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Bear Market Best Practices | State of the DAOs
You're reading State of the DAOs, the high-signal low-noise newsletter for understanding DAOs.
If variety is the spice of life, then a bear market is the bran cereal of crypto — you know it’s necessary to keep the cycle moving but it can be hard to swallow in large doses. Bear markets are tough going, that’s for sure, but in this issue’s editorial, you’ll get some exposure to best practices that will help you minimize, if not eliminate, the pressure.
It’s a little unusual for the editorial not to focus squarely on DAOs and/or the DAO ecosystem, but as communities that are made up of individuals, DAOs are affected by bear markets just as much, if not more, than their contributors.
As usual, there are ecosystem articles to explore further and a look at some of the new tools available to DAOs, as well as a spotlight on Aragon DAO. You are forgiven if you’re today years old and just finding out that the Aragon Network Token is known as ANT; the beauty of this space is that we’re all learning new information all the time!
For those wanting to learn more of the acronyms floating around crypto, don’t miss the Essential Web3 Glossary article featured below. Put some time aside to read the thought-provoking piece on communities and don’t miss 0xJustice’s elegant take on the four pivotal areas of disintermediation: communications, currency, contracts, and companies. It’s a must-read for anyone interested in the current state of the DAOs.
Bear Market Best Practices
If you've managed to stick with the world of crypto through a year of unrelenting hacks, regulatory curveballs, and portfolios awash in red, give yourself some credit. You're either a masochist or a true believer — possibly both. As for why you're still here, perhaps it's resilience, savvy, or a mixture of the two. Whatever the reason, you're in a unique position to capitalize on the opportunities that bear markets often present. Before we delve into these, it's important to note: always do your own research. The insights shared here should never replace tailored financial advice. Still, as professionals actively navigating this tumultuous landscape, we believe these bear market best practices are crucial, and we wanted to share some of our tips for being able to do just that.
Understanding the Crypto Landscape
Let's be absolutely clear: whether you're a seasoned web3 investor or a Wall Street savant, cryptocurrencies warrant your attention as part of a diversified portfolio. Historically speaking, we've seen this asset class recover remarkably well from 80%-90% drops in value. Not only do they bounce back each time, but they also reach new all-time highs. That's a level of resilience you can't ignore.
Now, onto the cycle of bear markets. If you're looking for stability, you won't find it here, and that's not necessarily a bad thing. Bear markets in crypto are recurrent, and like winter they’re harsh, but vital for the ecosystem. We've already survived a slew of crashes, each followed by a healthier recovery, topping previous records. This isn't the speculation-driven bubble of the past years though. We are standing on the precipice of concrete developments, with projects touching everything from DeFi protocols to NFT-based gaming experiences and even Real World Assets being tokenized. We've moved from the realm of 'what could be' to 'what is,' and that's a leap forward that is worth taking a moment to appreciate.
Let's also appreciate the wisdom of the ancient Persian adage, "This too shall pass". In the crypto universe, we should all have these words printed and framed on our walls. Why? Because crypto is the epitome of antifragility. Each crash, each scam, and each piece of FUD (Fear, Uncertainty, and Doubt) only serve to strengthen this ecosystem. A bottom-up structure, as exemplified by the web3 community, will always outshine a top-down system in terms of resilience, especially during bear markets. The investors and developers who remain are the ones creating infrastructure that can weather even the harshest of storms.
Lastly, but by no means least, we have to talk about volatility. It scares away many traditional investors, but in a nascent space like crypto, volatility is as natural as breathing. Here's the kicker: it's also a double-edged sword. You stand to lose, but you can also gain in exponential multiples. Those who understand this duality are the ones who ride the waves successfully; those who don't will become the subject of cautionary tales. Learning to surf these financial waves may involve a few wipeouts, but the ones who stick around are the ones who ride the biggest waves.
Best Practices For Weathering Bear Markets
Whether you're new to the crypto world or a seasoned investor, bear markets present unique challenges and opportunities. The practices outlined below are time-tested strategies that apply to portfolios of all sizes, from the fledgling "guppy" to the seasoned "whale."
The Virtue of Patience
Firstly, and perhaps most fundamentally, patience is your strongest ally in a bear market. Contrarian investors, who tend to swim against the current, find bear markets particularly advantageous. These markets favor those with a long-term investment horizon and a strong belief in the underlying technology or asset they are backing. While bull markets may be playgrounds for trend-chasing traders, bear markets are the domain of the patient investor.
The Art of Being Selective
The second tenet of bear-market investing is selectivity. Unlike in a bull market, where assets can be overvalued due to intense competition among buyers, bear markets offer the luxury of choice at discounted rates. This is the moment to be highly selective in allocating your capital. Distinguish between assets that have enduring value and those that are merely experiencing a temporary dip. Quality always rebounds; mediocrity seldom does.
Risk Management: The Unseen Anchor
Though it may sound paradoxical, being risk-averse is essential in both bear and bull markets. Effective risk management doesn't mean avoiding all risks, but rather understanding and mitigating them. If an investment seems too good to be true, it probably is. Leverage, despite its allure and the significant returns it promises, can be a perilous game, especially if you're not an expert. Remember, your primary goal is the preservation of capital. Every investment should be examined through the lens of this ultimate objective.
Time: The Underutilized Asset
Lastly, bear markets offer something just as valuable as financial return — time. With reduced trading activity, market participants often find themselves with an abundance of time, a non-renewable resource that can be invested wisely. Whether it's learning new trading strategies, researching emerging technologies, or building your own project, using this time productively can yield dividends that pay off during the next market upswing.
These foundational principles are not quick fixes but are aimed at ensuring you're not just surviving the bear market but thriving in it. By adhering to these practices, you'll be better positioned when the market cycle inevitably shifts.
If all else fails, just remember that year-to-date, Bitcoin and Ethereum have significantly outperformed other asset classes as can be seen in the image below.
Lights At The End of The Tunnel
Navigating through the foggy conditions of a bear market can be daunting, but it's crucial to remember that every tunnel has a light at the end of it. Several key catalysts are emerging that could significantly influence the crypto market's trajectory in the coming months and years.
The End of Interest Rate Hikes: The market has been in a state of unease ever since the Consumer Price Index (CPI) began signaling inflationary pressures, prompting a cycle of interest rate hikes. However, recent data suggests a stabilization in the CPI, leading to optimism that the cycle of rate increases could be nearing its end. A stable or falling interest rate environment could spell relief for all asset classes, including cryptocurrencies.
Regulatory Clarity on the Horizon: The United States' Securities and Exchange Commission (SEC) has been a critical player in shaping the crypto landscape. However, recent developments such as the Ripple settlement and Grayscale's victory over the SEC in the Bitcoin Spot ETF case are heartening. These events could be precursors to a more crypto-friendly regulatory environment, which is essential for both retail and institutional investment.
ETF Approvals Could Be a Game Changer: The SEC has delayed decisions on multiple Bitcoin spot exchange-traded fund (ETF) applications from industry titans such as Blackrock, Wisdom Tree, Invesco Galaxy, and others. If approved, these ETFs could bring a flood of institutional money into the space, vastly increasing liquidity and potentially setting off a new bull run.
The Imminent Bitcoin Halving: An event programmed into Bitcoin's code, the next Bitcoin halving is due soon. This event reduces the Bitcoin block reward, effectively lowering the rate of new Bitcoin creation. Halvings have historically served as catalysts for bullish market activity due to the supply reduction and increased demand.
Global Adoption and Acceptance: Though not immediate, the continuous efforts towards crypto adoption globally could serve as a long-term catalyst. These range from crypto being used for remittances in emerging markets to its acceptance by major e-commerce platforms. Moves like PayPal getting into the stablecoin market don’t seem to be priced into the market yet.
So, as we navigate through the current bear market, it’s essential to keep an eye on these potential catalysts. Each has its own timeline and speculative risks, but together they offer a compelling case for renewed optimism in the crypto market.
Regulated Onramp Channels Being Established in Hong Kong
The Hong Kong government has been very public about their intention of making the city the world’s web3 hub, with multiple initiatives already launched over the past year. In fact, implementation is already underway. Just a month ago, Hong Kong granted licenses to the first regulated crypto exchange catering to retails, with the ability to on/offramp fiat directly from banks.
These are the first-ever legal and regulated onramp channels in the entire Greater China for retail investors, paving the way for capital inflows from investors who may have been put off by the recent troubles that have rocked crypto exchanges.
In addition, the government has stated their intention to launch HKD stablecoins as soon as next year, making it even easier to onboard additional users. Leading all of this is the recently setup Web3 Task Force headed by the HK Financial Secretary himself. Suffice to say that Hong Kong is diligently building in the bear market to help promote web3 in the region
Striking the Balance Between Caution and Optimism
In conclusion, remember that this article is not intended as financial advice—always do your own research (DYOR) before making any investment decisions. The core principles to guide you through a bear market — patience, selectivity, risk management, and wise investment of your time — are designed not just for survival but for long-term success. While the current market may seem like an endless downward spiral, adhering to these principles will position you well for when the tide turns. While some indicators suggest that the bearish phase might be nearing its end, a longer bear market can actually be an advantage. It offers more time to reassess, learn, and allocate your resources optimally for when the upswing inevitably comes.
Josh is Animoca Brands’ Head of Digital Assets, responsible for managing Animoca’s digital asset treasury, balance sheet optimization and yielding activities, as well as group market making and trading operations. Animoca Brands is a global leader in gamification and blockchain with a large portfolio of over 450 investments and with the mission to advance digital property rights and contribute to building the open metaverse. Prior to Animoca, Josh’s background includes more than 15 years as an asset manager in traditional finance having work at both hedge funds as well as investment banks like Morgan Stanely.
🔥 and 🧊 insights from across the DAO ecosystem
🔑 Insights: Beginning your journey in crypto can be daunting because of the strange new terms and abbreviations. If you’re finding it hard to keep up and communicate in the space then this glossary is for you. The author has carefully curated a large and diverse array of terms to get you up to speed and converse like an OG.
Blockchain: A decentralized digital ledger.
AMA: Ask Me Anything, a Q&A format often used in crypto communities.
Altcoin, Shitcoin, Memecoin: Various types of cryptocurrencies, often with humorous or negative connotations.
Whitewashing: Buying and selling to oneself to give the appearance of high trading volume.
Dutch Auction: An auction in which the item is initially offered at a high price, then lowered until a participant accepts.
🔑 Insights: The author discusses the concept of decentralisation and its potential to transform traditional power structures, particularly the role of the state. He emphasises that decentralisation is not an end in itself but aims to eliminate intermediaries and prevent the exploitability of valuable systems.
The article identifies four critical areas of disintermediation: communications, currency, contracts, and companies.
The decentralisation of communications, starting with the Internet, has democratised data and information sharing, challenging the state's control over communication.
As exemplified by bitcoin, decentralised currency has separated money from state control, disrupting the traditional financial order.
The introduction of smart contracts has revolutionised contract enforcement and coordination, reducing the need for intermediaries like governments and courts.
DAOs enable shared ownership and control without intermediaries, fundamentally altering the concepts of joint stock ownership and corporate registration.
🔑 Insights: Carrot offers an efficient way to align token emissions with tangible project goals. It is more than just a platform, it’s a new way of thinking about incentivization and community growth.
Carrot’s approach discourages farming and dumping, practices that can destabilize token value and negatively impact project health.
Each KPI token campaign starts with a clearly defined goal which is translated into a measurable condition. Upon reaching the goal, rewards, represented by KPI tokens are given out to participants which signifies a claim to all or part of the collateral based on the degree of goal attainment.
Through Carrot, users are incentivized to contribute meaningfully to the project’s goals, while projects benefit from increased engagement and loyalty.
Secret Societies, Network States, Burning Man, Zuzalu, and More: Thoughts on New Political Communities
Author: Matt Prewitt
🔑 Insights: The author argues that constructing new, intentional communities is vital for social progress, but it must be done responsibly and in relationship with the broader society. The article further expands on these points:
New community initiatives aim to create alternatives to mainstream culture, but can go wrong if driven solely by isolationist or escapist impulses.
Social progress requires advancing techniques for expanding social coherence and shared values, just as we advance other technologies.
The author suggests that communities require elements like high exit costs, shared knowledge, and mutual vulnerability to thrive, and proposes two ideas to experiment with: unsecured trust and circular formal authority structures.
Responsible community experimentation threads the needle between closed-off affinity groups and unchecked individualistic escape.
🔑 Insights: This article introduces GroupOS by Station Express, a DAO launcher that aims to enhance engagement and user experience through the use of new token standards and Polygon's scaling technology. The article highlights the significance of DAO tooling as a core business infrastructure for the 21st century.
GroupOS enables the integration of the principles of empowerment and decentralization into both DAOs and traditional businesses, which can increase engagement and resilience as seen in the popularity of ESOPs and crypto loyalty programs.
GroupOS benefits from Polygon's strategic advantages as a business-oriented Ethereum scaling solution. Polygon offers secure transactions, shared liquidity, and scalability, making it an ideal platform for major enterprises.
This new platform introduces two standards, Token Bound Accounts (TBAs) and Account Abstraction, that enhance NFTs and user-controlled accounts on Ethereum. TBAs empower NFTs with smart contract capabilities, while Account Abstraction transforms user-controlled accounts into Smart Accounts.
Aragon DAO was founded in November 2020 and has more than 300,000 community members to date. Running on the Ethereum blockchain, Aragon is a platform that allows users to create and manage their DAOs. It provides a set of tools and templates that make it easy to set up a DAO, as well as a range of governance features that allow members to vote on proposals and make decisions about the DAO’s operations.
Flexibility is one of the key features of Aragon. It can be used to create a wide range of DAOs, from small, tightly-knit communities to large-scale organizations. It is trustless, permissionless, and transparent. Aragon is highly scalable, it can handle a large number of transactions without slowing down or becoming congested. Due to their open source code, the platform is secure as it is being audited by different people to remove vulnerabilities and bugs.
At the heart of Aragon is its token, ANT, which is used to pay for transactions on the platform. ANT holders have the right to vote on proposals and participate in the governance of the network.
To create a DAO on Aragon, you first need to create a proposal that contains all the details of your DAO, including its rules, structure, and purpose. Once your proposal is approved by the network, your DAO will be created and you’ll be able to start using it. Now, once your DAO is up and running, you can start managing it using the tools provided by Aragon: Aragon Court to resolve disputes, the Aragon Voice to vote on proposals, Aragon Nest to fund teams, and Aragon Client to build and manage DAOs.
This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.