As bullish sentiment in the crypto market continues to spread, the crypto market continues to innovate and deploy new products and services, despite a pause in Bitcoin and Ether price growth due to declines and consolidations. . One such product that has recently attracted the attention of investors is a crypto project in which so far he has deployed more than 115 billion points. A product with such rapid growth merits both additional analysis and critical testing. This is especially true for the crypto sector. Bull markets, such as the one that has unfolded since the launch of the Bitcoin Spot ETF, can be reminiscent of past bull markets that contributed to the creation of many new innovative products, services, and entire organizations. .
However, new products and services are not universally sustainable, nor are they a good indicator of the health of any asset class. The last bull market, when Bitcoin and other cryptocurrencies traded at all-time highs, coincided with the rise of non-fungible token markets, numerous decentralized finance initiatives, significant growth in staking services, and the rise of FTX Did. . Bull markets in any asset class can obscure flawed business models, allow bad actors to take advantage of overall positive sentiment, and ultimately harm investors. may give.
This is not to say that the Cryptopoints phenomenon is guaranteed to harm investors, but it is definitely worth taking a closer look at these new products. Let's take a look at some of them.
What are crypto points?
The definition and characteristics of crypto points vary from project to project, but a working definition is that crypto points are off-chain tokens given to users of a platform or project as a reward for specific activities. Such point rewards are typically rolled out before an airdrop occurs, so users are aware of which specific actions will receive a reward, even if an airdrop is not guaranteed. In other words, these points can be compared to reward points, miles, or other existing offers that vendors provide to customers based on usage or other actions.
Some follow-up points that need to be raised include: 1) Is the issuance of these off-chain points taxable? 2) Is there a way to verify the total amount of points issued? 3) Does a central repository exist? Recipients can track not only their individual status but also their total holdings, much like a permissionless blockchain. 4) Is there a white paper or reviewable mapping of how points are associated with actions and, by extension, future airdrops? Every project and point issuance system is different, but should these items be addressed? When we try, ambiguity seems to prevail.
Do points create volatility in virtual currencies?
Similar to other bull markets and rapid rises in crypto valuations, the rapid rise of the crypto points market is driven by trading, secondary market and other It is causing volatility-based activity. While not inherently a sign of unethical activity, the volatility associated with traders and these still new assets can result in losses and raise further questions about the stability and business use of these points. .
This pattern is based on previous trends in the market. Specifically, CoinDesk had to shut down the DESK token because traders were establishing a secondary market for trading, even though such activity was in direct violation of the Terms of Service. Points trading is evolving along similar lines, with the majority of trading taking place on Whales Market and Pendle Finance. Further complicating these markets is that 1) traders are not always trading for the rights to the points themselves, but often for the tokens issued in relation to the points; and 2) leverage is driving these trading patterns, and in some cases it is. Percentage of traders achieving leverage of 74x in certain cases.
The creation of derivatives in new asset classes, combined with high leverage ratios, can create situations where investors are starved of funds during market uncertainties or economic downturns.
The point is that you may repeat past mistakes.
Another significant concern that crypto investors interested in points should be aware of is the risk that the points market is already showing signs of being present in previous projects during bull markets. Unclear due to the lack of information available to investors related to issues such as total point issuance, airdrop redemption rates, and even data related to what specific actions will drive token issuance A new market is emerging. Moreover, the already existing leverage, combined with the long-standing continuous pursuit of yield that has been the hallmark of crypto projects from stablecoins to DeFi, has a track record of incentivizing increasingly risky behavior.
This is not to say that the points market is doomed to failure. Rather, investors need to take an objective look at market trends, what these instruments actually represent, and how to avoid the mistakes of past bull markets.
Cryptopoints is a fast-growing crypto asset market, but investors must be careful not to repeat the mistakes of past bull markets.
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