Crypto Portfolio Update (May 2022) + Thoughts On Blockchain Gaming

Gm. Gm.

May was nothing short of a depressing month for most market participants unless you have been aggressively shorting from the top. It was also the month where crypto finally slowed down a little and allow more breathing space to actually sit down and learn new concepts.

The market basically priced in (front-ran) whatever the Fed wanted to do in the coming months even before the real QT took place. So in a sense, the market did its own regulating mechanism and we’re in this weird spot where early sellers and capitulators are left with a sideways market while sidelined capital basically took over their spot, while we remain rangebound.

I am not a predictoooor nor do I have a crystal ball, but I have been busy accumulating ETH this month while getting rid of higher beta altcoins in the process. The thing with tight liquidity in this nascent market is that some coins just don’t recover anymore, so its better to recoup whatever capital is left and rotate back to blue-chips like ETH, in my opinion.

May 2022 Portfolio

As of 8 June 2022

Safety, Safety, Safety

One key thing you will notice with this portfolio allocation is a heavy allocation towards ETH. As I have mentioned before regarding my Barbell portfolio strategy, I want to allocate to the most risky and the least risky assets in my portfolio while forgoing medium-risk assets. The safe side of my Barbell is basically ETH and stable coins while the remaining is allocated towards higher-risk assets such as Immutable X’s IMX token and Crypto Unicorns’ RBW token. I’ve sold all my Cosmos ecosystem coins in May (in a loss) and rotated majority of it into ETH.

In an uncertain market with unprecedented macroeconomic outlooks: A double whammy of high inflation and rate hikes, the last thing you want to do is invest into highly speculative assets with low liquidity because you will be left with nothing to exit as liquidity continues to dry up.

Sideways Market = Market Makers Rejoice

Right now, 70% of my stablecoins allocation is allocated towards GMX’s(Decentralised Derivatives Exchange on Arbitrum) GLP token, which is essentially an index of BTC, ETH, UNI, LINK and around 50% in various stablecoins (USDT/USDC/DAI/MIM). Without going deep into the weeds, GLP essentially allows you to become a market maker, or in other words the casino, since you are providing your liquidity in the form of GLP for leveraged traders to bet in either directions, and earn yield when they lose money in the process.

From GMX’s Stats Dashboard

From the chart above, you can see that traders who are trading on GMX are in a net loss since the inception of GMX’s short history. As a GLP holder, you earn yield proportionately to the amount of losses that traders lose from their trading on the platform, and historically speaking, traders always lose money in the long-run as proven by this chart. The reason why I love GLP in this current market condition is how you can still gain some exposure to BTC/ETH while having half of the allocation exposed to stablecoins, all while earning real yields paid out in ETH and esGMX. As of the time of writing, GLP (Arbitrum) offers an APR of 13.48%, with 7.51% APR paid out in ETH. That is way higher than Lido Finance’s stETH which is the benchmark in the industry and even better than centralised services and without the custodian risk associated with it.

The yields used to be higher, but it now depends entirely on how much money traders make and lose on a daily basis. However, it is a good way to earn ETH yield while remaining conservative, and you should take note of the GLP entry and exit prices before investing your money. Different tokens used to provide liquidity into GLP are dependent on the amount of that particular asset currently in the GLP pool, so keep an eye out for the lower fees before investing any money.

To learn more about the benefits of GLP and the strategies to adopt, you can read up more in this thread here. Do note that this is not financial advice and any form of investments comes with risk!

DeFi Option Vaults

In an uncertain market, you as an investor will probably need to find ways to hedge your position (hopefully) while earning some yield from the side to reduce the cushion of the market drawdown. While it is difficult to execute, there is a new DeFi primitive called DeFi Option Vaults (DOVs) which allows you to do just that.

As an ETH accumulatoooor, I want to continue accumulating ETH no matter the market condition. With most yield farms beaten down due to low liquidity and plunging incentives, the best alternative right now in my opinion has to be DOVs. DOVs’ yield are real yields as compared to the dilutive yields you get from farming shitcoins in various yield farms. The only way you can earn from traditional yield farms is through farm and dump and converting the remaining back to whatever you want to compound, which can either be LP positions or single-staking tokens. DOVs like Ribbon Finance, Dopex, Lyra Finance, Thetanuts Finance, Frikiton, Opyn’s Squeeth, and Jones DAO are all excellent choices which you can use to compound your ETH stack, thanks to the power of options.

Jones DAO ETH Vault

Personally, I am allocating the majority of my ETH on JonesDAO’s ETH vault, which is leveraging on Dopex’s DOVs with advanced strategies which I can never comprehend. The TLDR on JonesDAO is that they’re basically a hedge fund, with their in-house strategist deciding on the vault strategy to earn yield in ETH, which will be redeemable at the end of every month. (swapping jETH for ETH). The downside of using JonesDAO vaults is that you will be subjected to performance fees (just like in TradFi mutual funds/hedge funds) and yields won’t be positive all the time because you are dependent on Jones strategist’s decision (which is subjected to human error). The upside is you get to earn yield on your idle ETH tokens in a passive manner without having to understand how options work. But of course if you are still curious about how they execute their vault strategies and market outlook, you can always catch-up on their Strategy Calls which they will announce on Discord.

Enter Squeeth

The other DOV I’m using is Opyn’s Squeeth. Squeeth is basically ETH squared, designed by Opyn strategist, which allows you to trade an index that tracks the price of ETH squared, and built via the concept of power perpetuals (No expiry and liquidation). There will be an index price for Squeeth and funding rate to ensure the contract trades close to equilibrium at all times. In short, its a tokenised perpetual which you can buy on Uniswap or by minting oSQTH against your ETH. I am intrigued by the Crab strategy offered by Opyn’s Squeeth but unfortunately the vault is full at the moment.

Long Squeeth position does come with funding rate paid to short positions, so take note of your holding period because it will reduce your oSQTH value over time. You do get to enjoy unlimited upside and protected downside with no risk of liquidation for being long on Squeeth, so you get to outperform spot ETH and leveraged 2x ETH positions as long as ETH prices trends upwards. Do take note this is active management is required for Squeeth because it is a short to medium term strategy that is not meant for long-term holding, and only take part if you understand how it works and the risk involved with it. As such, please take note this is not financial advice and only mentioned for the sake of education only.

Staked/Vested Tokens

With regards to Fantom and Luna (2.0), I am bag-holding at this point since my remaining FTM are staked till the end of June while the Luna position is basically non-existent since the airdrop is vested for 2 years, and I consider it gone. I have exited 90% of my FTM position for a good 8x profit, but I would have locked in more if I did not staked my FTM position for such a long period of time, so the moment those remaining FTM unlocks, I will be rotating either to ETH or stables or GLP.

Crypto Unicorns

With regards to Crypto Unicorns, the game has take the approach of launch first, iterate later, which has lately been an annoyance as the gameplay is buggy and several delays were made. Couple that with the overall macro situation, RBW and UNIM is down bad with RBW going below the IDO price, so I definitely took an L there and has been DCA-ing my way out of RBW back into ETH as well. I am still down 49% from all-time-highs at the point of writing so it is definitely a big lesson learnt to always take profits when times are great.

Blockchain Gaming Thoughts

Ever since the market sentiments flipped bearish, I have been focusing my efforts and convictions on the burgeoning gaming sector, and I am growing more bullish on the gaming sector as a whole as time goes by.

Gaming is counter-cyclical in the first place, and while most of the fun games in web3 are still in development, once they go live, they will onboard the next wave of users, and I truly believe gaming will be the killer application that will propel blockchain adoption to new heights.

While it is true that 99 percent of blockchain games today are not games, no one will play any of the live web3 games today if the game’s economic incentive is removed. In its current state, Play-to-Earn (or whatever you want to call it) is bribery, so the gaming aspect appears to be broken. Games are supposed to be fun first, before any financial element can be added on top of it, unless the primary goal of the game is to make money, according to first principles (eg. Poker). Poker’s popularity stems from the fact that it incorporates the right mix of strategy and luck, which should be the fundamental building block of any game design. Too much strategy and the game becomes niche and technical, while too much luck involved and the game becomes a gambling den. Balancing both aspects will enable the most enjoyable gaming experience for anyone who’s playing it.

Today’s Web3 games are financialized game experiments in which economic forces dominate and the core game loop is based on profit maximization (e.g. Axie/STEPN), and the moment token prices begin to fall, the game’s adoption will come to an end. Games like that are created with a built-in time bomb based on the price of their token. When the token number increases, the game is considered “successful,” while when the token number decreases, the game is considered “Ponzi” or “Failure.”

The truth is that a token model does not need to be slapped on top of every game loop or genre, and the decentralization ethos that web3 adores does not have to be effective for gaming projects in particular. Certain economic decisions should be made centrally by the game developers rather than by the community. Future blockchain games with a highly dynamic open economy (e.g. MMORPG) and a diverse set of game loops, built on the foundation of Free-To-Play first and earning aspects later, I believe, will succeed. Blockchains enable game developers to enforce digital scarcity and ownership, which has long been lacking in traditional games, and enabling digital scarcity and ownership will allow complex game economies to function similarly to the real world. To truly disrupt traditional games, the blockchain aspect of these games must provide a 10x improvement over their predecessors in order for users to make the switch.

Without going into too much detail, I believe the key issue with today’s blockchain games is an over-emphasis on “Earn,” with too little emphasis on “Play.” There are smarter dudes out there who can articulate better than me, and I’m not going to regurgitate their thought process because you can find that easily on Twitter/Substack, but games must first and foremost be enjoyable to succeed. In my opinion, the earn aspect should become an option that players can choose to pursue if they so desire, but it will make the game more grindy in the process if they do so. fun game loop does not require any form of economic incentive involving real money, because gamers play games to have fun and relax while spending time with their friends or alone.

Personally, when I want to play a game, I’m not sure if I’ll enjoy it, so I wouldn’t want to invest a lot of money just to start playing it, which is the problem with today’s GameFi (focus on the “Fi” portion) like Axie/STEPN/Crypto Unicorns. Even if I tried to enjoy myself while playing these games, I would feel obligated to recoup my initial investment, which is why, once “earn” is involved, the game becomes a hassle, similar to a full-time job.

To avoid this hefty initial investment headache, blockchain games that are fundamentally free-to-play will allow gamers to enjoy the game, and once they fall in love with it, they can choose to purchase additional items to level up faster/skins to boost uniqueness and exclusivity, and many other options. The point is that only if the game is enjoyable will players choose to participate in the ‘Earn’ aspect if they so desire for whatever reason.

This is why I am so optimistic about EmberSword’s game economy, which strives to be Free-To-Play first and offers the opportunity to “earn” by holding Land NFTs, which receive a passive yield from the game’s treasury. All EmberSword equipments are one-of-a-kind NFTs that users can choose to sell on the marketplace, and the game’s core gameplay loop remains Free-To-Play first. There are more details which I did not dive into, so if you are interested to find out more, you can read up more about EmberSword here.

Conclusion

Crypto continues to excite me every single day and the down market is a good time to learn new concepts and keep up with the latest happenings on the bleeding edge of innovation. Long term wise, crypto will be here to stay no doubt, and the short-mid term is up to you on how you want to play it. It is anybody’s guess what would happen in the next 6-12 months and any form of prediction must be taken with a pinch of salt.

Because 99 percent of today’s games aren’t fun at all, gaming as a whole will most likely fail across the entire P2E/P&E/GameFi/PlayFi ecosystem. If you take away the financial incentives, it’s just an empty shell. With that in mind, we’ll start to get a glimpse into the next phase of blockchain games in development, with a few titles like Illuvium and Embersword set to launch in the next 12 months, while ambitious titles like Blocklords and Nor continue to iterate and learn from the current failures of blockchain games.

The point is that a successful mass market blockchain game will take a long time to develop and will require the right mix of strategy and luck to keep the game fun while ensuring that the game’s barrier to entry remains low and the emphasis on “earn” is reduced so you can attract real gamers rather than speculators who are here to extract value from the game economy with their sophisticated excel spreadsheets on profit maximisation models.

Regardless of which market cycle we are in, I will continue to look for exciting gaming projects with next-gen game designs, a killer team, and builders who build relentlessly, while continuously absorbing new knowledge while the market allows it.

This is probably a long post, but I hope I was able to articulate my thoughts and some of my reasoning behind my portfolio allocation and high-level view on the blockchain gaming sector.

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What is Bitcoin? Answers here

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The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.