It’s not every day that you find something a little strange in crypto, unless you’re looking particularly hard. Most days are more consumed by news about price activity and speculative fervor. I’m going to share something I discovered about Blizz Finance with you today.
Recently, I spent a morning with a group in a MeetUp where we were discussing the crypto space with Newbies. The intention was to help people who are green to the space to get a better understanding of things that have bitten many of us in the butt, so they don’t have to go through the same pain.
Unfortunately, like most MeetUps in a Bitcoin bull run, the only thing that people will listen to is how to make mad gains on the next Doge or Shiba Inu. Inevitably, this leads to their getting rekt more often than not.
Signs to look for
One of the key things to consider before jumping in, in my opinion, is knowing what it is that you are jumping in to, rather than focusing on the huge numbers that everyone seems to be talking up.
Investigation and research aren’t the sexiest of things to do, but they are critical. And, once you have an idea on a few things to look for, they are not that hard.
In this article I’ll share one area of research to consider adding to your tool belt. Twitter stalking.
Yep, it’s that simple. Find the project you’ve heard great things about, and Twitter stalk the community. Now, I don’t mean be all creepy and message people in an untoward way. I mean do some digging. Look around. See who is in the community, and check out their profiles.
It’s when you stop to take a look at things like this that you really begin to see connections. Sometimes, these are painfully obvious, and at other times, you’ve gotta build a bit of a map.
This can make you look like a bit of a crazy person if someone looks through your browser history without knowing what it is that you’re doing.
When Blizz Finance Twitter Bots fail
In the video below, I share some of the things that alerted me to a potential concern about a project known ad Blizz Finance.
Take some time to follow the links in the video above, and check out for yourself what a fake account may look like. There are other ways to tell if a Twitter account is fake. You could use sites like FollowerAudit and SparkToro.
Who would have thought that auditing a Twitter account would be considered an element of investment due diligence? You can never turn over too many stones in my experience.
Failing to do so could see your investment trickle down the digital drain otherwise. So, get stalking!
Impermanent Loss Risk Opening the Flood Gates
Right now, we are seeing frogs ape in to anything with a high APR or APY. Scalps will be taken, and fortunes will be both made and lost.
It matters that you know some of the risks in the DeFi (Decentralized Finance) space.
Personally, I doubt that Blizz Finance will last the next bear market, regardless of how shiny their website looks, and how much is currently locked in their liquidity pools.
What you can see above is a screenshot of the Liquidity Token’s address on the Avalanche Network. As of block 8475996 the Total Value Locked (TVL) in this Liquidity Pool (LP) is just under $6M US. Earlier today at around block 8458633 the TVL in this LP was over $8M US.
What does that tell me? Depositors are moving their funds out of the LP Smart Contract and cashing out. This may be due to the impacts of BLZZ dropping more than 20% in the past 24 hours, against AVAX dropping 8% in the same timeframe.
Situations like this are where LP Providers, the people putting up equal portions of the BLZZ and AVAX get concerned about triggering significant levels of impermanent loss within the BLZZ/wAVAX pairs in LPs.
In English, that means that the drop in price of BLZZ by 20% will see a portion of wAVAX (a more valuable crypto compared to BLZZ) being sold off in to BLZZ maintain an even balance of BLZZ to wAVAX within the liquidity pool.
There needs to be equal value in both tokens provided at all times to keep the LP functioning effectively.
A quick FYI, AVAX and wAVAX are pretty much the same thing, just that wAVAX is wrapped for the purposes of using it in this smart contract to provide liquidity on the Blizz Finance site.
DailyDeFi has a very handy Impermanent Loss calculator that may help illustrate how significant impacts can be.
For example, let’s say you are going into a BLZZ/wAVAX LP with the following prices for your tokens at the time.
Initial Prices
(wAVAX) Token A$ 120.00
(BLZZ) Token B$1.45
Future Prices
(wAVAX) Token A$87.00
(BLZZ) Token B$0.18
Results
Impermanent loss: 29.34%
If $500 of Token A (wAVAX) and $500 of Token B (BLZZ) were held you would have 4.17 Token A (wAVAX) and 344.83 Token B (BLZZ).
Value if held: $424.57
If $500 of Token A (wAVAX) and $500 of Token B (BLZZ) were provided as liquidity you would have 1.72 Token A (wAVAX) and 833.33 Token B (BLZZ) in the liquidity pool (LP).
Value if providing liquidity: $300.00
Providing liquidity can be lucrative where there is a need for it, and the pair consists of tokens that have merit. Where these lack, the risk of either crashing and burning, or suffering a rug pull, are too high. So, do your due diligence.
In the event of a rug pull, also known as an exit scam, you may be able to extract your LP tokens from the smart contract even when the LP’s app or website is offline. Do you want to know how to do this? If so, leave a comment below and I’ll put together a guide on how to do this.