Stay in the Know.

• Due Diligence Rulebook 🤨

• Utility in Web3 📓

• The ONE truth About Web3 You Need To Learn 🔑

"Figures don't lie, but liars figure." – Mark Twain.

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Due Diligence Rulebook 🤨

We're kickstarting this week with some heady facts, but don't worry, treat this newsletter as your DD Rulebook, and keep it on your side for when you need it most.

It’s time to add a few definitions to our understanding of how token projects are set up, the potential benefits, and the utilities that are required for those to work, here's the nuts and bolts 🔩

Definitions will include 👇

1. Staking Governance

2. Governance

3. Yield farming

Staking 🔄

Staking in crypto is the process of holding and validating a cryptocurrency to earn rewards. When a crypto user stakes their tokens, they contribute to the security and efficiency of the blockchain.

Staking works through a consensus mechanism called Proof of Stake, where the blockchain uses the staked tokens to validate and secure transactions.

There are some risks involved with staking, such as a lockup period during which the tokens cannot be traded, and staking requirements that may vary across different projects such as a minimum required amount.

It is also essential to understand that not all cryptocurrencies can be staked, such as Bitcoin or XRP. The reason for this is because for tokens to be staked, they have to follow the proof-of-stake model, which many cryptocurrencies do not follow.

You’ll often find they follow a proof-of-work model instead like Bitcoin, which takes considerable amounts of energy to continue. When you stake your tokens, they are put to work on the blockchain, hence the proof-of-stake mentioned above.

So staking is not simply a nice gesture from crypto projects, you are rewarded for allowing your tokens to work for the blockchain instead of just being given ‘free’ tokens for no reason.

 Note: The POS model has long surpassed its initial function, and staking is nowadays often used to simply lower the sell pressure of a token, and doesn’t add any real value.

Governance 🔰

Governance is critical for cryptocurrency projects and there are different approaches to it, as I’m sure you have seen from the $RLY and $TWT case studies above.

In short, governance provides the power to vote on decisions, think of it exactly like a government. Although the only difference here is your voting power is typically dependent on the volume of tokens you hold. The more you hold, the greater your power.

On-chain governance is a structure where rules for voting and decision-making are embedded in the blockchain network, allowing all nodes to approve or reject proposed changes. This method is more decentralized, but it puts a lot of power in the hands of miners.

Off-chain governance is a method used by Bitcoin and Ethereum, where developers, miners, users, and business supporters participate in decision-making. This structure is more similar to traditional business governance and limits decentralization.

Governance tokens have been introduced by many blockchain-based projects to facilitate a more decentralized voting process. They are purchased and staked to gain voting rights and participate in decision-making processes.

DAOs are examples of organizations that depend on governance tokens and have a pool of stakeholders with voting rights. Both governance models have advantages and disadvantages, but on-chain governance is becoming increasingly popular.

Yield farming 📈

Yield farming is a way to earn interest or rewards by depositing your cryptocurrency into a pool with others, where smart contracts like cryptocurrency lending generate interest.

Here are the typical steps for yield farming 👇

1. Liquidity pool is created: Yield farming cannot begin without a liquidity pool.

2. Assets deposited by Investors: Investors simply deposit their funds into the liquidity pool.

3. Smart contract starts facilitating: Smart contract can begin work on the yield farm; adding liquidity or allowing lending to others.

4. Paying out rewards: Users receive their rewards, and these vary depending on each yield farm, including pay out durations or dates.

So, you are probably wondering how yield farming is any different to staking, right? Even though they are extremely similar and definitely interchangeable, there are some distinct differences.

1️⃣ the first is that staking requires you to pledge your assets to validate transactions (working for the blockchain), whereas yield farming is typically used to create liquidity for market makers and lending DeFi platforms.

2️⃣ secondly, staking rewards are static, whereas yield farming changes on a regular basis.

3️⃣ lastly, staking pools compete with each other, typically resulting in a higher stake winning the next block due to increased pool size. Whereas with yield farming, multiple interconnect pools can be used to generate returns which is done through yield aggregators.

A final note which can be helpful to understand, not all methods of staking is yield farming, but ALL yield farms rely on some form of staking 🙋‍♂️

Utility in Web3 📓 

Disclaimer, we are not promoting any projects. We are simply presenting some of the research cases that one should look into, and consider when defining the ‘utility’ of a token project in web3.

As we seek to share information and open up for discussion around recent news, this week’s insights will inherently be looking at utility in web3, addressing some of our recent questions around the value a token should provide.

The below intends to illustrate the complexities of creating long-term value for holders, within a sustainable ecosystem.

Let’s take a deeper look at Axie Infinity (AXS) and why a once thriving token can fall 🕵️‍♂️

So what is AXS? AXS is a crypto token linked to the game Axie Infinity.

Axie Infinity is a community-driven digital pet game that allows players to earn money while battling, breeding, raising, and trading digital pets called Axies, sort of like Pokemon as such.

To participate in this game, you are required to own an AXS NFT (Axies) which you can then battle with, etc. The positive to this? You get to earn crypto in return for playing. Cool, right?

Axies (NFT) during peak was around $200, but can be picked up for just a few dollars now 🪙

2021 was a fantastic year for AXS, with it rising in popularity immensely and the price especially with it climbing from around $0.53 at the start of the year, and rising to $160 at its peak! But limited utility is the problem...

So what is wrong with the utility?

Well, as it is a play-to-earn game, the lower the price of AXS and the NFTs (Axies) the demand for playing to earn lowered as the income lowered too.

So suddenly, weakness entered as a weak market meant a weaker ecosystem for AXS, thus reducing demand and eventually moving to huge lows like the rest of the market when it collapsed. AXS is an example of a thriving crypto token during a strong market and a popular trend.

To conclude, AXS in turn is a project that thrives on market conditions and has little other utility strong enough to push and keep expanding without those thriving market conditions.

Play-To-Earn is dying, with Play-And-Earn the new movement. After all, not everyone wants to play a game just to earn money, they want enjoyment too.

Next up on our list, the unfolding of Rally ($RLY) and its demise:

Here's another case study showing the complexities that token projects face.

Let’s start with what $RLY is: $RLY is a governance token on the Ethereum blockchain which allows creators to launch their own customizable tokens.

Which in theory is pretty awesome, so how comes it didn’t work out for $RLY?

Well, at one point $RLY was thriving and hit an ATH of $1.40. Considering it is now around $0.01, I’d say it didn’t just take a hit, it got decimated. How did this happen?

Around April 2021 is when $RLY hit its ATH and things were looking great, until the market started to take a hit and from there it just never recovered, even with the market rally (yes, that was on purpose) in late 2021.

Surely supplying a platform for content creators to grow and monetize with their own tokens is scalable and clearly somwe kind of utility, right?

Yes, but total lack of utility throughout the project, especially from a governance token is the nail in the coffin.

So to conclude…The market took a hit, $RLY as a governance token had no real utility to push it through rough times and as a result participation reduced and thus destroyed the ecosystem slowly but surely, meaning earnings and rewards diminished and there was simply no incentive to continue for content creators.

This finally resulted in the Rally network being dead and buried.

The last, and most successful of the bunch is Trust Wallet ($TWT), providing utility through crypto adoption 👀

Here is a successful case study for you to compare with. You may have heard of $TWT, but in case you haven’t, here is a quick breakdown.

Trust Wallet is a mobile app with capabilities for users to store and manage thousands of different cryptocurrencies. The aim is to become the most secure, reliable, and trusted cryptocurrency wallet in the world. Trust Wallet was started in late 2017 and by mid-2018 they were acquired by Binance.

So, how does $TWT come into play?

Well, $TWT comes into play by offering incentives and utility to provide the Trust Wallet ecosystem with the utmost power it can. These incentives and utility include 👇

1. Payment of transaction fees within the Trust Wallet app at a discount.

2. Access to premium features, such as staking and earning interest on cryptocurrencies.

3. Participation in token sales and other blockchain-based applications.

4. Governance rights for the Trust Wallet community, such as voting on proposals and updates. TWT also offers additional incentives and rewards for Trust Wallet users, such as a cashback program and referral bonuses.

But how is this any different from the previous examples, where utility is similar but the projects fail? 

Well, here is the difference. Many projects rely on their token to push them through, so, therefore, utility is needed to maintain growth. However, Trust Wallet already have the utility in their project, with their token $TWT just adding further value.

This means that they are not relying on their token $TWT for the entire project to succeed, which is where many projects fail.

How is $TWT doing now? 

Currently, $TWT sits at rank #76 in market cap at a price of around $1.40, considering in 2020 they were sitting at a price of around $0.01. As for Trust Wallet, the fact they have 25M+ users and 10M+ active monthly users, I’d say in reflection, both Trust Wallet and $TWT I’d say they are doing more than okay right now.

To wrap things up, governance tokens do not really have much utility to thrive by themselves, when combined to enhance a project that does have utility and potential without the need for the token itself, there is a crazy power shift and that is seen with $TWT.

The ONE truth About Web3 You Need To Learn 🔐

Hope, hope and... more hope.

If you're new to the Web3 space, you are probably learning that not all is as it seems, and that is because there is too much misleading information an hopium that everyone is calling for new highs as soon as the market pumps 1%.

However, the NFT market slightly differs from the crypto market and the thread below is brilliantly broken down as to why there is ONE truth you need to learn about asap in the Web3 space.

So as we know, there are constant trends and hypes in the Web3 space, so when you identify one, there tends to be one of two choices made. 1) You FOMO and buy immediately, or, 2) you do some research and try to understand why.

If you chose option 2, then congratulations, you have done your due diligence and protected yourself before making a better informed decision.

However, what happens when social media is involved in this? Well, this is where it gets dangerous, because opinions and hope are spread like wildfire and that is not an exaggeration.

Twitter in particular is full of large follower accounts which seem to spread their opinion a little too often, which sounds fine, right?

Well, not exactly and that is because most opinions are formed due to them holding big 'bags' or being heavily involved in the project, which often causes more damage due to the emotion involved, hence the FOMO mention earlier.

So, how do you avoid this?

1. Firstly, you want to avoid getting dragged into the big follower and constant agreement hype.

2. ALWAYS do your own research before making any decisions as FOMO can be overwhelming and damaging. So check yourself, before you wreck yourself.

3. The biggest opinions on Twitter tends to mean those individuals are heavily involved and hold big 'bags'. Emotion over integrity is not recommended.

Note 📝 opinions are fine, it is how we help to understand and see different perspectives, but it is VITAL to know that opinions should be used from an educational standpoint and not solely agreed upon, especially when capital is at risk.

Money is always going to be lost, and the sad reality is, for every seller, there is a buyer. Social media, in particular Twitter can be a place full of opinions and misleading information, but it is down to you to realise what is valuable and what is not.

Having an opinion is fine, never be afraid to share what you think, but also remember that while some people will grow from these, others will get hurt. And that is the reality of hypes, trends and emotions.

ALWAYS do your own research before making any investment decisions and don't just blindly follow what hugely followed accounts on Twitter say, as everyone's situation and opinion is different and there is a good chance they are heavily involve in the project.

Research, research, and more research!

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Written by Lewis 🕵️

Authors of All Things Flooz newsletter own cryptocurrencies and stocks.

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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.