In the wake of the FTX debacle, Emin Gün Sirer, founder of Ava Labs behind Avalanche (AVAX), issued a strong warning about a potential new threat: lower-tier layer 2 solutions (L2s) that seek to exploit the loophole left by Sam Bankman…
Warning received from Avalanche founder
The message sent by AVAX founder Emin Gün Sirer on Twitter is a wake-up call for both investors and enthusiasts. He warns against the temptation of seemingly innovative projects and urges them to critically evaluate new entrants to the crypto space, especially those that emerged in the wake of FTX’s collapse. His tweet highlights a critical oversight in the SBF era: a tendency to overlook red flags due to perceived intelligence and wealth.
Sirer now worries that history could repeat itself as “junk L2s” use manipulative tactics to attract investment. To help investors navigate this potentially dangerous environment, Sirer outlines some key red flags to look out for:
- Mismatching narratives: Be wary of projects whose narratives contradict the fundamental principles of decentralization that underpin cryptocurrency, especially those that support highly centralized sequencers without proper evidence of fraud.
- Early token sales: Projects selling tokens to fund future developments raise ethical and legal concerns. Such applications may fall under security offering regulations that require stricter compliance measures.
- Founder token dump: Founders selling tokens before the launch of a project raises serious red flags. This behavior indicates a lack of commitment and eerily reflects SBF’s alleged misconduct.
- Small number of tokens in circulation: Projects with a small number of tokens in circulation are susceptible to manipulation. SBF has been known to use this tactic, and its presence in new projects should cause alarm.
- Questionable founder behavior: Sirer suggests that a founder’s personal behavior can also be indicative of the project’s integrity. Investors should research the backgrounds and past actions of project leaders.
How should cryptocurrency projects be evaluated?
Beyond these red flags, Sirer suggests a simple but effective litmus test for evaluating new crypto projects: evaluate whether they offer innovative solutions to current industry challenges. Moreover, can the project’s leaders effectively communicate their vision to a non-technical audience? Clear and concise communication is the hallmark of legitimate projects with real value propositions.
Sirer’s message serves as a much-needed wake-up call in the crypto industry, which is still reeling from the FTX collapse. As the environment continues to evolve, investors need to remain vigilant and savvy. New players may emerge to fill the gaps left by the toppled giants, but not all will be equal.
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