In the last article of this 2-part series (which you can find here), cryptocurrency investor “Shazz” has given us an introduction into his journey on how he specialized in researching digital assets, and the first overview of his fundamental analysis methodology for low market cap projects exemplified by the investment case that is Zenon.Network.
So far, he covered the following FA criteria:
- Coin Distribution
- Project Funding
- Degree of Innovation
- Crypto Economics
- Community Engagement
In this second article, Shazz will continue explaining his FA methodology by covering the following FA criteria, again contextualized with his main current investment: ZNN.
- Holder Base
- Project Adoption
- Secondary Markets
- Crisis Management
Shazz, please elaborate on these additional criteria within your FA methodology and how they apply to the Zenon.Network
Q: How decentralized is the holder base and what is the approximate average holding duration per investor?
This one is a bit more difficult to assess for Zenon because a rich list in the classical sense does not yet exist. There is a community-built explorer which groups all active wallet addresses with the largest one currently holding 63’031 ZNN but there is no way to discern which holder owns how many ZNN. From my research and chats with early ZNN backers, I concluded that there are probably no more than 5 entities owning more than 100k ZNN. And given that the available ZNN supply in free-float is scarce (there are probably less than 100k ZNN held in exchange wallets and less than 20k ZNN in the sell-side order books of all exchanges where ZNN is listed). Nevertheless, I hope that particularly large holders who have accumulated and held ZNN since day 1 of the project will start to sell some of their holdings in the next couple of months. This would help to limit the price volatility of ZNN by adding free-float liquidity while strengthening the network by further decentralizing the holder base while it is growing.
Q: How is the adoption rate of the project in terms of strategic industry partners and dApp developers?
This is where Zenon.Network has most of the catching up to do versus its competition but that is mainly attributed to the early stage of the project – consider that the first public testnet has only just been launched. Nevertheless, the community has already voted on and enabled the funding of various developers through the native Zenon project incubator resulting in auxiliary services for the Zenon.Network. Existing projects are a tip bot and a bounty campaign platform, for instance. The currently most anticipated project is called StarLight and will be one of the first projects running on the Zenon mainnet. StarLight will be a liquidity protocol and autonomous market maker for ZTS (Zenon Token Standard) tokens which will be launched in conjunction with zApps running on top of the Zenon Network of Momentum. STARL will quasi be the pendant to what the 0x protocol is for ERC20 tokens.
On top of that, every 90 days after the launch of the Zenon alphanet, the Zenon team will announce up to 10 new strategic partners that will be added to “Zenon Fabric” — a vested Pillars program incentivizing cooperation and synergy maximization between leading industry players that act as key strategic partners to the community.
Q: Is the coin already tradable on mainstream exchanges and what is the available free float? Less popular exchanges and lower free-float can mean a better entry price.
This aspect is a strong indicator of the stage a new native cryptocurrency is in. Since ZNN is not an ERC20 token but a native protocol currency, it can’t be traded via an existing DEX such as Uniswap. It is much more likely that Zenon will launch its decentralized exchange for the tradability of ZTS tokens at a later stage. Further, ZNN is not yet found on mainstream exchanges such as Binance, Coinbase, Huobi, or Kucoin. Rather, one has to use more “underground” exchanges such as Mercatox or Stex to buy or sell ZNN. Since many new crypto investors tend to shy away from less popular exchanges, the mere fact that a coin is not yet listed by those is a good indication that it might still be rather undervalued, provided all other fundamental aspects of the project check out. Less popular exchanges are where more savvy crypto investors buy in early. The mainstream exchanges are where the broader retail investor base joins the community.
Considering the very limited amount of ZNN one can obtain on these exchanges can be a positive sign for any experienced crypto investor. Under the provision that no VC or private sale rounds have allocated a large amount of the currency to insiders or institutional backers, low exchange liquidity can be a strong sign that the existing holder base does not have any intention to sell the coin. The degree of decentralization of the holder base should also be high, to prevent any single holder to control an excessive amount of the circulating supply. In the case of ZNN the available liquidity on current exchanges is so low that community members have created an OTC channel for block trades. I would argue that if this channel didn’t exist and everyone was forced to buy and sell solely via the current exchanges, the price of ZNN would already be much higher.
Thank you for sharing all that information with us, Shazz. It seems a lot of work went into researching all of this, and, that aspiring crypto investors will generally have to plan on reading a lot.
Yes, I spent quite some time researching and talking to many different community members before I was able to get a full picture of this project. In particular, because the Zenon team does not advertise most of the intriguing contextual facts but rather chooses to keep a low profile. Without the openness of other community members and my regular engagement for one and a half years, I would have never been able to gather all that information.
Q: How does the team communicate? Which principles do they adhere to and how do they interact with the community? Does the team engage in coin price discussions?
I believe this is one of the most important aspects and one where Zenon stands out. The Zenon team’s anonymity prevents the creation of toxic “founder cults” which are so prevalent in many crypto projects. Further, their anonymity allows the network to eventually become purely community-driven, just as is the case with Bitcoin.
In terms of communication, of the Zenon team’s style is best described in one word: humility. They rigidly follow the principle of “deliver first, talk later” and hence they do not engage in any hype, let alone price talk. The price of ZNN seems to be the last of their worries which is such a strong plus I can almost not overstate it. There are very, very few founder teams who do not engage in activities to influence the price of their coin (let alone price discussions), and the fact that the Zenon team has never done this, and likely never will, has instilled extreme confidence in the community (because it means the team focuses on what matters: Network development, adoption, and decentralization).
Furthermore, the Zenon team is incredibly receptive to community inputs. They proactively give the community the ability to voice their feedback and opinion which they always take into consideration.
Q; How does the team handle unexpected critical network attacks?
When you build a new DLT, not everything will always go smoothly. Apart from technical hurdles, unexpected malicious actors can try to exploit weaknesses of immature networks, willingly jeopardizing years of development work and the investment of hundreds of people for their profit.
In the case of Zenon, such an occurrence proved their technical expertise and experience to the test. As mentioned earlier the Zenon network was launched on a placeholder chain for which a PIVX fork was used. Now, the original PIVX chain had a vulnerability that allowed a malicious actor to mint additional coins through a specific, but rather network exploit. It was a rather unknown one since there aren’t many coins running on a PIVX fork. Nevertheless, there was one particular scammer who specialized in systematically exploiting this specific vulnerability for various PIVX forks, usually to dump all extra-minted coins on an exchange. This would destroy the price of the coin and the investment of every holder.
This individual who had heaps of fake telegram accounts also targeted Zenon at a very early stage and succeeded to mint 2.5 million ZNN out of thin air because of the PIVX vulnerability. Luckily, it seems that said hacker fell in love with the project and, instead of selling those coins, he tried to hold on to them to become one of the largest ZNN holders for good! Shortly after that incident, the Zenon team found out about the exploit, isolated the scammer’s addresses, and forked off the placeholder chain so that his coins would become unusable. But that was not the end of the story as the hacker had also hidden some of his ZNN on an exchange called CryptoBridge. The team had tracked down the location of those funds and when CryptoBridge shut down its operations a few months later, the team forced the hacker’s hand to move off his remaining fake ZNN off the exchange and forked off the rest of his fake coins shortly after. While this incident set back the project development by a few weeks it was a veritable display of the team’s technical abilities and resolve to maintain the integrity of the project. To this day, the hacker is rumored to keep spreading misinformation across social media and fora as he does not seem to have digested being humbled by the very project he tried to scam – but ultimately fell in love with.
What a story! This must have been an incredible push for the community’s confidence in the team’s abilities.
Yes, though I think it could have gone differently if the hacker had decided to immediately dump his fake coins on the exchanges at that time. Although I assume very little exchange liquidity was available back then too so he might have wanted to wait a bit longer before pulling off the hack. In any case, I am glad it turned out the way it did since it allowed me to experience the team’s abilities and attitude. Since the team is anonymous, I didn’t have much more information about them so this gave me some good contextual data for my FA.
In your last article, you shared a breadcrumb the Zenon team seemed to have willingly placed for its community to investigate. Can you give our readers some additional crumbs which the community uncovered and which could hint at “something bigger” at play behind the scenes of this project?
Well, yeah there are some additional “coincidences” that have made the rounds of the Zenon community but these are not official in any sense (unlike the one in which the team consciously disclosed a screenshot of a “Paradigm Fund”-named testnet Pillar).
Can you put that into some more context? How do such conspiracy theories help create attention for a project? Aren’t they potentially off-putting to investors who do factual research?
Well sure, they can scare away potential investors if they see that a large part of the community is basing their investment thesis on unofficial speculation and wild conspiracy theories. But it is nevertheless an aspect that should be taken into consideration as part of one’s research.
Q: Are there any indications of unofficial ties to influential entities which have the potential to boost or leapfrog the adoption of the project? Are there any known unknowns that intentionally shroud certain aspects of the project in mystery, nurturing the growth of a speculative investor base within the community?
Questions that remain unanswered (but usually aren’t) such as “who is behind an anonymous team?” or “who is funding this project and which third parties might be involved?” can be extremely intriguing known unknowns in the eyes of crypto investors. Why? Because everyone loves a good conspiracy and there is nothing better than a deep rabbit hole for new potential investors to fall into while doing their due diligence. Especially in the crypto industry, people love hidden clues and to derive conclusions from them, especially if they can potentially impact the valuation of the project, should they ever become reality. Of course, imaginative individuals with a vested interest in the success of a project or coin will tend to be biased in their judgment and might just misinterpret random connections as wishful thinking. While speculative conclusions can be dead wrong, the mere existence of known unknowns such as the ones stated above will nevertheless grab the attention of any savvy investor, simply because there must be SOME reason the project team deliberately refrained from disclosing them. Needless to say, an anonymous team and unknown funding source alone does not automatically make for a good conspiracy theory. In most cases, the lack of such information should even be considered a red flag. But if all other aspects of the project turn out to be generally superior, these known unknowns can turn into compelling reasons for someone to make an investment decision. After all, the Bitcoin protocol has also been created by an anonymous team (or individual) with an unknown funding source.
In the example of Zenon.Network, quite a few community members have spent sleepless nights trying to grasp the metaphorical “white rabbit” and it is said some among them have been driven to the cusp of madness by it. The reason being that there is a huge cloud of mystery surrounding Zenon which originates from just a few official, apparently meaningless clues the Zenon team allegedly placed very carefully. From those clues, community members have spun a web of countless potential connections and coincidences which – on their own – may not mean anything. But seen as a whole, these links create (possibly completely constructed) patterns that become just too obvious to ignore, at least for long-term community members. Even the fact that they never result in hard proof supports one of the most fundamental speculative theories around whom the entity or entities behind Zenon.Network may be. In any case, however, it is never clear whether there is something to those close clues or if they are just the product of wishful thinking by over-exposed ZNN holders. After all, the Zenon team always states that the project is an independent entity and any connections to third parties are pure speculation.
Let me explain why these conspiracies are nevertheless an important investment factor to consider. To draw a parallel to a different project, consider the massively successful cross-chain oracle Chainlink Labs which is known for its die-hard holder base, the LINK Marines. Digging around in Reddit or 4chan, one can discover circumstantial evidence putting the Chainlink founder Sergey Nazarov in ultimate proximity of the Satoshi Nakamoto collective. There has never been any hard proof for any direct involvement. But the fact that Mr. Nazarov had provably been active in the blockchain space from very early on contributed to the creation of an extremely powerful meme in the minds of early LINK investors: IF Sergey was involved in the creation of the Bitcoin Protocol, it would strongly enforce the investment thesis for Chainlink. On the other hand, if Sergey didn’t turn out to have any ties to the Nakamoto collective, it would likely not negatively impact the potential success of Chainlink since it already made a very good case to solve the cross-chain data transfer problem. Link Marines had nothing to lose by believing in the possibility of this connection. And this belief contributed to the creation of a fundamentally loyal holder base which greatly benefitted the value appreciation of LINK. Of course, it helped that the Chainlink team showed high integrity by not engaging in hype-building (unlike most other projects). Instead, it chose to reward its community with humility and by just building and delivering what it had promised without making a big fuss about it.
Not without reason, quite a few early LINK holders who have joined Zenon stated that this project reminded them of the early Chainlink days. Since most of the older breadcrumbs before summer 2019 have already been covered by a few “moonpapers” such as this one, I will just highlight a few newer conspicuous hints which reinforced the belief of numerous community members that Zenon has some loose ties to unofficial third parties. I will not give you my opinion on those additional crumbs as they have already been extensively discussed by various members of the Zenon community. And also, because for my investment decision, it is much more important that there ARE some conspiracy theories, as opposed to what they are made of.
On March 5th, 2021, Zenon released the following cryptic tweet. Translating the binary code results in “Z 3 E 2 N 1 ON” from which one can derive either a countdown “321”, the month March 2021, March 21st, or all of those three possibilities combined.
Turns out, Zenon then announced the test net release on March 21st, 2021 (the different date of the screenshot below would be due to a time zone difference from my and the tweet author’s account).
Why is March 21st a special date? It happens to also be the Twitter birthday of Zenon.
Coincidentally, the 21st of March was also not only Twitter’s birthday…
… but also that of @sqcrypto. This seems to refer to a twin in this tweet:
It also happens that @sqcrypto’s first two tweets were a retweet of @halfin (which is the only Twitter account both @sqcrypto and @zenon_network follow), followed by a greeting waving hand. Maybe to a twin sibling?
Jack Dorsey’s opinion on the Bitcoin ethos
His views align extremely well with the way Zenon positions itself. He also highlights how the anonymity of founding teams improves the resilience of DLT, which can be seen in the case of Bitcoin and Monero, for instance. He also mentions his vision and the advantages of a satellite-based Internet (which is already being implemented by projects such as StarLink and Blockstream). Interestingly, Zenon.Network intends to provide “satellite SDKs” to developers sometime in the future, as highlighted by the roadmap on the Zenon website.
Zenon as the potential underlying protocol of Twitter 2.0 “BlueSky”?
Some Zenon community members believe that the Zenon network will become the underlying infrastructure for decentralized global social media applications such as the potential Twitter successor “BlueSky”:
The potential involvement of Lightning Network creators
There’s also a hypothesis that Lightning Network developers Tadge Dryia and Joseph Poon are involved after they concluded that Lightning Network had critical design flaws:
“The price of scalability is eternal vigilance,” says Tadge Dryja, co-author of the Lightning Network protocol. And this function Osuntokun offers to transfer to monitoring organizations, the so-called “watchtowers,” which will notify the user in case of threats. This approach does not cancel decentralization, as the user can connect to any number of watchtowers without relying solely on one “sentinel.”
There is also a recent presentation by Joseph Poon where he elaborates on new DLT architectures in the context of consensus and cryptoeconomic incentive mechanisms and seems to put lots of emphasis on Directed Acyclic Graphs (DAG) and how the Bitcoin Protocol might evolve as the ultimate consensus instance for PoS networks:
Finally, there’s this little coincidence in which early Bitcoin and Lightning Network contributor @theonevortex asked the community how apps built on LN should be called:
As you might have noticed, “zApps” is also the nomenclature used by Zenon for decentralized, mass-scalable applications built on top of the Zenon.Network:
Thank you for these extensive insights into your thought process when evaluating low market cap cryptocurrencies, as well as the in-depth dissection of the example use case Zenon.Network, Shazz. We hope this will help our readers with their crypto investment endeavors and we wish you all the best and success in your future career as a professional crypto investor.
Thank you, I am always happy to shed some light and insights into the seemingly opaque crypto space. I think it is a fascinating industry in which the future leading global organizations are already being formed. In my opinion, it is a unique chance to participate in the growth and democratization of international finance and information markets which humanity has never seen before. The winners which will emerge from this race will radically redefine the involvement of individuals in the governance and operations of leading global organizations.
Is there any last advice you would like to give our readers?
Yes. So far, market cyclicality has been the determining factor for the monetary success of crypto investments. Most of the market has usually been highly correlated and there have been times where everything rose and declined in price at the same time. In the short-term, strong fundamentals seldom directly correlate with a crypto asset’s performance. However, I believe this will change as the market matures. Investors with the ability to make a qualified assessment of a coin’s fundamentals will develop a long-term edge. Not only because it will allow them to spot the projects that will survive and grow in the long term. But because FA also allows them to not be shaken out of their investments and hold them for several years with conviction.