Satoshi Nakamoto left a huge pair of shoes to fill after posting the Bitcoin (BTC) code, helping establish the network, and then disappearing without a trace.
Over the years, the cryptocurrency ecosystem has seen many protocol developers and creators rise to become cryptocurrency messiahs to their most loyal holders, who ultimately see their best laid plans end in catastrophe when the protocol is hacked, attacked or abandoned by capricious developers.
Barely halfway through 2022, the year has already seen a particularly bad stretch of good intentions gone to waste, collectively helping to plunge the market into bearish territory. We discuss each of these cases below to help understand how similar outcomes can be avoided in the future.
Some developers are anonymous for a reason
Satoshi may have successfully remained anonymous while launching Bitcoin, but in most cases since then, having anonymous developers has turned out to be a red flag.
Many anonymous developers claim personal security reasons for resorting to this route. Although this is a valid reason in some cases, sometimes anonymous developers hide from previous misdeeds or plan to cover their tracks in case of future misdeeds.
A blatant example of this was Squid Game (SQUID), a memecoin inspired by a Netflix show that skyrocketed 45,000% within days of its launch, only for traders to realize they couldn’t sell the tokens at all. no exchange.
Investors ended up discovering that all developers were anonymous and all social media channels had comments blocked.
The cryptocurrency community has come to distrust anonymous developers and this can be seen in the negative reaction to the revelation that non-fungible token (NFT) project founder Azuki was involved with three other NFT projects that were ultimately abandoned, leaving their holders with little to show but worthless jpegs.
Another case of an anonymous developer getting greedy occurred earlier this year, when it was revealed that Wonderland’s (TIME) anonymous treasury manager 0xSifu turned out to be a suspected financial criminal, along with QuadrigaCX co-founder Michael Patryn.
1/ Today allegations about our team member @0xSifu will circulate. I want everyone to know that I was aware of this and decided that the past of an individual does n’t determine their future of her. I choose to value the time we spent together without knowing his past more than anything.
– Daniele never asks to DM (@danielesesta) January 27, 2022
The revelation of this connection caused the collapse of several popular projects, such as Wonderland and Popsicle Finance, while a significant amount of criticism was directed at the creator of Abracadabra.Money, Daniele Sestagalli.
Prior to the 0xSifu reveal, all three protocols were seeing increased adoption, but each is a mere shadow of their past success.
Having anonymous developers takes accountability out of the equation and is increasingly becoming a red flag when it comes to multi-billion dollar cryptocurrency protocols.
Beware of cult personalities
Finance is no stranger to cult personalities and cryptocurrencies are not immune to this phenomenon.
Cryptocurrency experts will remember Roger Ver as the “Bitcoin Jesus” and as the leader of the fork of Bitcoin Core and the creation of Bitcoin Cash (BCH). Billionaire Dan Larimer also comes to mind, and investors will recall that he helped EOS (EOS) raise $4 billion during the 2017-2018 initial coin offering (ICO) boom. In each case, he was an ardent herd of followers who promoted each project.
Neither BCH nor EOS managed to recapture their all-time highs during the 2021 bull market, despite all the hype about their future when they were first launched. This is possibly due to the fact that a part of all the hype is focused on the personalities behind the projects.
A more recent example is the collapse of Fantom ecosystem token prices after decentralized finance (DeFi) developer Andre Cronje deactivated his Twitter account and informed the community that he was leaving the cryptocurrency space altogether.
Cronje had become so popular that many people bought a token just because he was involved, and when he left, many of these investors dumped their holdings, which negatively affected the prices of said tokens.
Previously, Fantom’s brand/marketing was Andre Cronje.
Now we don’t have that identity.
It’s not a suggestion to focus on branding/marketing right now, it’s an absolute necessity.— Jack The Oiler (@Jacktheoiler) May 7, 2022
Although Cronje was doing what he believed was right and had no ill intentions towards the community, his actions seem to have negatively affected the cryptocurrency market due to his popularity within the community and the dedication of his followers.
The main takeaway is to be vigilant when considering that a developer can do no wrong and remember that followers of a cult can have results that extend beyond their community.
Decentralization needs community participation
Another red flag to watch out for is Decentralized Autonomous Organizations (DAOs) and DeFi protocols that operate in a way that seems more centralized than their name suggests.
It is common for many protocols to claim that they are decentralized, but rely on centralized service providers like Amazon Web Service to ensure they work properly.
Due to a major AWS outage, dYdX exchange is currently down. We are experiencing greater latency across services and impaired functionality with endpoints not working and the website not loading.
For the most up to date status updates, subscribe to: https://t.co/EvjpZdRyby
— dYdX (@dYdX) December 7, 2021
Another pertinent example is when a project that claims to offer token holders governance rights makes an important decision about the protocol without consulting the community for input and approval.
Terra’s move to add BTC to its treasury as collateral for the TerraUSD (UST) stablecoin made headlines and was praised by many, but the move was never put to a vote within the Terra community to see what token holders thought.
Although it is very likely that the plan would have been approved and that the collapse of Terra would have occurred anyway, the blame could have fallen more on the community and less on Do Kwon, the leader of the project. It is also worth mentioning that Do Kown had developed a large cult following and frequently insulted various people on Twitter.
Adherence to decentralization is one of the main tenets of the cryptocurrency industry, and failure to do so often leads to a compromised network and dissatisfied investors.
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