Onchain Summer was interesting.

Body:  I saw this term, and I got very confused.  Usually when one turns to thoughts of Summer-activities, one thinks of hot bikes, hot beaches, hot swimsuits and cold beers.  “Onchain Summer” made me immediately think of Middle School when I failed my only class (Home Economics, and that might explain the current state of my 1-bedroom apartment.)   My parents made me read a book called something like, “Becoming an A+ student.”, or something like that.   At the end, I had to write a short paper too.

Not fun.   But, this “onchain summer” is actually a celebration of Coinbase’s new network, and many of their personnel are probably celebrating with ice-cold Cokes.  (More on that later.)  This new network is called Base, and it opened on August 9^th.  So, let’s see what festivities are planned to help market, er, um, celebrate.

So, what is Onchain Summer?

Through the extent of August, Coinbase will partner with popular brands like Coke to sponsor the minting of NFTs on their new network, and offerings of Ethereum to developers to encourage them to develop new applications. (D’apps, the cool kids say.)  For the “cool” kids like these, there will also be a hackathon with substantial cash awards given.  Said one company official, “We wanted to give people a reason to be on-chain this summer and set up their first wallet and experience this future,”

For its part, Coke is partnering to introduce its own collection of NFTs.  At the same time, NFTs based upon many well-known works like, “Girl with a Pearl Earing” and others will be available for sale.

OK, so, where’s the downside?

Interestingly, as I keep reading, many of the DeFi talking points are repeated; “democratizing finance”, “bringing wealth-building tools to the normal people” that kind of thing.   Certainly, this might happen, but I had to laugh when I read that the token rolled out just this month, already suffered from its first exploit.  In fact, one company official lamented this weakness, when he said, “One thing Onchain Summer is exposing is just how broken our UX is in the main Coinbase app for NFTs, Dapps, and L2s today. Sorry to say, but true.”  (BTW, “UX” is the term for “user experience” and it refers to how easy the product is to use.)  Later, the same company official responded that using the app with devices like phones introduced a difficulty of use that was beyond his prediction.  Given that many use their phones to trade cryptocurrencies, this seems to me to be a big problem.

The Verdict

The onchain summer might not be too bad, certainly not like when I was in Middle School.  But, just like a trip to a tropical beach, some precautions might be in order.  Just as you might bring suntan lotion, it seems reasonable to bring a limited amount of your investable assets to this party.  The reasons are similar too; You don’t want to be too exposed.   Perhaps, if you do bring a cooler full of “potent potables” to a beach, you might limit yourself to 1-2, and here, you might want to “reward” yourself with a purchase or 2.  Be sure to pack sunglasses too, you do not want to be blinded by shiny objects.

REFERENCES

Coca-Cola and Friends with Benefits to Celebrate Base Network’s ‘Onchain Summer’ (coindesk.com)

Base Mainnet Launches, Paving the Way for Onchain Summer Era – Crypto Briefing

Coca-Cola Unveils its “Masterpiece” NFT Collection | Entrepreneur

Coinbase CEO Admits There Are Problems With Broken UX (cryptopotato.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Slippage is Not the Experience level of a Politician.

Headline:  What is “slippage” with respect to cryptocurrency?

Body:  I keep running into a word in cryptocurrency research that is giving me some pause.   I speak of “slippage.”  In layperson terms, this is the difference between expected price, and the price that the transaction is actually executed at.  Let’s take an easy example.   You see a stock you want to purchase on an investing app, and it closed at $5 per share, and you told them to get you the best price at the market.  When all is said and done, you might be paying $5.50 per share, and you might be paying $4.50 per share.  Regardless of direction, the difference is called slippage.  Usually, it is not a big deal.

Unless you’re talking about cryptocurrency.  Stocks do bounce around a bit, but usually, the delta from the expected is fairly low.  Moving to cryptocurrency, however, the price at which you accrue ownership of cryptocurrency can change massively, without notice, and the timescale can be quite abbreviated.   So, let’s talk about slippage.

What is slippage?

Slippage is the difference between the expected and executed prices of a transaction.   Note, this can be either in favor of or at the expense of the buyer.  The delta (not direction)  is important here.     The reasonably inquisitive sort would ask the next question, namely, what causes slippage to be extreme?    There are 3 main causes, high volatility,  low liquidity and  smart contracts that account for taxes..    And guess what?   Cryptocurrency often falls victim to BOTH!!  By now, nearly everybody is used to seeing BTC change by hundreds of dollars or more per day, so price volatility is high.  Now, BTC and Ethereum often have ready markets, but what if you are trying to invest in something like Dogecoin?  You might have some difficulty finding a counter-party to take the other side of that trade, and this timing difference could cause substantial slippage.

What can I do to manage slippage?

There are a few things you can do:

1.  Keep your trading only for cryptocurrencies that always have a ready market, like BTC or Ethereum (there are a few more that are OK, just these occurred to me off-hand.)
2. Instead of using a market order, use a limit order.   If you use a “market” order, the exchange will find you the most advantageous price for the currency, but this could still be a distance away from the price you were expecting.   With a “limit” order, you can prescribe what price you will accept.   The downside is that you might not complete your entire transaction, especially if trading volume is lite.
3. If trading on a decentralized exchange (especially DEX), you can prescribe the amount of slippage you will accept.
4. Which exchange you use will certainly affect your profit or loss your amount of slippage as, some currencies are actively traded on some exchanges, and some are not.   Buyer Beware.
5. Break down trades into smaller pieces.   Let’s say you need to sell 1,000 Monera.   It might be in your best interest to sell in 4 batches, 250 coins at a time.

The Verdict

This boils down to uncertainty.  Until your trade executes (fully or partially at the deadline) you are not going to be assured of the price.   It could be less (Yeah) or it could be more (BOO!) than you expect.  This is true of a normal stock transaction too (say you make a ‘trade” at night the execution will be the next day.)  The point is that you need to leave a margin of safety in your liquid assets in case the slippage is against you.  If this is likely to cause sleepless nights, you might want to shy away from cryptocurrency.  On the other hand, if you’re only investing what you can truly stand to lose, the prospect of a quick, unexpected win could be exhilarating.  Buyer Beware has never been this true.

REFERENCES

https://www.binance.com/en/support/faq/what-is-slippage-01f6dd67d54e4dca902914700818e739

https://finance.yahoo.com/news/crypto-traders-might-want-track-074758614.html

https://www.coingecko.com/learn/slippage-crypto

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.