airdrops are the worst because all the token receivers will dump immediately.
- On his last project, “Joe Adviser” took 3% of the total token supply, sold it all and crashed the price so all of the core team and investors got shafted — don’t work with him.
- I heard they gave John McAfee 10% of the token supply with no lock in exchange for a few tweets — and everybody knows this — not good optics there.
- I heard that So-and-So’s Group got a 2 Million dollar allocation — that is too much so I don’t want to be involved.
- ABC Fund are responsible for dumping all their coins when it hit the market for WXY Coin and crashing the price so don’t give them an allocation because they will do the same to you.
Ok — the reality is that not everybody is a dumper. One of our very close mentors and adviser told me frankly that he is still holding (for good or bad) all of the advisory tokens he got from other projects and that he feels that it is a net gain and dedication to the project to keep them all the way through.
But he is a rare one in my experience.
So this brings up the maybe philosophical or perhaps practical question of what is the obligation of the investor not to dump? Is it like tipping in the USA where its not included in the bill, but is culturally a “de facto mandatory” and you are more or less persona non-grata if you don’t leave one? I mean if tokens are unlocked and able to be transferred then they are the property of the private key holder and they have no “responsibility” to the community in any sort of black and white terms? Right?
So whose responsibility is it? Well, as far as I am concerned as a project founder, it is the responsibility of the community because well — we are all believers in the true Utility of a token.
So WHO IS THE DUMPER?
In my experience, more often than not — “funds” are going to dump you as hard as they can unless they have a good reason not to (exception is USA funds that are more VC style — they get married to the coin). Why do these glorious “funds” actually become the bad guy in these situations?
So let me take that back, I don’t want to put all “funds” in the same bucket as the word can mean many different things.
Fund Type 1—EtherBro Fund. Some guy that bought ETH in early 2017 or got lucky on a ICON/VERGE/TRON flip and institutionalized with his buddies to feel more legit and now they are a “fund.” Typically there is no LP’s and they are just playing with founders’ capital. These are more likely “whale pods” calling themselves funds and in my experience these guys typically are low-volume dumpers.
They are “involved” in the industry — go to conferences, get to know the founders, and generally looking for “wins” not only in money but in net happiness of community building. They have made good money and want to make more, but on the same note don’t really have any need to take immediate profit and sometimes will sell just enough to cover their downside and leave the rest on the table.
Fund Type 2 — BTCBro Fund. This “fund” usually started with some guy that is OG status in BTC. Maybe he bought a bunch and held, maybe he was a miner or had a fund from the old days. They have already been through a few market swings and are still here and likely view themselves as a of living deity of sorts.
These “funds” usually have gob-smacks of coins and have hired in professional money goblins to manage the day-to-day and make sure that they are profitable despite all of the founders wild ideas and whims. Even though they may seem large and varied, typically still they take no LP’s (but they all plan to LOL) and are just an extended carnival of the founders mind. Projects can be fortunate to get involved in these and experience will vary — but despite the friendly face at the top, rest assured that they have an ex-Wall Street guy the rich guy hired in to make sure they have profitable quarters.
There are many stories of these “funds” mercilessly dumping the bottom out of a project that they helped kickstart. They seem to feel entitled to do this because they feel they are the “signal-giver” in the market and that the project would have never been anything without them in the first place.
Fund Type 3 — BrokeAss Fund. This is probably 70% of the funds we meet and are a variant of the EtherBroFund who never liquidated. They basically have no money to invest and will want to take you on “roadshows” and “incubate you.” More information on the BrokeAssFund in the How to ICO in 2019 article.
Fund Type 4 — ResponsibleAmerican Fund. These are typically associated with the real-life VC industry in the USA with the main players having traditional institutional investing experience. If you are lucky enough to get one of these to invest, then give them all your allocation because they are all looking for the next BTC and will HODL it until it snows in Miami.
Fund Type 5— Asia Fund. Usually means Korean or more typically Big Chinese Fund. For much of ICO 1.0, Asia Funds were the main “signal” in the market and typically EtherBros and others would just blindly follow what the Asia funds did — Why?
Well — two reasons.
a — Asian funds were the early employers or implementations of “market makers.” These would be entities that would use capital to buy up coins if they went below issuance price so it would keep the price from going to the floor. They typically didn’t need to do this forever — as it combined with reason B to create a healthy environment.
b — Asian funds would actively push/hype the projects to the Asian retail markets who would then come into the project and bring an influx of new investment and interest.
Now this certainly was not limited to Asian funds and markets, but certainly they were clearly coming with the professional and structured approach to things — rather than western funds who sorta just followed. There is one prominent (famous actually) US-based investor with his bespoke “fund” which told a project, “get me two more china fund logos on your website and I will invest.” Basically for the ICO 1.0 run, there was a certain confidence that Chinese players were the adults in the room and were serious about making money so it was generally a safe bet to follow them if you could get in early enough.
I think the difference in early ICO 1.0 is the Asia funds did work and “made sure” that their projects would succeed instead of western funds who were betting on the team to figure it out.
Sound pretty daunting? So what is the best course of action for a project? By the above description, it seems that most “funds” seem fairly bleak. So we need to look at the actual value a “fund” could provide.
A — They provide a “signal” — No logic to it of course, it is a herd mentality — It works.
B — They provide exchange “intros.” Totally unneeded in late 2018, the industry is small. I can walk up to CZ at a conference and everybody and their dog is providing “exchange intro services.” If you have a halfway decent token and volume, all the tier2 exchanges will list you for next to nothing and there are 100 ways to start the application for tier1 exchanges who will judge you according to their own criteria.
C — They actually “do the work.” A three letter China Fund got a great reputation as the fund to follow in ICO 1.0 because they weren't just investing — they were actually making sure that projects did well, by doing the marketing in-house and managing the Asia retail hype. So for a time it was a good party if you heard they were on a project. This was fun while it lasted and eventually fell apart and their reputation petered out.
D — They buy your token. Ok this one is good as long as terms are happy. Personally I have spoken with some well regarded funds who basically want me to give them a dump truck of UND for free (massive discount), and then they would roadshow us and resell the tokens themselves at a premium. Effectively profit taking from the beginning which is ok I guess if it works. We politely declined their offer.
All of these things are ok and worked great in the Bull run that happened because of the massive influx of retail investors to sell to. These retail investors are gone now and none of these “tricks” are working anymore.
Funds are dried up, they pushed all their remaining liquid assets into various ICO’s in Spring and Summer with no retail to take the torch and founding teams who were in it for the pump and not the long term technology. These investments never went liquid and only the ones with deep pockets remained and they sit quiet on the sidelines or “incubate” projects close to them looking to be the new signal-giver.
So the point is that as of right now, the market has no compass. Things that worked in the past are not working — the reason being is that they worked not because of the genius of the strategy, but because retail investors had FOMO’ed in and were taking the dump. Smart forward-looking players will recognize this.
— Top Ranking on So-and-So’s Spreadsheet
— 5 China funds’ logos on the website
— Random PHD with 8 years of blockchain experience on the team
— They have signed a partnership agreement with <Insert big company name> (reality is they usually have a buddy that owns a local franchise)
— They have a 50-million user base from their other company they are bringing over to use their payment token. (Stuff like this is usually debunked with any amount of real diligence — except if you are MachineZone and doing your own Reverse ICO.)
— MASTERNODES! (did you LOL?)
So we are at a point where we as an industry need new signals so that we know what projects are “good” and I think that we, collectively, are beginning to grow up and “funds” are not necessarily holding any more authority than before.
I don’t want to make this a political article, but I can use a recent political example to make a very stinging point.
Remember when Donald Trump said he was going to run for president? Well, the “republican establishment” was like, “umm no — you don’t listen to anybody and going to get us all in jail.” (In this example, this “establishment” is the “Funds”), but the establishment (funds) had already alienated their parties base (retail investors) so along comes DJT who just says a bunch of stuff and the hometown voter bases start to follow him.
Guess what? The establishment had to follow just as funds will follow any project that gets the attention of retail. There is a whole lot wrong with the above example — but stepping back and looking at it logically — it is all true.
The new signals aren’t going to come from the establishment or existing funds — they have already burned their bridges. Rather we need to be looking for projects that touch the retail investor or common person directly.
The blockchain circle jerk as we know it is dry of juice and if you want to know who is going to win — look to the project that regular people are talking about. The one that people who can maybe invest 1 ETH into a project are getting excited about. The one that shows use cases that bridge over to the “real world” outside of blockchain. The ones that would be well suited and just as comfortable at CES or SXSW as they would at Consensys.
So back to the point that every project founder wants to know. How do we “avoid the dump?”
Nobody knows for sure —But I can tell you some “best practices” that we have been seeing from the A quality projects providing a true value to the community.
- The run the raise like a “product launch” with a timeline — beginning, middle and end. Meaning that investors can see that if milestones are achieved that they will see liquidity on a specific date. This, and by setting a stage where there is a limited time to contribute (instead of open ended) allows for clear yes/no answers which have a much higher chance of yes then giving them the option to defer.
- No Bonus for anybody — Bonuses encourage dumping and dumping lower and lower because if a token is issued at 5 cents and some guy got it for 2 cents — he will basically keep dumping all the way down to 2 cents if all of the other factors show him no confidence or he just needs to be liquid for something else. What can often happen here as well is these “bonus getters” will dump the price to their real paid amount and destroy confidence in the token and then will do a rebuy at that level leaving all of the weak hands rekt and any sort of immediate confidence in the token gone.
- Strategic lock — working with an A+ market team — they have formulas that tell them exactly how to do their magic and they need to know EXACTLY how many coins will be in circulation. Investors don’t like locks? That is their problem — A powerful team will always allocate for the worst possible scenario — hence the need to lock.
- Market Makers — Point blank if you are a founder of a team and not planning on employing the best market makers you can find and budgeting for exactly what they need, then you need to go refund all your tokens right now and go back to running your eCom store with your brother from the coffee shop.
- Get on a proper exchange and yes it is not easy — We all know what it takes to get on a Tier1 exchange- and the reality is that a token being listed on a Tier1 vs Tier2 is the difference between being David Beckham or being the backup Goalie for the local Sunday football league. Plan for it and do it. We aren’t here to fuck spiders.
- Early lockout from Decentralized Exchanges (DEX’s) — DEX’s are bad for this game— There I said it. We have seen so many tokens ruined because they get shifted around on DEX’s for months before they get a proper exchange listing. What happens is this allows semi-retail buyers to relieve some FOMO to buy and let them get the token in a little drip. This may not crash the price, it may even make it go up a little over issuing price — but what it does is makes it so that your token has lost any air of exclusivity and “hard to get-ness” so when it hits an exchange then nobody really cares. This goes in line with the law of exponential growth — if five people want a token and each one buys it on five different days then the noise is minimal. However if we force these five people to all buy it on the same day, then a moon landing is imminent. Practically there are two ways to do this, one is to write the token contract in a way to lockout DEX trading — you can have it as a one time “turn-on” variable. The other is to just not actually issue tokens until the day/hours before the token is listed (preferred).
- Intelligent Allocations — I have a personal rule that I do not give private sale allocations to anybody who have I not shaken their hand or had a substantial phone conversation with, and that came well recommended. I have committed full/double time to UND for the next 3 years and know exactly the growth path I am going to take to get there. Anybody who holds our token is investing in a token that is useful in the long run and can look past short speculative gains (which we do not want to encourage but sadly seems to be prevalent in the industry) By looking a person in the eyes and shaking their hand and telling them my story — our story — they can then share that mutual vision and likely understand that UND is the future backbone of data liquidity that will be around for multiple generations.
- Run it like a real business — I think by this point we have more or less shaken out the early entrants who were just in the right place and right time but never had any plans or knowledge on how to actually run a business. Well, businesses have strategy. Time your announcements, engage with new influencers around the time of new token releases so that there is fresh retail interest to offset the sell pressure. Make partnerships and prosper. If you can’t do this and instead just spend your time and investors monies popping bottles and doing Ketamine at conferences, then your brothers eCom store awaits.
- And most importantly — Spend your money from the token sale to do good things — Let’s be honest, no startup out of Silicon Valley in the current environment would ever get 10/20/30+ million USD to build out some idea. If you are building out a tech-thingy, guess what? You don’t need 10 million dollars to do that. You don’t. So what is all this money for? It certainty isn’t for you to buy a ski cabin (erm…). Use it for press, roadshows, real conferences, talent — make a business. Push your coin to mainstream. This is how we win. Your investors have trusted you by investing in the token you have issued — put it to use to for the ecosystem development and not to celebrate the fact that you were able to raise so much money.
Please note: this article is the authors own opinion and should not be considered associated or endorsed by Unification.