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The Worst Crypto Investment of 2023

Validated Individual Expert

I thought things had changed.

I thought that, finally, people would stop ‘donating’ money to Wall Street and to Crypto whales.

But at this point, I simply think it’s human nature. Pure greed.

The desire to get rich quickly is simply too irresistible for some. However, these ‘get rich quick’ schemes become ‘get poor quick’ ones real quickly.

Yet another completely absurd Crypto ‘opportunity’ rallies for absolutely no reason to make many people poorer than last week and the very few get way richer.

How are we supposed to answer back when people call Crypto a ‘scam’ with events like this?

Bonk and absurd yields

Bonk.

That’s literally the name of a cryptocurrency that has rallied impressively over the last few weeks.

The numbers are incredible:

  • From December 25th to January 4th, a 2,200% potential return for traders, 150% just only on the 4th
  • More than $20 million in trading volume on Orca, one of Solana’s most popular decentralized exchanges
  • And the most absurd number of them all, the token is handing a 1000% APR to liquidity providers.

But before we dive into the total dumbassery that the third bullet point is…

What on Earth is Bonk?

Bonk, the latest dog-coin

Bonk is a new cryptocurrency launched on December 25th in the Solana ecosystem.

The token was airdropped (sent) to Solana NFT holders and creators in a genius marketing move. With one simple airdrop, they suddenly had thousands or millions of people gaining interest in the coin.

And it worked.

Despite having utterly zero uses, the cryptocurrency went on an impressive price rally. The interest in Bonk was so huge that Solana’s token, $SOL, rallied up to 16% just on January 4th.

Let’s not forget that Solana’s cryptocurrency had a 97% loss from all-time highs just last month.

And that’s basically it for Bonk, hardly much more to say, which speaks levels to how naive you have to be to fall for what I’m about to tell you.

1000% APR

Orca, one of the most relevant Crypto exchanges on Solana, is offering yields of up to 1000% if you deposit Bonk in their liquidity pools.

If your brain isn’t seeing red flags all over the place after reading that last sentence, I really don’t know what to tell you.

Either you’re extremely naive, or you simply don’t understand what I’m talking about.

Considering that I consider my average Medium reader a very intelligent person — not because they read me, but the fact you’re on Medium is a statement in itself — there’s a chance that the issue is that you aren’t as familiarized with Crypto, so I’ll gladly explain itto you.

It’s simple, but complicated

To understand how a DEX works, first ask yourself, have you ever wondered how buying stocks or other cryptos in centralized exchanges work?

For instance, let’s say I want to buy Bitcoin with some USDC.

If I want to buy Bitcoin with USDC in a centralized exchange, I set a buying price for the Bitcoin. At today’s prices, that would be around 16,000 USDC for 1 Bitcoin. This price goes into an order book, that automatically pairs your buying transaction with a selling one at that same price — or at least similar.

In other words, for you to buy Bitcoin at that price, somebody needs to be willing to sell Bitcoin at that same price.

This is also the case in some decentralized exchanges, but the majority of them function as what we call automated market makers, or AMMs.

In AMMs, you don’t need a counterpart, as a smart contract — a piece of code running in a blockchain — responds to your bid. In this case, the value at which you make your transactions depends on a mathematical formula.

And here is where liquidity providers come in.

In order for a smart contract to be capable of allowing you to make your transaction, it needs liquidity to do so. In other words, if you’re willing to buy Bitcoin with USDC, the smart contract needs two have a pool of USDC and a pool of Bitcoin for it to happen.

It’s that simple. But there’s a catch. Decentralized exchanges are… well, decentralized.

LPs, the most common way of earning interest in Crypto

Liquidity providers are people, just like you and me, that deposit their tokens to those pools.

That is, as there isn’t a centralized entity providing liquidity for trades to happen as with exchanges like Binance or the doomed FTX, these systems need “pools” of decentralized tokens so that there is sufficient liquidity (available currency) for trades to happen.

Of course, the incentive to put your money in those liquidity pools is that you receive an interest payment in return (APR), in a similar concept as a savings account a retail bank might offer you, but with added risk.

As there’s added risk, these DEXs offer higher-than-usual APR for you to provide liquidity. The higher the risk, the higher the reward, right?

Moreover, these decentralized exchanges compete with each other to offer more attractive yields in exchange for you to provide liquidity.

And… here’s where things get dumb with Bonk.

Better-than-life APRs

The issue is that due to BONK’s insane, speculation-driven price rally, people are desperate to buy the memecoin. For that matter, DEXs like Orca are offering insane APRs for you to provide liquidity, up to 1000%.

In other words, for every Bonk you deposit in these liquidity pools, the DEX will pay you 10 times that amount over the course of the year… in Bonk.

Are you smelling it already?

People can’t simply stop being naive

If you’re seeing those APR and thinking, “mmm, that seems like a great opportunity”, please keep what I’m about to tell you in mind.

Because when you see a cryptocurrency born as a ‘joke’ rally with no apparent reason, think about…

Tokenomics… or better, Ponzinomics

In my opinion, although as with anything I could be wrong, this is just another Ponzi in the making.

I’m not saying that the people behind Bonk are intentionally scamming people (I hope they aren’t) but an investment vehicle whose value is uniquely determined by rampant speculation smells… “fishy”.

In other words, when there’s no revenue, no business model, no nothing, the profits of the old investors come from the money of the newer ones, and please tell me how that differs from a Ponzi… even if it wasn’t intentionally meant to be one.

As the price of the token is fueled by — and only by — market demand with no revenue model for sustainability purposes on the horizon, the only reason Bonk’s price goes up is that people trust it will.

As Isaac Newton once said…

As long as the price continues to grow it’s great because issuers can simply print new coins and supply them to the market to pay the insane yields some liquidity pools are promising.

Kind of the same way that central banks saved us two years ago. Two years later, we all know what’s happening with inflation.

Naturally, this is a receipt for disaster because the moment demand falters, as market sentiment is the only reason prices are going up, and people are getting paid by printing new coins, the coin enters a “hyperinflationary” state real quick.

This rapidly takes the token in a frenetic rally to zero.

Isaac Newton told us this centuries ago, “What goes up must come down”. I would add, “…especially when it has no reason to be up in the first place”.

Unsurprisingly, there are some reasons to believe we could be already at this hyperinflationary stage, as the team behind Bonk has already ‘burned’ 5 billion tokens, which is the Crypto way of describing the concept of taking 5 billion tokens out of the market supply, to stop the bleeding as prices are already beginning to fall.

It’s pretty sad

The Crypto community never ceases to let me down.

Everybody knows this is just a meme coin, but people’s greed and desire to get rich quickly fuel these price rallies, were one or two winners make millions while hundreds of losers lose thousands.

Then, we’ll all pretend to be mad when outsiders call the Crypto industry a scam… maybe it’s about time we accept that this is because maybe 80% of it is.

However, blockchain is an amazing innovation considering that it still is alive and well despite all this.

Trust the technology.

Note: This article is for educational purposes and raising awareness.

The expressed views are subjective and could be completely wrong. Thus, this is not financial advice. Please do your own research before making an investment decision.

The point of this article is that too many people in this industry have been used as ‘exit liquidity’ in projects eerily similar to this one. This doesn’t mean it will happen to you if you invest in Bonk, maybe it could turn out to be a good investment for you as nobody knows what will eventually happen, but you must be aware of the risks.

Needless to say, your investment decisions must never be made from the opinions of people writing on Medium. Never trust anyone but yourself. Even then, if you feel you need investment advice, please hire a financial advisor for that matter.

Become aware. Be ready

Times of negative Crypto news are golden opportunities for you to grow. Crypto winters are the times when true winners are born.

If you understand this then you know that these are great times to level up by being up-to-date with the AI and Crypto events that are shaping our future, in just 5 minutes a week.

https://medium.com/@ignacio.de.gregorio.noblejas/bonk-c10da5d48588

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