As a seasoned crypto investor who has weathered numerous market cycles and witnessed the rise and fall of various projects, I find myself increasingly wary of Ethereum-based projects with seemingly massive treasuries. While these funds may appear impressive on paper, a closer look often reveals a different story.
From a superficial glance, Ethereum-backed projects seem to boast colossal treasuries, even holding billions in native tokens on paper. However, upon scrutiny, a significant portion of these funds can be seen as dubious.
While these ventures might appear secure at first glance, a closer look reveals that much of their assets are invested in tokens known for extreme volatility or low liquidity. Recall the case of Luna; its stablecoin’s value dropped significantly during market turbulence because it was tied to other volatile tokens.
One significant project, Luna, encountered troubles because it was supported by unstable tokens whose value rapidly decreased due to insufficient liquidity. Similarly, Ethereum projects heavily dependent on their native tokens for treasury valuation might encounter similar predicaments. Data shows that some projects have minimal or even negligible reserves of stablecoins.
As a crypto investor, I’ve found myself concerned about the vulnerability of some Decentralized Autonomous Organizations (DAOs) due to their heavy reliance on their native tokens for treasury reserves. The value of these tokens can be quite volatile, and if a significant market downturn occurs, as we saw with Luna, these DAOs could potentially lose a large portion of their reported value. It’s clear that not all these DAOs may be as liquid as they appear at first glance.
Despite the fact that these tokens are prized in their native environment, they lack any physical collateral and real-world market fluidity. In other words, if these projects encountered sudden financial needs or needed to exchange their assets into stablecoins during a market crisis, their treasuries would essentially hold little value.
The method previously discussed might lead to inflated paper values, masking the reality that numerous projects are vulnerable, even financially. While it appears as a $20 billion worth today, this value could plummet to merely a few million if the market undergoes a general downturn, potentially leaving many projects in ruin.
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2024-09-12 12:15