REPORT: Should investors be investing in cryptos with anonymous teams?

Cryptocurrencies are a new breed of startup. In the old world order, startup founders didn’t think twice about putting their names on their companies in flashing lights. In fact, whether they wanted to or not, they had no option. From a legal point of view, most jurisdictions require a named director, and investors would run a mile if a founder decided to hide behind a trustee or some other complex structure. It is what it is, is the tech founder’s mantra. But that has all changed with the crypto revolution.

It all started with Bitcoin and the anonymous founder Satoshi Nakamoto. Although the majority of the top cryptocurrencies have named and fully documented teams with the exception of Bitcoin, most of the new projects coming to the market over the last few months are anonymous, including the vast majority of founders behind the thousands of memecoins and yield farming projects.

The question is, as an investor, should we be investing in projects with anonymous teams?

What are the reasons that projects cite for not revealing themselves? And are these reasons valid or just an excuse to either scam investors or receive a get out of jail free card in case the project fails to enable the entrepreneur to walk away with an unblemished track record having burnt through investors hard-earned cash, something our tech startup brethren could only dream about.

So let’s start by putting forward the arguments for crypto projects teams remaining anonymous and, in particular, the founder.

There are, in fact, five common reasons founders have for remaining under a bushel.

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Staying safe

Developers often complain about death threats and abuse on social media. Others complain that they have been targeted by investors in lawsuits, including class actions.

Social engineering attacks

People working in crypto can be seen as targets for hackers, and social engineering is often one of the most viable ways to gain access to someone’s computer or accounts. These types of attacks can be quite effective and can happen to the most experienced and tech-savvy people.

Regulation and law enforcement

This is probably the most popular reason for remaining anonymous, although it is not a reason often readily volunteered. While projects usually attempt to stay within the confines of the law, it can be tricky to do so, especially in an environment where there is very little regulatory guidance meaning new regulation or action by regulators can have a devastating impact on the project and the individuals involved.

There are many examples of this, probably one of the most well-known being Ripple’s XRP. Ripple was hit with a lawsuit from the Securities and Exchange Commission (SEC), which has caused many exchanges like Binance US, Coinbase, and others to delist the token. The lawsuit threatens not only the project and its thousands of token holders but also the founders who stand to lose everything.

DeFi is generally thought to operate in a grey area where there is no defined regulation. However, it all comes down to interpretation, and if more clearly defined legal and or regulatory hurdles are implemented, anonymity may be the only way to safeguard both the platforms and the people behind them.

Personality scams

Some of the most common scams involve convincing unsuspecting investors to hand over their hard-earned coins by posing as the founder of a certain project or company or a well-known figure in the space. For example, in July 2020, there was a massive Twitter hack affecting high-profile accounts like Elon Musk, Jeff Bezos, Warren Buffet, Coinbase, and Binance. Keeping a low profile can be a way to keep the project’s community safe from these types of attacks.

Free speech

Individuals tend to express their thoughts on the internet, whether they are political or otherwise. Controversial opinions, statements, or actions by the leader of a project can have a negative impact on the project itself.

For example, Tesla stock prices went down after the well-known Joe Rogan podcast episode where Elon Musk smoked cannabis with Joe Rogan. The same thing happened when he tweeted about the price of Tesla stock being “too high.”

Anonymity may be a way to exert one’s right to free speech in his or her personal life without fearing any negative impact on their work.

Now let’s take a look at whether any of these reasons are valid or if anonymity is just an excuse to make a fast buck without the downside of reputational damage.

Examining each of these reasons, we can dismiss most of them as poor, if not pathetic excuses. All startup founders have to deal with abuse, that is part of the job. The free speech argument is also a weak one. We would all love to say what we want and feel and not get the backlash, but life doesn’t work like that. If you are a staunch Trump supporter and you make this clear through various posts, you are bound to alienate the libertarian element in your community. So the answer is to leave politics out of business like most sensible startup founders or corporate leaders. As far as being a target for a hacker and personality scams, give me a fucking break! We are all targets. The only reasonable reason is regulation and law enforcement.

Let’s take the founder of a launchpad as an example. He may well have built a decentralized site, but the reality is being the founder puts a big round target on his back. Launchpads are among a few areas that are bound to be targeted by regulators. They are, in basic terms arranging the sale of securities, and if they are also targeting US citizens and other high-risk countries, it is only a matter of time before the regulators come knocking. Being anonymous makes these platforms harder to attack.

Many DeFI platforms claim to be decentralized, but the founding group still maintains control by holding the majority of the governance tokens. If their names are public, this provides the authorities a target, and that will be the Government’s least path of resistance to either shut down or demand compliance, including imposing any fines on the founders.

Whilst it is understandable that founders who operate in the grey choose to be anonymous, it isn’t very comforting to the investors in these platforms. The high probability of being hit by a lawsuit makes many of these platforms high-risk investment propositions. As the US government, including the SEC, debates regulation of crypto, the next few years are going to see some tangible changes to operations, reporting, and know your client requirements. That is going to be a challenge for many in the DeFi sector to handle. Choosing the anonymous route is understandable, but it is a bit like hiding up a tree, hoping the problem will go away. That isn’t usually the best approach. If founders are serious about building a sustainable business, then they must stand and be counted.

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The recent phenomenon of anonymity

The majority of the thousands of new platforms built on Binance Smart Chain, which have consisted mainly of memecoins and, more recently, yield farming platforms, have chosen to take the anonymous route.

As far as memecoins are concerned, we can see no reason why a founder would decide to remain anonymous apart from the fact that they don’t take their new venture seriously and don’t wish to be publicly associated with it, which is understandable considering the total crap that is out there right now. Farming platforms are a slightly different matter. Founders can use the excuse that they don’t wish to be targeted by regulators with yield farming, an area that is likely to be under the spotlight shortly. However, anonymity is being used as an excuse to scam investors.

Of course, not all anonymous DeFi platforms are out to scam investors. Take PancakeSwap, for instance. A leading decentralized exchange on Binance Smart Chain with $5 billion in TVL and an anonymous team. In reality, this has made little difference to its success. Although the platform claims to be decentralized, there are many aspects of its platform that are centralized around the developers, including choosing which cryptocurrencies to add to its platform. However, many commentators believe that if the code is open source, then that is all that matters. That isn’t all that matters. By hiding the identity of the founders, we as investors are being asked to trust them not to run off with the money or change the rules of the game. That is a big ask in a trustless economy.

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Investor considerations

It must be remembered that the most successful cryptocurrency of them all was founded on anonymity.

He or she believed that they would be a target of law enforcement the same way e-Gold and Liberty Dollar were. Satoshi’s anonymity protected Bitcoin from law enforcement action and arguably made Bitcoin the success it is today.

So should an investor invest in a project with anonymous founders? The answer has to be yes and no.

We believe everyone should start from the position of being highly skeptical. Each case has to be viewed separately. The platforms that have been around for some time and have built a track record and where the founders exert limited control are a safer bet than the ones which have just launched or where there is a large element of central control. Ask yourself why is the team anonymous? If the answer is because of potential regulatory action further down the line, you have to consider whether this risk is one worth taking. If there is no apparent reason, then we would suggest these projects should be avoided.

If a founder is not willing to put his balls on the line, then why should you be expected to put your money on the line. Ploughing your money into brand new yield farming platforms that were built for under $200 and where the founders are hiding behind anonymity should be a warning sign. Investors should expect founders to reveal themselves. The reality is, Satoshi Nakamoto wasn’t raising money when he launched Bitcoin. That is what makes him so special. He did it all by himself. It would, of course, be a different matter if an anonymous character with a Japanese synonym had attempted to raise $10 million to launch his new peer-to-peer electronic money platform. He would have raised precisely nothing!

No Financial Advice

This report does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment.