Shitcoins may be tempting investment opportunities for cryptocurrency newcomers.
The digital landscape is filled with stories of people going from rags to riches with investments that turn out to 100x.
However, most of these stories end up without a happy ending.
Hidden Gem or Fool’s Gold: How to identify shitcoins
Lessons from Wormhole Hack
ETH’s Deflationary Journey
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💎 Hidden Gem or Fool’s Gold?
Shitcoin is a term used by crypto investors to describe coins which have little or no actual value but receive hype or publicity to artificially inflate prices through pure speculation instead of utility.
This run-up is inevitably followed by a swift and steep drop in price as original and savvy investors take advantage of the ephemeral high prices.
When well-equipped, and with a bit of due diligence, these bogus projects can be easy to spot.
Methods to separate the wheat from the chaff:
1️⃣ Vet the Team
In shady projects, proprietors seldom wish to be held accountable or accept responsibility for perpetrating these Ponzi schemes. Do the research. If the core team members aren’t publicly identified, take note. When team members are identified, always run a background check. Sometimes, you can easily discover that an individual has been associated with past shitcoins!
2️⃣ Identify the Use Case and Supporting Technology
These projects must appear prestigious enough to draw attention. It’s common for them to make grand claims, often vaguely claiming to solve some of the biggest concerns in the industry yet offering no explanation of how to do so. For example, it's true that interoperability is an issue in crypto. In fact, it's one of the core issues of 2022. It's also true that many multichain solutions exist. But has the project explained their solution? Do they have the capabilities to achieve it?
3️⃣ Scrutinize the Whitepaper
Reading the whitepaper is a must for any coin when considering it as an investment. If the document lacks real substance or bears an uncanny resemblance to another project’s, it should sound some alarms. Whitepapers are the single most important tool projects have to explain their product.When a team fails to seize this opportunity, it’s either due to negligence (not a good sign) or because there’s nothing to say (a worse sign).
4️⃣ Examine Initial Coin Offerings
Drastic discounts for early investors on ICOs coupled with brief lock-up periods for tokens purchased are cause for concern. Short lock-up periods are designed to allow swift offloading of token holdings. If discounts for these tokens are approaching or surpassing 25%, it might be time to move on.
5️⃣ What Do Holders and Liquidity Look Like?
The number of holders and liquidity pool size should be within the margin of expectation for new projects. Without people and money, projects reliably fail. If a prospective coin has 150 holders with a liquidity pool in the low 10’s of thousands of dollars, it may indicate a hard pass.
Developing good habits as listed above will establish self-accountability and will serve you very well long into the future.
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🕳️ Too Deep into A Wormhole!
Wormhole, a token bridge allowing users to seamlessly bridge wrapped assets between supported chains, has been compromised. The hack took place on the 2nd February 2022 and according to several etherscan transactions, the attacker minted 120,000 wETH on Solana then redeemed 93,750 wETH for ETH worth around $254m.
Twitter handle @kelvinfichter provides a detailed description of how the hacker successfully exploited the wormhole protocol in a thread here.
The official Twitter handle of wormholecrypto has since published multiple updates most notably that the vulnerability has been patched.
The Wormhole network is currently down for maintenance as the team looks into the exploit.
An address associated with the Wormhole team has sent an on-chain message offering the hacker a white hat agreement (they will allow the hacker to keep $10m of the funds in exchange for the safe return of the rest of the funds as well as information on how they exploited the protocol).
Vitalik Buterin, Co-Founder of Ethereum, has been fairly vocal regarding his concerns on the security of cross-chain applications in a Reddit thread shared last month:
“It’s always safer to hold Ethereum-native assets on Ethereum and Solana-native assets on Solana than it is to hold Etherum-native assets on Solana or Solana-native assets on Ethereum”.
Take this into consideration when operating cross-chain!
ETH “Firing” Away 🔥
You may recall the most recent “update” to Ethereum from last year: the EIP-1559 protocol. According to Nansen Analytics, there has been $1.096 billion worth of Ethereum burned in the past month thanks to this protocol.
EIP-1559 takes a portion of all fees out of circulation for every transaction that occurs on the Ethereum blockchain by burning these coins.
Let’s take a look at some of the specifics from this last month!
OpenSea (NFT marketplace) had an all-time high volume of $3.5 billion in January.
From OpenSea, there were 65,778 ETH ($181.7 million) burned.
In second and third place were ETH transactions and on UNI, burning 35,696 ETH ($98.6 million) and 24,223 ETH ($66.9 million) respectively.
As a reminder, Ethereum is still currently an inflationary blockchain network. Currently, there is roughly 5.4 million ETH issued and 3.5 million burned. There will be a proof-of-work to proof-of-stake transition that will occur in the second or third quarter. When this happens, the total amount issued will be less than the tokens burned thus making it a deflationary network.
Not financial or tax advice. The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision. See our important security disclaimers here.
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