Hey folks, so first and foremost full transparency here — I have money in Yield Nodes and I’ve been using them for about 8 months now. I’ve written about them before in regards to their latest so-called “audit” reports, but there’s been a lot of events that have occurred over the past week that have made a lot of people really anxious (including myself) about what’s exactly happening with Yield Nodes and their funds. The following are my takeaways from what’s been happening…

Locked out of Exchanges

On October 8th, Yield Nodes sent out an e-mail to user notifying them that:

Binance just locked a large portion of funds due to compliance. They’ll probably unlock it later today, but we can’t count on that. Nor should we, as a project, depend on what others dictate and be at the mercy of powers we cannot control

There’s also a subsequent video they posted showing how they had approximately 306 $BTC (roughly $6.1 million euros) locked up on their account and unable to withdraw. And even though the e-mail indicated that this issue would be “probably” be resolved later in the day, in a later e-mail they sent out on October 11th, they indicated that their funds on Binance were still blocked, and in addition to Binance, they were also blocked on Changelly as well too.

If you follow this reddit thread as well, it appears that their issues weren’t just limited to Binance or Changelly, for weeks ago, there were fraud alerts and account closures from both FTX and Kraken as well — two more top tier crypto exchanges.

$SAPP falls off a cliff

Just yesterday (October 11th), the price of $SAPP, which is Yield Nodes/Decenemy’s flagship token, dropped nearly by 85% in less than an hour:

The reason for this drop? If you sync up the times, I believe a contributing factors was based out of the sheer incompetency of one e-mail that was sent out literally 10 minutes before the drop occurred (more on this e-mail later). Call me a conspiracy theorist, but literally this e-mails comes out around 4:46PM UTC and then around 4:55 UTC, the price takes a complete nosedive.

Additional attacks: Now if we zoom out a bit on $SAPP’s token price, the writing may have been on the wall starting in September, as the price went from around $0.90 to roughly $0.39 in the span of just a couple of weeks:

The explanation for these price drops then were described briefly in one of  James Pelton's tweets:

I don’t know what the exact specifics about these “attacks” were, but my best guess is that someone with a large amount of liquidity was able to cause a massive price disruption through buy/sell pressure, thus causing a significant price impact on $SAPP’s price, similar to what happened to ignite Terra’s death spiral. When I first read James’ tweet, I didn’t dwell on it too much the time, but I didn’t understand how “they are working on taking legal action against the attackers,” unless these attacks involved illegal actions. I’m definitely no lawyer but I fail to understand how a whale attack is technically illegal, especially in a highly unregulated marketplace — if anything, I see this as a risk that all low-market cap coins are placed under. Regardless, the only official announcement that I could find about these attacks was in their October 11th e-mail that stated that there are “constant attacks on our coins.”

Looking at $SAPP’s total market cap, neither coinmarketcap nor coingecko have data past June 2022 (which may have been another red flag), but at $0.72 cents in early June, $SAPP had a total marketcap exceeding around $400 million, which means that at current token prices (assuming all other factors are the same), $SAPP may only have a current total market cap of around $60 million.

A Lot of Excuses that really don’t make that much sense (a.k.a., Urs should never write an official announcement again)

This is in reference to the October 11th e-mail, but you can also view a copy of this announcement on their main website as well. In this announcement, they site several reasons for why they had decided to take an extremely hard pivot towards their real-asset/NFT model for providing income, including:

1. Crypto winter
2. war in Ukraine
3. high inflation
4. high energy prices
5. weakness of the Euro
6. Blocking of exchanges

All of these factors might normally make sense, but given the fact that they were “audited” (or more accurately maybe provided a compliance attestation) just 3 months ago — it seems a bit disingenuous that all these factors are coming to a head now, especially since the total crypto-market cap hasn’t changed actually changed a whole lot since then:

Furthermore, many of these factors were occurring far before the “audits” occurred, most notably the war in Ukraine (which began in late February 2022) and cryptowinter, which probably hit the biggest low (so far at least) in May with the crash of Terra. From this e-mail alone, my BS-radar (as I imagine many other people’s) was ringing at full volume.

With all this being said, I think the best actual explanation that made the most sense to me was given by CEO Stefan Hoermann in his latest video where he explains that all market action on all decenemy tokens came grinding at a halt — meaning that there was no way to offload liquidity, no matter what the tokens were priced at. If there’s no liquidity to offload, then there’s no way back investors. This dilemma makes sense to me, but I think that it would have been helpful to know that this could have been a pain point for failure earlier so at the very least, potential investors could have somewhat of a better understanding of what they were getting themselves into prior to dumping their money in. Prior to this explanation, the only other major point that was given was that $BTC had to go down to $8000 dollars.

In my opinion, Urs’ e-mail was poorly written and simply left investors such as myself asking a ton more questions and worse yet, feeling as if we simply had no choice. And to my knowledge, it was the first time that the term “Yield Nodes Pro” was introduced, and it was also the first time there was any mention of utilizing subscription-based NFTs — two things that from a first impression standpoint I don’t think rubbed a lot of people the right way. If Yield Nodes Pro can truly be profitable, I think it would have made sense to share a lot more of this information a LOT earlier — or really any earlier than the day you’re shutting off withdrawals. I get it, sometimes there’s really just no way to bear bad news, but honestly a lot of this could have come out a lot cleaner and a lot less abrupt.

Clarifying some of the questions

Going back to the CEO’s most recent video, there were some key points that I took away that did provide some clarifications:

1. Withdrawals (and deposits) were to be put on an indefinite hold until they were able to sort out more of Yield Nodes Pro. That being said, when the dust settles it sounds like they may consider the possibility for people to access marked-up emergency withdrawals.
2. The hard pivot towards Yield Nodes Pro had to be done because they were only 10% liquid to be able to pay back investors, and although the Yield Nodes Pro model will take significantly longer, it’s the plan they have in place to make customers whole.
3. If the market recovers, they could turn the faucets back on and reintegrate their Masternoding model again to generate revenue. They’ve even offered to doxx their $SAPP addresses to show that they aren’t trying to rug customers.

My take: Whether you believe what Stefan Hoermann says during the video, I appreciated that they walked through the steps of what happened, and why the pivot had to be made. Emotions have run high and a great deal has happened over the past 48-hours, and had they not put out this video, I imagine that the negative sentiments would have simply grown that much more.

Conclusion/My concerns going forward:

The Decenemy/Yield Nodes team has a large uphill battle to win over the hearts and minds of their investors. With all the scams and rug pulls that have been experienced by so many retail investors this past year, it makes sense why there’s so much vitriolic sentiment in the community, especially when there’s not a lot of clear communication. I truly hope that Yield Nodes Pro is viable and that’s a path to make people whole. That being said, I do have a few big concerns, those being:

1. I don’t know any real world assets that appreciate that quickly, especially in the middle of a bear market. I know their projections go all the way into 2024, but my worry is that this could take much longer than that.
2. Between now and then, if they don’t recover community trust, they’re probably going to go through a liquidity crunch once they turn back on withdrawal capabilities. This means that they will have to structure things in a way that lets the liquidity bleed out slowly, resulting in an even longer period of time for people to be made whole.
3. Given what we’ve seen with the legal fallout that’s currently going on with Celsius, I’ve already seen dozens of people making legal threats against Yield Nodes, and I’m wondering what legal hurdles Yield Nodes will have to go through and how this might significantly delay the process. Celsius froze their withdrawals nearly 4 months ago, and if anything, things simply just seem to have gotten worse.
4. I’m not sure of how much AUM they had, but I’m also worried about what bigger impact this is going to have on the overall crypto-market and what the fallout will be. Could this be a catalyst for another crypto-market dip? Will this spurn regulators to turn the screws tighter?

Given what I’ve read and seen so far, it doesn’t appear that Yield Nodes is a ponzi or scam, but instead it’s a failed project model that did so with little warning. Does the fact that it may not have been a ponzi or scam make me feel any better? No, but this does mean that there is still some hope that funds may be recovered, albeit after a potential lengthy period of time. For everyone’s sake (including mine), I hope that the Yield Nodes team keeps all of this in mind, and remains motivated to make its supporters whole. In the mean time, I guess we can only wait to see what develops.

Thanks for reading, and as always, please be sure to follow me on twitter to read all about my latest findings and updates: https://twitter.com/CryptosWith

Disclaimer: None of this information is financial advice, and is just speculation from me, a random guy on the internet. Please consider this for purely educational and entertainment purposes. As always, please do your own research or contact a financial advisor to find what investments might be best for you.