Risks in Illuvium Investing: Response

By Deraji | ILVFi | 8 Oct 2021

Last week, I shared a video that I knew would be controversial, though I didn’t quite expect the extent or level of controversy that would result.  As I hoped would be apparent, I shared a variety of bearish risks of varying likelihood to cause you to think and help identify potential risks.  If you take a YouTube video at face value, particularly those that inspire you to invest or not invest in a project, you’re doing it wrong.  My approach is one of providing tools, ideas, and perspective to enable you to be more informed, in a hopefully entertaining and at times humorous* way. 

* Humor not guaranteed

If you haven't seen the video, feel free to watch below as this article goes more in depth with each risk.  To save time in the blog, I avoid revisiting some of the bearish perspective from the video.  My intent here is to highlight risks and help enable people to make informed decisions by thinking, not just jump into the hype of new crypto projects.  There's enough YouTube coverage of hype.  In the words of Monty Python, and now for something completely different!

If you didn’t take my intent was to highlight risk versus develop FUD, that’s on me, and I will do my best to be better in the future.

I loved the discussion that resulted in the comment section of the above video.  As some of you pointed out, a few of my arguments were a little weak.  I agreed in many cases.  Remember, I am not a financial advisor, and this content is for educational purposes only.  I am invested in the project, and at this stage, Illuvium is my single biggest crypto holding.  All of my staked tokens are locked for a twelve month period.  That was what made sense to me given my financial situation when I decided to invest.  

In an unexpected twist, I got a, shall we say, response from Illuvium project founder, Kieran Warwick.  While I had intended to share a second video on the topic, it only seems fair to share the direct response to my eight investment risks, and we’ll add one more at the "recommendation" from Kieran himself.

Risk 1: Unproven Team

My first point was around the lack of proven success from the current project team.  Kieran wrote “In the screenshot you took of that slide, you will see a guy called Nate Wells.  Could you do some research on him?  He has delivered several AAA games.  Additionally, several others have delivered AAA games, and over 50 core contributors (nearly half of the team) have delivered indie games before.”

In the YouTube comments section, gasparm shared “The biggest risk for me is that the lead game designer hasn’t designed a game before.”  Swole Monkey brought up the same point as Kieran, calling out Nate Wells credentials.  As I responded in agreement, we further discussed, with me sharing a similar point to Kieran that the team has done a good job bringing in talent.  My follow-up risk was similar to gasparm’s thought that the founders don’t have proven success in this space, though everyone has their breakthrough moment. 

Focusing on Nate Wells, he is involved in the project as an advisor, with his bio indicating “as an art direction and UX consultant, Nate aims to help projects find their virtual focus.”  Nate certainly has credentials, most known for Bioshock, Bioshock Infinite, and lead game producer of The Last of Us and Rise of the Tomb Raider.  It should be noted that Nate’s role on the project is listed as an advisor, and not game design or admin.  As for the other contributors, involvement in other games provides a solid foundation to build this game.  This is a new team at working together and forming any team in the past 18 months has had its obvious challenges.


Reason 2: Crowded NFT P2E Space + High Valuation + No Product

Reason number two that I shared was tied to the fully diluted market cap of Illuvium being second only to Axie today in the Play-to-Earn NFT gaming space, a growing area with a constant barrage of new entrants.  Kieran wrote - “this makes no sense either.  We have not released the game nor a full gameplay trailer, and we are still 10x less value than Axie Infinity.  So if you think there’s no room to grow, I wouldn’t be investing in crypto games at all.”  I think he missed the point of this reason.  In fairness, he also wrote “So the first point is where I kind of stopped listening, but I couldn’t help myself to go a little further.”  So, he may have cruised past this one a bit.  No worries - we'll revisit my intent here.  

My point was that the valuation of Illuvium has been driven by hype at this point, which is incredibly inspiring and a great job performed by the marketing team to develop an active community and numerous YouTube content creators already with no game.  That shows the growth potential and power of this space.  Other gaming studios see this as well, so it won’t be a smooth ride to capture market share without a fight.

That said, if Kieran thinks I’m being harsh and unrealistic with my videos, just wait until gamers take to the internet after their first experience.  I think a rookie YouTuber with under 200 followers who focuses on math and spreadsheets is the least of your worries if the launch doesn’t hit.  The crypto community lives on hype and promises, and those in Cardano have shown how high you can drive a project without a key aspect of the product.  Just like my day job, marketing does the work to drive consumer desire and they are nailing it for Illuvium.  It’s now up to the technical folks to deliver consumer delight.   That’s what keeps people coming back and will define the long term success of the project.  By the time the game launches, more competitors will be battling over gaming and NFT dollars.  

Right now, hype is high, and it will only increase in the months leading up to the launch.  If they can nail it, great.  My point here is that with increased hype comes greater risk.  Identifying risk is the real intent of this post.

Reason 3: We're Past the NFT Peak

Do I believe this, no!  NFT’s are in their infancy as zumiichi called out in their YouTube comment.  However, how many other crypto videos on YouTube take two graphs and extrapolate the end, beginning, or middle of a trend?  How many of them go back and highlight if they were right or wrong?  The internet is full of extrapolation, just as my rationale here.  The NFT craze is months old.  However, Kieran shared on his Twitter “Once SLP drops below $0.02, we will hit an NFT winter.”  So apparently, winter is coming for NFTs.  He follows in the thread that “Once we launch and people realize there are games out there that are fun to play, we will build back regardless of earnings.” 

Inspiring, but it still goes into the marketing aspect of #2 above, while also highlighting the potential of current NFT traders to get wrecked.  Kieran’s response to me regarding my video was “have we missed the NFT trend?  NFT gaming hasn’t had a single AAA title be delivered yet, and you are calling the top?  Again, just nonsensical reasoning.”  So why not to invest?  The NFT space is a risk, and maybe winter is coming?

Reason 4: Regulation

We'll start with Kieran’s response - “We have spent hours working with specialized global law firms on this, and have a legal opinion that our “cute DAO” is flying in a grey zone and doing nothing illegal.  If the advice we received were different, we would have made changes to ensure we were not at risk.  Again, I’m probably going to stick with the professional lawyers discussing regulations with worldwide regulators daily, rather than a cute Youtuber.”  While I presume it’s sarcastic, Kieran thinks I’m cute, and I believe even my wife would say that cute doesn’t describe me.  ("Data" below)

My intent with this was not to highlight the DAO’s risk.  I care about my risk, and the financial risk of the individual investor.  The United States is a hotbed of debate at the moment.  SEC Chair Gary Gensler has made it clear he’s going after projects, and he has even said that in doing so it has the risk of harming investors like me.  Where does my cute, uninformed blogger opinion stand on this?  While my country has proven me wrong before, I believe in the end they will avoid stifling innovation, and hopefully ideas like the recent proposal from North Carolina representative Patrick McHenry (R-NC) come to fruition, giving organizations a clear path to get out of the gray area described by Kieran’s lawyers.  To me, the fact that Kieran describes it as a gray area implies risk, again the point of this article and my video.  My prediction is that the US government will determine there is more money in taxation versus regulation, and effort and government resources will shift to clear tracking and taxing of crypto rather than the short term payoff of fines and shutting down organizations.  But who am I to know, I’m just a cute Youtuber.


Reason 5: Rug Pull

Yep, this was a stretch, and I have shared articles and videos specifically to the contrary to this talking about the tokenomics of Illuvium.  Rug pulls have become disturbingly common, and to the misinformed, this could be a perceived risk.  Kieran says “This one is my favorite, the upper management just increased their lock by an additional two years, making it a total of 4 years.  We are also brothers with the founder of Synthetix; if we rug pulled, there would undoubtedly be enormous damage caused to both projects.  This is where I am almost sure you are fudding for a reason (not just playing the good samaritan card of warning the people).”  

I will apologize here.  I was apparently unclear, though I do call out the extent to which Illuvium have invested in staff and artwork, with great transparency in the development.  I mention that the unlock doesn’t begin until next March, and we do anticipate a game release BEFORE that happens.  If this is a rug pull, it will go down as one of the most elaborate in crypto history.  Kieran, I didn’t mean to offend here, and certainly you and Aaron have put your heart into the project and your reputation on the line here.  No doubt, this is the weakest of my eight, and I should have been more clear on the upper management unlock further reducing risk of this reason. 

Please see other videos on tokenomics to fully understand the implications of the three year linear unlock of the 1.4 million tokens held by upper management.

Reason 6: General Risk of DeFi & Crypto

I got one that Kieran agreed with me on!  He writes “ Sure I agree with this, but if your logic is investing in any DeFi project, let alone one as transparent as ours, is extremely risk, then sure… but i think most people are aware of those risks, and also the many many positive (it almost seems like you are too, given you “love DeFi.”)

Where we disagree on this is that “most people” are aware.  If you spend time in the Illuvium staking channel, you’ll see the number of people who are unaware of the risks, or at least the full extent of the risks of DeFi.  Hanging out on Reddit, I see people every day share they sent the wrong token on the wrong network to the wrong address, and they are screwed.  My point here - learn about it first.  Particularly liquidity pools are incredibly complicated and introduce a whole new range of risks that are even more complex.  Not understanding these risks and only jumping at 500% APY returns can set up people to fail.  While Illuvium has focused on transparency of the product, not understanding the DeFi space and big number chasing is going to ruin a lot of people.  Learn first.  Then invest if it makes sense.  

Reason 7: Aggressive Token Unlock

This one is going to tie into reason 5 and reason 2 above.  While a number of people focus on market cap of circulating tokens today, I am focused on market cap in Q3 2022, and fully diluted market cap.  The reason?  All of my tokens tied to Illuvium are locked for twelve months.  Kieran writes - “Once again, the team (majority of tokens) just elected to increase that lock, further reducing the potential speed of team tokens being sold on the market.  Additionally, almost every project that bootstraps using liquidity mining has this issue.  We added revenue distribution as a further dis-incentivization for holders to dump their locked tokens, as they would miss out on those distributions.”  In disagreeing with me, Kieran agrees with me.  He is correct - the upper management 1.4 million tokens unlock linearly beginning March 2022.  However, a subset of team tokens and the seed and pre-seed tokens (2.1 million ILV) unlock for 12 months starting at the same time, with a more aggressive unlock. 

Kieran mentions that most projects that bootstrap have this problem.  Therefore it is a risk.  To introduce math, the reason I do have some concern is the fact that in order for my investment to stay the same value that it is today, the circulating ILV token market cap will need to grow from today’s $400 million cap to over $3 billion.  If circulating market cap is what matters to price, that means by the time I am able to sell my tokens, the enterprise value of the Illuvium DAO must grow almost 8x.  That’s risk. 

Kieran is also correct, and I’ve shared this elsewhere, I firmly believe the most significant long term value aspect of the project is revenue distribution.  I won’t go into that here, as I’ve already shared a detailed video on how this potentially lucrative benefit works.  While it’s low risk, seed, team, and upper management do get the opportunity to sell some tokens before I do.  We’ll see based on the success of the game if revenue distribution has enough impact to fight unlocking token selling pressure.  My intent is to not sell until at least the end of yield farming unless there’s a significant change to my investment hypothesis.  I encourage each of you to have your own hypothesis of why you’re holding any investment, and determine your plan to capture profits or sell at the appropriate time. 

Reason 8: ILV Price Run-Up

Even as I’m writing this, we’ve seen another bump in price, taking the ILV token to around $680.  Kieran writes “again, its debatable given there are market examples of other projects having much higher valuation, so again, this could go either way, but I agree with you, this is a risk.”  We agreed on two reasons!  Its a common saying particularly in real estate that “you make your money when you buy, not when you sell.”  It’s also all over Reddit’s crypto space jokes around "buy high, sell low."  Sentiment analysis shows people do dumb things, FOMOing into projects at high prices, and then panic selling when it drops to save themselves from losing more.  No one knows the future, so you need to understand the project, and the risks.  As some of my Patreons will vouch for, I’m no fan of trading on technical analysis.  I’m an investor, not a trader.  It doesn’t mean I'm immune to emotion, and that I haven’t hovered over the sell button on panic days, but mostly I talk myself off the ledge because I have a plan.  As I shared above, develop that plan now, and then stick to it.  It’s not an issue of diamond hands or paper hands.  It’s not your hands, it’s your brain and ability to think logically quelling emotion with money on the line that makes the difference.

Reason 9: Kieran Himself

That leads me to the only new risk that I want to introduce.  The influence and behavior of Kieran himself.  Clearly he is passionate about his work.  As he took the time to respond one by one to the reasons in my first video, he demonstrated that he was willing to spend way more than seven minutes of his precious time watching a random video on his project from some guy with fewer than 200 followers.  This happened the same week as his tweets that raise concerns around his willingness to alienate and target Axie Infinity and their founders.  Kieran himself pointed out this risk in his comments to me, saying “If I was you, I would have used me specifically as a point of risk, given the backlash I received from my recent tweets.  That to me would have made the most amount of sense, but seriously, it’s all good, I like a debate.”  So, we’ll introduce the ninth risk, Kieran and his passion.  Kieran, if you’re reading, thanks. 

You may disagree with my approach, and I’m genuinely taking your feedback on how I approach content, particularly for YouTube.  My intent is to develop an informed, educated Illuvium community.  I follow the Lincoln cabinet idea that to really get better, you need to surround yourself with people with different perspectives, often those that disagree with you.  Sycophants are a dime a dozen right now.  Those willing to speak up with well-informed, good intention dissenting opinions are much more rare.  Our financial goals are aligned thanks to the design of the Illuvium DAO.  I agree that we need to enable the core contributors the freedom to use their skills to create a product that delivers on the success that you’ve driven in marketing.  I also learned that a few minutes or even seconds on social media can completely risk one's reputation and intent when taken out of context, and I'm the face of a blog and YouTube channel with the economic value of tens of dollars.

Thanks to the rest of you for reading, and as always, feel free to share your comments below as we continue the debate.  I hope this provided you with more perspective on potential risks of investing in Illuvium or any other blockchain project in this growing, hype-filled space with tremendous potential.  Thanks for your support!


DISCLAIMER: This is for educational purposes only and not financial advice.  Please consider all risks and costs before participating in any investment opportunity.  I am not a financial advisor and am providing this content for educational and entertainment purposes only.

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Crypto curious thinker, amateur economist, geriatric millennial gamer passionate about Illuvium. Happy to share my economic and financial assessment of this unique blockchain NFT Play-to-Earn project. patreon.com/ilvfi


ILVFI focuses on the upcoming P2E game, Illuvium, the first proposed AAA-quality video game based on blockchain technology and NFT ownership. We'll focus on both the game play, as well as the in-game and ILV governance token economics.

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