Negative impact of “DeFi degen” on the crypto ecosystem.

Everyone who has experience in crypto understands the concept of degen plays. Originally an NFT term, a “degen play” can be described as a “careless or tactless” style of trading, that requires the traders conduct no research, and rather buys into hype, based on a ‘superior’s’ call. This form of trading relies on “influencers” who are believed to have more knowledge, sharing “Alpha”, as it is often called, to their community members.

Among NFT traders, this style of trading is very prominent. Many NFT traders trade degen as a lot of projects launch regularly, and they bank on the project’s hype to make some percentage profit.

While this trading may be reliable in the NFT ecosystem, this pattern is highly risky when trading De-Fi tokens. Ideally, DeFi projects aim to contribute towards developing decentralized finance. Due to the laws of economics, DeFi tokens can be very profitable to buy at an early stage. And as this is general knowledge, scammers take advantage and begin to promote fraudulent tokens with lofty goals, in order to lure victims to purchase their either useless token, or outrightly drain money from the victim’s wallet.

DeFi and Degen; a good mix?

In the DeFi ecosystem, some influencers make use of telegram channels to “give calls” to their community members, mostly with the promise of helping them make an earning as a DeFi trader. While this isn’t entirely a lie, here is what really happens, and why it is a terrible practice.

At the start of every bull (or bull trap) run, a surge can always be seen in the general crypto price performance chart. This often indicates either one of, or two things; a. more (or new) money coming into blockchain, b. increased adoption.

Increased adoption tells that more people have come into the ecosystem, beginning their journey as newbies. As is expected, these newbies seek counsel and guidance while trying to navigate the new world before them. They begin to learn things they have had no idea about, see how “life changing money” is made, and develop the thirst to begin to record their own successes.

This is where some ill-minded influencers put their knowledge to malicious use against these newbies.

How influencers manipulate their followers using DeFi Degen.

Every Tom, Dick and Harry knows that demand drives price. Increased demand for a commodity that has a limited supply causes a price hike, as only higher bidders can afford the commodity. And in crypto, prices move according to public action. When a few purchases are made, a token price pumps a little. But when more people buy, the price continues to rise, because more people are buying than selling. It is pretty simple. As more people buy a crypto token, the value rises following these purchases. This is a fundamental rule of economics playing out in real time. The buying pressure only continues, when more people keep buying. The influencers know this, and use it to their advantage. First, they buy at lower entry prices, before they “make their calls” for their communities to buy (truthfully, pump) the tokens.

While this has been a consistent practice among influencer groups from several countries, and has proven profitable to some, this is a very terrible practice that does more harm than good to the crypto ecosystem.

Here are 5 reasons why we believe DeFi degen plays do more harm than good.

1. Upholding influencer mentality: While there are also good influencers, bad influencers take unfair advantage of their large following to hold newbies spell bound using a simple economic trick. Because of the presumed success an influencer makes when s/he calls, the newbies will hold such influencers in high regard, failing to realize that they are being manipulated. They hold the influencer in an exalted state, hoping they become rich from such calls.
2. False crypto success impression: As a result of the degeneracy in such a form of trading, traders see crypto investments more as gambles, than as meticulously and strategically planned trades. They are made to bet on hype, rather than contribute towards building the project’s purpose as investors and community contributors.
3. Irregular volatility: When degen traders trade a pair, they very often suck liquidity away from the token’s contract. Tokens could be seen with high disparity between the market cap volume, and liquidity available in the contract. These disparities make projects’ financial face look “tired” and “in need of a pump”.
4. Promoting scams and drainers: As a result of poor research etiquette, influencers could promote scam tokens to their communities. As some community’s leaders often conduct paid advertisements, fraudulent devs could use greedy influencers to promote their scam projects and drain victims’ wallets.
5. Promotion of wrong crypto mentality, and denigration of proper crypto etiquette: The number 1 rule in crypto is to always dyor. DeFi degen plays do not permit that. The callers advise you to “trust them” and “trade fast”, even using bots, so members do not get burnt by the market. This entire activity ridicules crypto’s fundamental rules.

For the development of blockchain technology, crypto requires productive participation aimed towards its development. Crypto requires healthy community practices, rather than herding mentality when making financial investments. Proper research and adequate knowledge is always a prerequisite for trading crypto.

Conclusion.

A lot of people see crypto as a money making scheme, and would rather take from the ecosystem than contribute to it. Many of these influencers appear in sheep clothing, often with the intentions of attacking newbies’ capital like wolves. They consistently take advantage of their unsuspecting community members, all with the aim of enriching themselves, at the cost of their reputation. As much as you can push the proper narrative that enhances healthy crypto adoption and utility for the entire ecosystem.