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Your Bear Market Survival Kit

As global markets go deeper into bear market territory, it’s more important than ever for DAO communities, founders and CFO’s to exercise assertiveness, re-assess business strategy and make any necessary difficult decisions quickly.

As global markets go deeper into bear market territory, it’s more important than ever for DAO communities, founders and CFO’s to exercise assertiveness, re-assess business strategy and make any necessary difficult decisions quickly. Good, rational and quick decision making in this kind of market can be the difference between survival and failure.

The events of the last few weeks have exposed huge risks in the crypto system. Whilst events like Terra’s collapse and the insolvencies of Celsius and 3AC are headline news, we should be more concerned with the news we don’t know about. Unfortunately, due to the largely centralised nature of crypto businesses, it’s hard to assess how bad things are behind the hood. What we do know though, is that the majority of people are suffering, credit lines have tightened, VC’s are not investing and general appetite for risk has evaporated.

To make things harder, many tokens are now making new lows which will inevitably (if not already) create a negative flywheel to intended network effects for many crypto economies.

Why should this matter to you? You might feel hopeless as a founder, a DAO contributor or even apathetic because you’re not too involved with the day-to-day finances and treasury management of your organisation.

However, now is the time to show some leadership and make sure you’re set up to navigate this bear market effectively. Selling your tokens at low prices in a panic is unlikely to serve you or your community well. Rolling your sleeves up and demonstrating leadership within your organisation or community is likely to add much more value longer term to you and your stakeholders.

We don’t pretend to know it all. In 2018, Enzyme went into a bear market very poorly prepared and almost didn’t come out of it. But we did. Through that process we learned some very valuable lessons which we hope might inspire others during these difficult times.

1. Survival First. Secure a minimum 24 month Operational Runway

This is probably the most important item on the list. If you are in a position with less than 24 months of operational runway, come up with a plan to extend this as much as possible. This isn’t a time to be shy about cuts, as I said earlier this is the difference between survival and failure. Some ideas include:

  • Reviewing your budget and expenditure and cutting it radically where possible is a good place to start. It likely isn’t going to get you much in terms of runway though.
  • A bear market is a good opportunity to let go of any under-performers on your team. Bull markets make us hire faster than we probably should. The fast growth and huge workloads can make us lazy about tracking performance and firing fast whenever it’s not working out. Bull markets can also make us over-pay for people and services. A bear market is a good time to assess whether you’re getting the value you need from each and every member on your team so you can be prepared to make changes if not.
  • Requesting cash salary reductions in exchange for equity or token compensation. In 2019, I explained to the team that we had five months of runway left. The first Covid lockdown had just begun and markets were downwards spiralling. I knew we couldn’t raise enough money in that period with the burn rate we had. I showed the team that if we could cut our cost base by 60% we could get our runway to a year. That would give me enough time to pull together a very small funding round within that year which would get us to two years. I asked Avantgarde employees to volunteer cash costs where they could in exchange for equity. This move alone was met with almost unanimous support from the team. In one or two cases, it was met with resistance. Don’t indulge unreasonable behaviour in this kind of environment. The people who create the biggest stink are probably the people you should be parting ways with anyway.

Key takeaway: In hindsight, I should have reacted sooner. The bull market filled me with a false sense of confidence that a downward spiral could never happen to us. I was so distracted with building and a series of legal issues that I was too slow to see how this was going to impact us. Don’t wait until it’s too late, this should be a top priority. 2. Evaluate Your Counter-party and Exposure Risk

If you’re sitting there feeling relieved that you were not exposed to Terra, stETH, Celsius or 3AC, don’t be. You should be feeling paranoid about what you do have exposure to and what the hidden risks could be. If you haven’t done this already, this is a crucial time to think about reigning in risk management across the organisation.

  • What counter-party risk do you have? How levered are your counter-parties? Think across the whole spectrum of counter-parties; market-makers, custodians, exchanges, borrowers, treasury managers or products?
  • What business can you transfer on-chain to obtain greater transparency, analyse the risks you’re exposed to and assess real-time performance?
  • Where can you shift custodial solutions to non-custodial solutions so that you are in control of your assets at all times?
  • Are all your assets accounted for? Who in your organisation has control of assets that might be unaccounted for?

Key takeaway: This is not a time to pat yourself on the back because you’ve dodged a bullet. Make sure you fully understand your risks and reign them in where possible and necessary. Be more paranoid about the risks that you can’t see than those you can. 3. Post-Clean Up Funding at a Bargain

Hopefully by executing steps 1 & 2 you’ve now bought yourself some time and massively reduced any risk exposure you might have had. But you might still not be up to the desired target of 24 months’ runway. However, now that you’re operating with a much leaner burn rate, you can raise a much smaller round of funding than you would have had to previously.

Earlier I said that VC’s were not investing. That is not strictly true. Most VC’s are not investing. However, there are still a handful that are well positioned for this market move and are actively searching for bargains. Finding those investors and creating an opportunity that is attractive enough for them to bite will require some work, but you now have the time and space to do that.

Note that in order to entice them to invest, you’re going to have to offer very attractive terms which may be heavily dilutive to your shareholders. Fortunately, the work you’ve done in steps 1 and 2 means you don’t need to raise as much money to survive. Instead, this round should only be about raising what you absolutely need to build in that 24 month operational runway. No more, no less.

The advantage of securing 24 months of runway is that you can now go back to your team and reassure them that the tough decisions have been made and there is at least two years of job security for them. This will build their trust in you as a leader and enable them to focus on their work instead of worrying about whether they’ll still have a job tomorrow.

Key Takeaway: Now that you have cleaned up your cost base, the amount of funding you need to secure (if any) to reach a 24-month runway will have dramatically reduced. Slash your valuation and raise only what you must to reach your target to minimise dilution impact. Reassure your team that their future is now stable and secure. 4. Consider Leveraging Your Token Sensibly

Assuming your treasury is mostly in your native token and the value of those assets is diminishing day by day, consider exploring how you can use this market volatility to your advantage. Does it make sense to leverage volatility opportunistically to generate yield on your token? Can you use your token as collateral to secure a loan of sorts? Can you issue a convertible which gives investors interesting optionality and provides you with a short term bridge loan that might solve a short term problem?

In July 2019, Enzyme’s $MLN token price reached an ATL of $2.8, making Enzyme’s entire market cap $2m. Our network effects were close to dead. Projects building on Enzyme were forced to sell the token to fund themselves, creating a negative flywheel effect. New community members were deterred from coming in because the incentive wasn’t there. There were a brave few who continued to build during that time and look past the value of the token. These people were largely paid below their market rates in dollar terms.

If you had earned 1,000 MLN in July 2019, it would have been worth $2,800 at the time. If you had held on to that, it would have been worth $13,900 exactly one year later and $84,000 two years later. The point is that whilst it feels hard to motivate people when token prices are low, these stories should serve as a constant reminder that these moments can act as powerful opportunities for those bold enough to take them.

Key Takeaway: Instead of worrying that your token is dead, consider all the different ways you can position it as a valuable tool or opportunity in this market environment. 5. Stay Focused on the Opportunities

It’s hard to see opportunities when you are busy putting out fires left, right and centre. But be aware that they exist. If you’re too busy to be on the lookout for them yourself, engage your team members, community, investors and friends to be on the lookout for you and make you aware of anything that could be strategically interesting. A few ideas for inspiration include:

  • Strategic M&A. Are there other players, peers or projects where it makes strategic sense to join forces or acquire? Are there clear benefits to doing so for both parties and can they be clearly articulated?
  • Reassess your hiring goals. You’ve cut your cost base a lot now and maybe even raised some money. Talent will be much more widely available now than it ever has been and likely much cheaper too. Are there exceptional hiring opportunities that make sense?
  • Even in bear markets, some things still do well. Remember the Covid lockdown? Or Brexit? Both events were wildly bearish for many things but didn’t they also create opportunities? Virtual platforms like Zoom and Google Hangouts were raging. Local tourism in Britain sky-rocketed. What opportunities are emerging as a result of this particular situation that your business might be able to take advantage of?
  • Treasury planning. I say this very cautiously because I do not want to encourage taking risk with your operational capital. Assuming you have accumulated enough though, there might be some financial opportunities that arise in extreme situations which are worth exploring. If you had bought ETH at $100 in the bear market and held it until ATH you would have 50x’d your capital. These sorts of investments should be thought through very carefully and likely with some outside council if you don’t have dedicated experts in house.

Key Takeaway: No situation is all bad. Opportunities will arise and the key is making sure you see them and have the capacity to act on them. Engage people around you to help you see them. You are likely going to be too busy restructuring and putting out fires to identify them all on your own. 6. Build, Build, Build

This one hopefully comes as no surprise but the best building is done in bear markets and I can say this from first hand experience. People are more focused, less distracted (especially if they have job security) and probably a lot more grounded. Instead of building based on the past, build for the future. What is the market going to look like when we come out the other side of this? Are you building the right products and services for that market? How will you be positioned and ready to capitalise on growth by the time the next bull market comes around?

Key takeaway: This is the best time to build. Make sure you have a clear idea what future you’re building for and position yourself for the next up-turn with the right products and services. 7. Free Resource by Outsourcing & Partnering

Figure out if and where it makes sense to do things in house and whether it might be best to outsource or partner on certain projects. Here are a couple of very simple examples (admittedly these are biased but they are the most obvious examples because they are so close to my own domain).

Example 1: My business builds AMM strategies on-chain that minimise impermanent loss

Project X is building cutting edge decentralised AMM strategies on-chain. They write their own smart-contracts, strategies and monetize them by charging a performance fee. Their biggest challenge right now is rolling out strategies fast enough because their developers are so focused on building and maintaining the underlying contracts that underpin these strategies.

Possible outsource & partner: Research other plug + play asset management protocols that you can plug and play into (such as Enzyme). These might incur some variable fees but at least these fees will be linked directly to your success and not put a huge sink into the burn rate and core focus of your team. If you are new and starting out, another advantage of using a platform like Enzyme is that it has been on-chain for 3.5 years, is much more battle tested and the ecosystem is eager and aligned to partner with projects building on top of it.

Example 2: I manage my company’s own treasury. It’s very time consuming and draining.

Staying on top of financial risks and opportunities is hard enough in a bull market, but with all these risks and rumours circulating at present it has become close to impossible. You wish you could delegate day-to-day management to some external party whilst still retaining full transparency, custodial control and the ability to restrict what a third-party can and can’t do.

Possible outsource: Well, you can! Treasury management has become one of our fastest growing businesses in the last few months. We can give you full transparency, custodial control and build in smart-contract enforced risk management policies by plugging into the Enzyme platform. Furthermore, Avantgarde Finance can work with your management team to devise a plan that suits your needs and execute on it within these parameters. This can involve advisory, planning, helping you secure loans and putting any unused treasury to work in very safe and secure strategies designed just for you and ring-fenced from any other investors.

Key Takeaway: Time is the scarcest asset we have, and we’re likely to have much less of it in a bear market due to additional workload. Think about whether your business can leverage partnerships or outsource needs to free up resources to work on core products. 8. Engage with Your Community and Stakeholders

Communication is key, more so in bear markets. It might feel that you’re speaking to an empty room or that you’re getting abused because of a low token price that you can’t control, but don’t let that deter you. Send regular updates, communicate what you’re working on and explain how you’re coping with the crisis. Detail where you need help and what stakeholders can do to support you.

One thing that really stood out to me in the last couple of bear markets was how interest in the product dropped off a cliff with token price. Our telegram chat went from hundreds of messages a day to sometimes no messages in a day or two. We received abusive emails and messages from anonymous people blaming us for the market behaviour. Some people even threatened us. This felt wildly unfair given the sacrifices the team was making to keep the project alive in one of the most difficult times.

However, remember that your community is not defined by these people. And also remember that almost everyone is probably having a tough time. Don’t take it personally and keep a high level of professionalism. Things will turn and when they do turn, people will remember that you kept a calm, level-head during a time of crisis and kept them informed transparently the whole time. This will be greatly appreciated.

Key Takeaway: This is not the time to stop communicating. Now is the time to communicate more than ever on how you’re addressing this crisis. When you do speak to your community, don’t forget to show a high level of professionalism and empathy — this is what people will remember you for. 9. Reach Out For Help where you Need It

If you don’t ask, you don’t get. Who around you can provide advice that you desperately need? What kind of advice or help can you crowdsource? You’ll be surprised how many people are willing to lend a helpful hand. Don’t be too proud or ashamed to ask for help. Leverage your network of investors, token holders, community members, peers and friends in times like this to get perspective, bring in expertise and seek the right counsel.

Key Takeaway: Don’t be afraid to ask for help. 10. Look After Yourself

Last but not least, look after yourself. Navigating a bear market can take its toll on your sleep, mental health, anxiety levels and overall physical health. There’s nothing more important than that ultimately. Don’t forget to make time for yourself, even if it’s just 15 minutes a day. It’s more important now than ever.

Only you are best positioned to know what strategies work best for you, so I’m not going to give you a long list of steps to take. For some it could be going for a walk, for others it could be meditating or doing some yoga. For me, it’s practising my breathing exercises.

Key takeaway: Good health and a strong mental state are key to making rational decisions in this market. Make sure you find your own balance in a way that works for you.

Note: If your organisation is struggling during this time and you feel you need a helping hand to navigate these times, feel free to reach out to me personally. My DM’s are open and I’m happy to act as a sounding board.

At Avantgarde Finance, our team has extensive hands-on experience in DeFi with particular expertise in decentralised asset management systems which stems from our engineering contributions to Enzyme over the years. Some areas we’re passionate about in our work are;

  • Giving tooling to enable on-chain transparency to stakeholders
  • Designing and iterating on decentralised governance systems which consider and align all stakeholders
  • Protecting vulnerable participants through risk management policies enforced at a smart-contract level via Enzyme protocol
  • Keeping users in control of their assets at all times by giving them control over major upgrades and giving them cool-down periods to opt-out before any changes to parameters are imposed
  • Non-custodial investing and delegation with possibilities for 24/7 redemption always available

Our team members have been core contributors to Enzyme (formerly Melon) since 2016, which successfully became the first DeFi protocol in history to fully decentralise its governance. In 2018/19, we navigated a rough bear market which taught us a lot.

Avantgarde Finance was born in 2019 and is an active member of the Enzyme DAO amongst others. One of the areas that we’re most focused on today is DAO treasury advisory and management.

Originally published at on June 27, 2022.