Lessons learned in 2022

As the year 2022 has ended, it is clear to say that it has been a particularly challenging year for the cryptocurrency industry. Many retail and institutional investors have exited the market, and the total value locked in decentralized finance (DeFi) declined by 77% from $167B to $39B. This situation can be attributed to a number of significant events, including the failure of Terra and its dual-token system LUNA/UST in May 2022, the collapse of the CeFi industry represented by Celsius, the bankruptcy of two major crypto hedge funds (Three Arrows Capital and Alameda) and one major crypto exchange, FTX. These events have likely had a direct or indirect impact on us within the industry.

As we reflect on the lessons of the past year, it is important to consider how we can avoid similar pitfalls in the future. In this article, I wanted to share some thoughts on the major lessons learned in 2022 and how they can help us navigate the market moving forward.

The Leveraged, by @Degen_Alfie

1. A lesson on Trust

Trust refers to the belief in the reliability and integrity of an individual or system. This year, we have learned that it is important to not blindly trust anyone, particularly those who cultivate a cult-like following. There are several indicators that should raise suspicion:

• Claims that their product is superior to all others

• An unwillingness to acknowledge potential flaws, and become aggressive when you ask questions on the fallibility of their project

• A community that displays similar aggressive behavior

It is advisable to seek out ecosystems where key contributors and community members are open to criticism and willing to discuss the flaws of their ecosystem. For example, the Ethereum and Cosmos ecosystems are known for their openness.

Likewise, Founders who present themselves as altruistic and committed to improving the world should also be approached with caution. Even those who have been praised for their generosity can end up engaging in fraudulent behavior, such as stealing billions from customers and investors. It is essential to thoroughly evaluate the trustworthiness of any individual or system before placing confidence in them.

The Fall of The Crypto Angels, by @Degen_Alfie

2. A lesson on Investment

The lesson we learned this year regarding investment is the importance of being cautious and not getting caught up in the hype. Many people made significant profits in 2021, only to lose almost everything in 2022. If you find yourself in this situation, unfortunately you can't change the past, but you can take steps to prevent making the same mistake in the future. If you are constantly worrying about your crypto investments and losing sleep over the possibility of a crash or hack, it may be a good idea to cash out some of your investments until you feel comfortable that the remaining funds will not significantly impact your financial well-being if lost.

During bull markets, hype and speculation can dominate over fundamentals, but it is important to remember that the industry is still relatively young and anything can happen. Protocols, wallets, and exchanges can be hacked, and your favorite tokens can lose significant value overnight. According to the Global Wealth report, in 2022, an individual needed a net worth of at least $138,346 to be in the top 10% of global wealth holders, and a net worth of $1,146,685 to be in the top 1%. Keep that in mind.

Therefore, avoid greed. If you have significantly more money invested in crypto than in your bank account or other traditional investments, don't be greedy and consider cashing out some of your profits to improve your quality of life.

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3. A lesson on Research

This is related to lesson number 1, to avoid falling victim to scams or risky investments, take the time to do your own research and evaluate the risks associated with any token, protocol, or technology before investing in it. Ask questions and try to understand where the different yields are coming from. If you still don't understand, it might be best to not invest in it, or at least not a significant amount.

Decentralized finance (DeFi) offers the opportunity for anyone to have full control over their funds, which is a significant advancement. However, this also comes with the responsibility of managing your own funds. Understand that generational wealth is created during bear markets, and it is difficult to predict how low prices may go. Therefore, the most straightforward and effective strategy may be to dollar-cost average (DCA) the coins with strong fundamentals that you are most confident in. Remember that although prices may fluctuate, the fundamentals remain relatively consistent.

Take the time to understand the risks before investing your money, prioritize strong fundamentals over hype, and don't buy words.

4. A lesson on Job Opportunities

During bull markets, everyone is busy and it can be difficult to get in touch with the right people. In contrast, bear markets provide the perfect opportunity to build a strong network and get to know more people. If you are passionate about this industry, use this time in bear markets to contribute to the projects that you care about most. It is during this time, when many people have left, that you can establish a place for yourself and potentially even get a full-time job in your favorite project.

Take advantage of this opportunity to speak with core team members, assess their needs, and identify how your skills can bring value to the project. This is how you will position yourself for future opportunities.

If you have survived this year and want to make a contribution, it is the right time to do so. Don't let the bear market hold you back from pursuing your passions and making a difference in the space.

5. A lesson on Security

As an investor, it is crucial for you to prioritize safety and employ diversification as a key strategy. There are various risks that can threaten your investments, such as the bankruptcy of an exchange where you hold funds, the loss of the private key to your cold wallet, the collapse of a protocol or blockchain, or a poor risk management. While it is not possible to completely eliminate these risks, diversification can help mitigate their impact and allow you to continue participating in the market, because "You can't win if you're not betting, but you can't bet if you lose all your money." - Cobie.

One effective approach to diversification is the "Horcrux" strategy, which is named after the objects in the Harry Potter series in which Voldemort hid fragments of his soul to achieve near immortality. In this context, your money serves as your soul, and you can protect it by dividing it across different locations such as an exchange that you trust, a secure cold wallet, and a protocol you believe in. This way, even if something happens in one location, you will still have a chance to survive.

The key is to take necessary precautions and diversify your investments and locations to ensure that you are not overexposed to any single risk.

The seven Horcruxes

6. A lesson on User Acquisition

One of the key lessons learned this year is that acquiring users inorganically does not add value to protocols and ecosystems because those users are not likely to remain engaged. Instead of seeking ways to incentivize people to join, teams should focus on understanding the market and identifying problems that exist within the industry. By building something that addresses these issues and offers something fundamentally different from what is already available, they can create real value and establish a sustainable foundation for their project, which will attract organic users.

This requires a long-term perspective and a focus on improving user experience, developing new revenue streams, or offering unique features and functionalities. As the saying goes, it's a marathon, not a sprint - and this is especially true in our industry.

7. A lesson on Fundraising

Private market funding saw a 77% decline during the second half of 2022, making it increasingly challenging for projects seeking funding. As a founder, it is important to ensure that your project addresses a genuine problem and offers something innovative in order to stand out in the current market. This includes carefully considering the valuation and ensuring that the requested funds provide you a sufficient runway for development without causing undue stress on cash flow. To protect these funds, you should keep them in a bank account and avoid exchanges, as well as the temptation to trade with them in an effort to generate additional returns, because we already know how this may end.

If you have successfully managed your funds and survived until the next bull market, you may consider seeking additional funding. During bull markets, investors are often more willing to take risks because of the money they have already earned, making it a favorable environment for raising funds. However, it is important to align your funding needs with your project goals and ensure that the amount being requested is justified.

8. A lesson on Communities

When considering an investment in a cryptocurrency project, it is important to pay attention to the community behind it. The community can be a strong indicator of the project's potential for success, as it is often the driving force behind the project's growth and development. A project with a highly active and engaged community is likely to be more resilient and thrive in both good and bad market conditions. On the other hand, a project with a less active or less engaged community may be more vulnerable to setbacks or failures. Therefore, prioritize projects with strong and active communities, as these are likely to be the ones that will stand the test of time and deliver the best returns on investment. As it is right now, Ethereum and Cosmos are, in my opnion, the most active communities in crypto.

As we begin a new year, I hope that the lessons I learned will also be helpful to you and that you can apply them moving forward. It is hard to believe that 2023 could be worse than 2022, but it is likely that this year will also bring its fair share of surprises and challenges. Despite the uncertainties, major developers are still here and actively working to improve and innovate within the space. There is always more to learn, more to improve, and more to achieve as we strive to bring the benefits of this technology to the world. So, let's embrace the challenges and opportunities that come our way, and let's keep building.