First off, let me be clear, I have a long position on BNT, and plan on buying more. I was also generally forced to learn more about the protocol due to the unfortunate circumstances in the past several months, as I have a large position in deficit in the protocol currently. With that large grain of salt, here we go.
I haven’t written much in the past few weeks because not much has piqued my interest. This subject, however, has been percolating under the surface because up until now, there was very little incentive to being positive on Bancor. Just do a quick search on Bancor on Twitter, and you’ll see just how negative (in a generous sense) or vitriolic (more realistic sense) people are about it. In all honesty, I love things that people love to hate, and I think this may be a great opportunity.
I remember getting this sense on a community call a couple months ago, when I saw that the general downside risks of Bancor were mostly mitigated. This came, in part, in the change to the protocol in that 90% of all revenues are used to buy and burn BNT supply. I was having a conversation with my dad around the time, and I remember expressing that this situation is having echoes of the Gamestop days, when for months on end it was trading around $3.50. The situation feels similar in that vein because for the most part, everyone on the planet was down and out on Gamestop, it was shorted to death, so I didn’t see who else was left to sell. To that end, it took so little positive motion to make a great investment. Every possible negative sentiment was known and saturated, so who was left to make a market-moving leg down?
BNT seems to me to be in that similar situation. It was dumped to death in the first 4-5 months of 2022, and prior to the pause of impermanent loss protection, it was also the most shorted asset per FTX margin data for a time. Leaving aside the mechanics of the selloff, in essence the pause of BNT minting (a way to pay on the “insurance”) and the introduction of 90% of the fees from the protocol being used to buy back supply, has generally mitigated one of the most dangerous mechanics in investing, dilution.
Yet without the fundamentals of a good team (for brevity I’ll use “team”, I understand the contributor structure is different) whatever the business, protocol, or product is, it doesn’t matter what the supply dynamics are. A second key aspect to why I see this as a great opportunity is that
A) The core team who built the protocol are all still here
B) They’re incredibly competent and through this have earned wisdom beyond their years
All of my best investments have been a bet on the team, a very subjective metric but one that hasn’t let me down yet. Where it was a bet on David Simon at Simon Properties when “no one would ever shop at the malls again” to Jane Elfers at Children’s Place when “children’s clothing was a dead business during the pandemic” or George Sherman, former CEO of GameStop when he took the helm of a company that seemed out of control but steadied the ship, and in that simple sense, that was all he needed to do, you know the rest of that story.
I can’t express it other than I get the same sense from listening and watching Mark Richardson over the past several months that we have at the helm a person I believe is on the pantheon of the greats when its all said and done. What makes me say that? I wrote about this when it was happening, but I don’t think most understand how difficult going on a call at the moment of a difficult decision to personally deliver bad news is. I personally haven’t done it to be fair, and as I wrote at the time, I’m not convinced yet that I have that courage. It was that leadership that I am sure would have taken out most everyone, yet to Mark’s credit he took 2.5 hours of questions and punishment.
And to be fair to the other Bancor members, like Nate, Jen, Yudi etc., they also all stuck it out with Mark, and are all still here. And more to that point, if you’ve seen any degree of the swarm of negativity directed at these people, it would make anyone blush. It got so bad that even I, who had none of it directed towards me personally, had to make a few steps to not be exposed to it. Which brings me back to my initial point:
I love things that people love to hate
And this only applies when the right pieces are in place. To that point, the community call this Sunday morning sounded like another piece to the investment thesis just came into place. Mark mentioned that they are in the process of filing new patents on what sounds like to be a game-changing solution to the Automated Market Maker (AMM) design. The details are forthcoming, as they wait on filings to commence pre-public disclosure in typical fashion for intellectual property patents:
But what I also heard from Mark and others was an idea that reinvigorates the whole team, and what is tipping me off is that by the time you are filing IP patents, there’s a high probability that this is something substantial. Going back to betting on the team, its these fruitions that come about through a bet that you have the right people at the helm, i.e. you don’t have to have all of the information beforehand to invest, in a way you trust that you’ve backed the right people that develop those great ideas.
So to quickly summarize, I’m buying BNT because the downside risks of dilution and further downside have been mechanically mitigated, the same core team is in place, they’ve shown to be true thought leaders and exhibited true leadership, and new protocol designs are in the works that could accelerate growth and profitability.
What excites me most, is how incredibly negative people are on Bancor. I can’t express how much that energizes me.
At the time of the impermanent loss protection pause back in late June, a very large swath of users decided to voluntarily take losses. The reasons span from fear, panic, bad risk management, etc. but I’ve written all about it before. My overall point is that the hate and vitriol continually directed at the team and protocol, are in my mind a part of a lack of self-reflection. It also leads me to believe that the constant negativity limits the downside because it takes much more effort to find positive news on the protocol, so what could shock the market at this stage? Touching back on Gamestop, during those days it was non-stop calls for bankruptcy day in and day out. Everyone had a willing and receptive audience for their negative experience at a Gamestop store, so what was left (or who) to sell and move the stock lower? They had already left (or were short) and were on the outside screaming at anyone that decided that things just weren’t as bad at they seemed, which created an environment with limited downside.
Case in point, there were roughly 25 people on the community call this morning, of which maybe 10 were core contributors. So, leaving aside some time constraints, there were 15 of us willing to take 45 minutes out of our day to listen. A quick search on Twitter shows a content barrage of users all to willing to flood the comment sections of anything remotely neutral or positive about Bancor. They’re all on the outside now, creating what appears to be a market-wide negative sentiment on Bancor, but I believe it’s a mirage, because they have already sold out (voluntarily) and created the disincentive for people like me to express constructive support for Bancor.
Its in these environments that the vitriol blinds you, because what you don’t see is that you’ve left nothing else but good to come about. If we all survive, then we now know that you lost the power to destruct. The financial mechanisms are now gone to lower the price of BNT i.e. screaming into the wind about how you hate XYZ doesn’t stop people like me from buying XYZ, and since they’ve already sold, where do you think price goes?
The saying I’ve been privately thinking, and I imagine I’m not alone, is that people are going to hate it when this does well. We’re also at a point in which the price seems to be matching the market, as the correlation between different crypto assets are so tight, so as the market improves, so will BNT.
So the removal of BNT minting coupled with virtually all revenue going to buy back supply, adding on the potentially game changing AMM redesign in the patent process and the rockstar team that made it all the way through the hell of the past few months, I see a high probability of success here. I’m also leaving aside the newly developed simulator, as I’m set to learn more about that in the coming weeks. However, what I can say today is that having a tool to simulate new ideas is likley very underestimated in this space.
I’d also like the reemphasize that if the past several months didn’t knock out any of the core contributors, what in the world would stop them now? They are now more battle tested and fire-sharpened having to go through this year. That is a group of people who have earned wisdom that only comes through hell like that. The vulnerabilities have now all been carefully considered, addressed and now we may have a game-changing protocol design that I imagine could have only come through massive pressure like this summer.
I think that is the most exciting part of all of this; its only going through that pressure that the protocol comes out of it not only stronger, but very likely much better than it ever would have. You also have the investment incentives of a perpetual buyer, a freeze on any dilutive measures (outside the course of business) and a team that has experienced the worst, so the fear of the worst is now gone. Add to that, I struggle to think of any other large seller in the market given most have sold, and the sentiment is just horrible.
For me, those are the component parts to a great investment, and one I’ll be adding to in the coming days.
Will