This episode highlights some of the lessons that can be learned from events that have rocked the crypto space in recent months, particularly the implosion of TerraUSD (UST) and the crises in the crypto lending space.
Highlights
Additional reading
Some crypto-specific news websites
Hi, welcome to decentralized, a podcast on the crypto space, where I'll be talking about the crypto landscape, the crypto infrastructure, crypto assets, and the crypto market as well as factors that affect it. My name is Lorraine Mutyaba and I am the host of decentralized.
FUD is a common term in crypto; it's an acronym that means fear, doubt and uncertainty. In crypto, it means misinformation, disinformation, partial truths and blatant lies that are peddled to shake confidence in a particular project or in the crypto space in general. An example of FUD would be that Taiwan has banned crypto. The reality is that, recently, Taiwan banned the use of credit cards to purchase crypto. One can still purchase crypto with their debit cards and through wire transfer. Another example of FUD is the China FUD, which pops up like clockwork every single year, that China is banning or has banned crypto. The only certainty in this space is that next year, there'll be a headline in your newsfeed that China has banned crypto yet again. But not all FUD is FUD. One of the things about crypto is that it gets really tribal and there is blind loyalty to projects. So criticism of a project and valid questions raised about a project and feedback are often dismissed as FUD even when they are not. I'll give two examples. As far back as 2020, questions were being raised about Celsius's business model, as well as its yields, the interest it was promising depositors. CoinDesk, a crypto news website ran a story with a headline, "What crypto lender Celsius isn't telling its depositors". The contents of this article were dismissed as FUD. Questions had also been raised about the Terra-UST-Luna mechanism. And these were also dismissed as FUD by the founder of the project, and by people who are invested in it. This was not FUD, and there were valid questions and valid concerns. So the question is, how do you know that something is FUD? How can you distinguish between FUD and something that you should pay closer attention to? Personally, I don't think you should dismiss anything. But what can help greatly not just with regard to FUD, but just with regard to this entire space, is doing your due diligence. And that's what I'm going to talk about next.
So there's a crypto currency called Tomato. And you think to yourself, okay, this is new, this seems to be everywhere. Let me go to Twitter and YouTube and see what people are saying about Tomato. And so you go to Twitter and YouTube and your favorite YouTuber, or the person you follow on Twitter is very enthusiastic about Tomato. And then your friend who bought Bitcoin at $200 is also enthusiastic about Tomato. You think to yourself, you know what, that's what I'm going to buy, Tomato. That is not doing due diligence. While there is great information on Twitter on YouTube, and while your friend who bought Bitcoin at $200 could provide some really good suggestions, there are also unfortunately people out there who prey on our desire for financial freedom. They are Brother Jeros running cons on social media and WhatsApp groups as opposed to Bar Beach in Lagos. So that is not doing your due diligence. Then let's say a venture capitalist who you respect, or someone who is well respected in the crypto space is also bullish on tomato. By bullish I mean, they're very enthusiastic. And you think to yourself, well, these people are smart, they have more experience than I do, they have analysts, they have resources, they've done all the statistics. I might not do my own due diligence, but I trust theirs, don't! I'll explain why. The founders of 3AC, which recently filed for bankruptcy, as well as the heads of certain crypto hedge funds were bullish on TerraUST/Luna. But as one of the founders of 3AC said recently, he had not considered that Luna could implode in the space of a few daysis projections had been regrettably wrong. We are all infallible and projections are not fact. And sometimes we can be catastrophically wrong. So Twitter, YouTube and WhatsApp groups can all be great places to start, but your journey should not end there.
So where should you go to get information so that you can make an informed decision? Well, crypto news websites such as CoinDesk Cointelegraph, Decrypt, and The Block, offer more depth and breadth in their reporting than other mainstream options. Coinmarketcap is a great resource, not only will you find lists of cryptocurrencies, but you'll find links to their websites, their social media pages and their community pages. You can visit these to just stay abreast of developments in the projecte because sometimes the project can go a direction that makes it unappealing even though it was appealing a few months prior. You also get a chance to learn more about what you're interested in and to get a sense of what other people who are interested in that project think about it. Due diligence is especially important if you intend to use a centralized crypto lending and borrowing company or firm. I am not a fan of centralized crypto lenders at all, in light of what just happened, and because we need to trust them and need to trust that they are not misrepresenting themselves, that they are being completely transparent in a space that is not regulated. And unfortunately, that trust has been betrayed. But if this is something that you want to do, then at the very least read the Terms of Service before you commit. You might be thinking no one reads those unparagraphed blocks of text. You are not wrong. A Deloitte Survey from 2017 revealed that 97% of young people, those between the ages of 18 to 34 gree to Terms of Service without reading them. It is prudent to read them, particularly the portions that concern you the user, especially when you have few protections, as you do in crypto. Here is why: Voyager, a crypto frm that filed for bankruptcy recently, stated in its terms that it could pretty much do whatever it wanted, with customer's deposits at the customer's sole risk. It could reuse and repledge their collateral to obtain a loan from a different lender. Celsius stated that in the event that it became bankrupt, entered liquidation or was otherwise unable to pay its obligations, certain eligible assets on its platform may not be recoverable and there would be no recourse. Due diligence saves lives and could be the difference between losing everything, being able to salvage something, and dodging a bullet. But perhaps the most important lesson from everything that has happened in the last couple of months is nothing in this space is risk free. Even stable coins that are not algorithmic do carry some risk. And so only invest what you're prepared to lose. And that's what I'll talk about next.
So the first tenet of risk management and investing really is only invest or speculate with amounts of money that you're prepared to lose. It's very easy to get carried away, it's very easy to see the prices of assets go up by leaps and bounds, to see your friends doing well and want that for yourself and then throw caution to the wind and speculate with a lot more money than you are prepared to lose. Especially when prices are going up because that FOMO can hit you like a tonne of bricks. I think sometimes we are afraid of being left behind. And if we don't take this train, we will not get to financial freedom. And the reality is that there are other trains at that station, we just get better at identifying which ones we should jump on and which ones we should not. So only invest what you're prepared to lose, start really slowly get an understanding of the market and practice Risk management. Risk management is paramount.
So in summary, FUD is not always FUD. Criticism and concerns raised about a project that you're invested in are sometimes valid. Number two, due diligence is a necessity in this space and there is no substitute for doing your own due diligence. And lastly, only invest what you're prepared to lose. Nothing in this space is risk free. This is all I had for you this week. Thank you for listening in until next time, take care of yourselves