Yeah, I’m not stoked about it either. WHUF is trading below the ICO price. I know that’s painful for anyone who bought in. I can’t control the market, but I can be straight with you about the decisions we made going into launch. Here’s what worked, what I got wrong, and what I still don’t know.
The price guarantee is working as intended
This is by far what I feel best about. People who purchased in the ICO have the protection the price guarantee offers, and in times like these, I couldn’t be happier that we have it. People always take swings on ICOs, and sometimes things don’t go according to plan. That’s exactly why the guarantee exists.
In addition to that, we announced that all WHUF redeemed under the price guarantee would be burned. Since people have already started redeeming, there’s a good chunk of WHUF that will be completely removed from circulation forever.
That doesn’t mean this was the result we expected
We expected the price guarantee to reduce selling pressure near $3.57, since below that level it makes more sense to redeem than to sell on the open market. That’s sort of what happened, but you have to remember that 23% of the originally purchased WHUF was NOT protected by the price guarantee because it was not vouched in the guarantee window. So far, this cohort of users has been the biggest outflow from the sale.
We put our liquidity on the CEX, and the trading happened on the DEX
We focused on being Coinbase-aligned - they have been excellent partners for us on the full journey. We focused exclusively on getting listed on Coinbase, and that is exactly what happened on Day 0. Coinbase has high liquidity requirements for the listing, and we wanted to meet them - so we did. We hired two market makers with 175bps of liquidity focused on CEX.
This was a choice that ultimately cost us for two reasons:
- 25bps on DEX is/was not enough. We knew this was a possibility, and that it could lead to more volatile price action. Unfortunately, we were unable to provide the DEX liquidity that we wanted because we had chosen to support liquidity on the CEX side.
- The majority of trading by far was on the DEX. We knew that our users were onchain, and we optimized for the wrong outcome.
Why does that matter? Our onchain pool launched with 20,000 WHUF and just under $100k of USDC. In the first hour after unlock, auction buyers sold about 101k WHUF.. five times the pool’s entire token side.
In a pool that size, a single $10k sell moved the price almost 20%, and the seller got about 10% less than the quoted price. With four times the depth, that same sell moves the price about 5%. That is the cost of the choice we made: violent swings, bad execution for anyone selling, and a chart that scares off buyers.
What depth would not have changed is how many people wanted to sell versus buy. The selling was short and concentrated: 298 of the 1,402 auction wallets, 92% of it in the first three hours. Buyers absorbed nearly all of it, but at lower prices. A deeper pool would have made the ride smoother.
We decided against paying for listings
If you know me or you know how our team operates, you probably should have seen this coming. Paying for listings, particularly in the current market, was something that we were heavily advised against, and it goes against where we stand ethically. I personally believe you should EARN the right to get listed, but we’ve since learned how truly corrupt the entire listing process can be.
Many of the big CEX names you see (not Coinbase; they do not charge) require deep six-figure, and often seven-figure, payments to get listed on them. ICO participants would love this, because it typically creates huge buy pressure on Day 1. I’ve seen several people be very upset with the fact that we chose against this, but I have no regrets about this part. While a listing can create temporary net positives for ICO participants, it is not indicative of, or correlated in any way with, long-term success.
One of the more disappointing parts of this experience was hearing this advice on big-name CEX listings: “teams typically sell tokens into the listing candle.” Yes, this means that while you may pay seven figures to get listed, you have the ability to make most of it back by selling into the candle. That is obviously against any sort of ethical standard we hold ourselves to.
While other teams that have $20m in the bank might jump at the opportunity to spend millions to get listed on a big-name CEX, our working capital is much smaller. We didn’t raise $8.4m in free cash; $7.14m of the ICO proceeds is held in reserve to fund the price guarantee.
The CEX liquidity is far thinner than we expected and agreed to
Per public information, the liquidity depth during the first few days of trading on the CEX was small. Sometimes $10k, sometimes $40k in depth at +/- 2%. To be clear, this is far less than what we had planned for and contracted for. It was also a fraction of what we had on DEX (which was ALREADY too small).
It’s important to understand how market making works - if only the MMs are in the books, then two MMs are basically fighting each other to not lose money. Market makers are not in the business of losing money, and they must protect their downside. If the majority of trading is on the DEX and not the CEX, then liquidity tends to thin out on the CEX side because the MMs have to go into more of a defensive mode.
I’ve seen this now on multiple existing tokens that I’m sure had to have the same Day 1 requirements - now you look at them on CoinMarketCap and they have maybe $10k of liquidity on either side. Taking too much exposure when the volume isn’t on the CEX is what causes MMs to lose money, so they ultimately offer less depth. Even when you’ve lent the MMs far more money.
My understanding was that hiring MMs and optimizing for CEX would offer a more stable price relative to the DEX, requiring less DEX liquidity overall. I had assumed that the full liquidity would be there on Day 0 on the CEX side, and it wasn’t. Whether that’s the MMs or the structure is a conversation we’re having with them directly. We’re also working on re-evaluating our exposure to the DEX side, considering the CEX liquidity is so underutilized.
You only get one shot to TGE, and that sucks
The reality of the entire process is that a TGE only happens once. You have so many people in your ear, giving you advice on what exactly to do. It’s incredibly difficult to build trust. It’s difficult to know who’s leading you on and who’s leading you down the right path. The choices we made were not explicitly wrong, but I’d have done a handful of them differently given what I know now.
One of the hardest things I’ve learned throughout this process is that a TGE is a difficult-to-reproduce, money-making event. Not for you as the team, unless you love to hang outside the margins of ethics. For the CEX. For the DEX. For the market makers. For the advisors. The volume a Day 0 launch can attract can make any one of these teams you work with lots of money. Over the process, I’ve learned that they will suggest and advise you to do things that make them money, not you money.
A simple example of this would be: if you launched with something like Arrakis onchain, you as the team split fees with them and capture a lot of the value of Day 0 and Day 1 trading. When you launch on a CEX, that fee capture now goes to the exchange. When you pay for a listing, those fees earned then go to that team. Rogue market makers can find ways to squeeze out capital on the first day as well, or trade against their known strike prices. This is not what happened to us, but it was an important insight that I learned along the way - it’s likely that everyone you work with wants to take money from your opportunity.
As a founder, it’s difficult to find people to talk to and learn from. The number of people who have gone through this process is limited. The number of people who act purely in good faith toward you is even smaller. And I’d argue the industry knows this. It’s part of their edge in making money. All said, it’s very clear that the listing and market-making parts of crypto are extremely broken. But that’s what every founder thinks their customer wants - a listing… which requires market making.
I should have listened to the cypherpunk in me
If we ran the auction again, I’d have done it on Uniswap CCA. Sonar’s platform fees were a meaningful cost, and we could have used that money to seed liquidity instead. I was looking at some of the recent Uniswap CCAs, and the liquidity pools are very deep.
I believe that this approach - focusing on an onchain auction and using the proceeds to seed liquidity immediately - is a better end result for the team and participants.
I understand the frustration around KYC, but it’s a strict requirement
There was a lot of chatter about the KYC for redeeming the price guarantee over the weekend. Some people are frustrated: “Why do I have to do this again?” Others are skeptical of why it’s required. The reality is, if we send money to someone, they must be checked against a sanctions list. This ensures that we are not transmitting money to criminals, terrorists, or people in sanctioned countries.
To my complete surprise, we’ve already had five people fail the AML check. FIVE people flagged in Sumsub as sanctioned for things like “terrorism” and “crime.” This is exactly the purpose of the KYC. The foundation would immediately be in hot water for sending any kind of cash to a sanctioned person, so this is working as intended.
These people will often try to trick you or the team into thinking “Oh no, your KYC is broken” or “Oh, just let me KYC one more time.” No. We’re using Sumsub, the gold standard. If you show up as a sanctioned person, you’re not getting a price guarantee redemption. This is clearly stated in the Terms of Service of the sale, and yet multiple people tried to abuse it anyway.
We have fully automated the redemption process and will start processing redemptions today by sending USDC back and burning the redeemed WHUF. Those redeeming who are non-sanctioned are getting through the KYC process in minutes. We can’t pay you back instantly; we have to do it in batches, so expect it to take a few days at least.
I have let some of you down, and that sucks. I’m sorry.
We put something unique into the market with our ICO - a utility token that earns rewards for using the protocol and offers a price guarantee in the ICO. Every step of the way, since we started this journey back in February, we have put our best foot forward in the interest of everyone around us. We have done things that are unusual and different - requiring you to put capital in to earn a bonus versus an airdrop - selling 20%(!!) of supply at launch - giving bonuses for referring others to the sale - doing a FAIR auction that resulted in a FAIR price that the market determined itself.
We have been building a product that we feel is altruistically Good for the space, pushes the space FORWARD for once, and avoids being extractive in any way. We have raised primarily from the community, not venture capital. We’ve delivered significant, unique, and compelling product experiences over the course of Ethos thus far. We have a product that’s worth believing in, which I feel is hard to say in crypto. And many of you recognized that, are aligned long term, and believe we have everything we need to continue to deliver on the expectations of the protocol.
To those who are disappointed, I am sorry. I will continue to dedicate my full effort and energy to making this right. There are things about the sale that I’m extremely happy with, and other parts that I regret. You only get one shot, and no matter how much effort and heart you put into it, it still may not go according to your plan. I can assure you that our entire team is excited about what we’re building, what’s next, and our ability to achieve those goals. Now collectively, with you, we all have alignment around WHUF.
All said, I will be super clear about how we operate. We do not over-hype, tease launches, or pretend we are something that we are not. We are excellent builders who know how to ship products. I am not going to grandstand and appear on your favorite podcasts, saying untrue things about the future of the protocol. I’m not going to try to pretend we are building something we are not, for your benefit. I don’t play those games. That might mean we aren’t aligned, but we’ve always operated this way and will continue to. We must EARN the right to be talked about and EARN the right to long-term success. I’m hoping that this is exactly what you want to hear.
The objective is clear now. We have a token. Everything we do flows back to the token. There’s no bullshit dual equity, there’s no Serpin dumping tokens OTC, there’s no bullshit incoming big name CEX listings.
We are focused on the product and the protocol. No one has more at stake than I do. And if you think I’m unwilling to fight as hard as I possibly can for that, you don’t know me at all.
Never let anyone outwork you.
Serpin (@serpinxbt) is a co-founder of Ethos. This article first appeared on X.
