Investigating the $LODI Crash

CRYPTODAY 098

1. On Tuesday Sept 20th at 10am Manila time, a small project called Lodicoin began trading publicly on PancakeSwap, the most popular decentralized exchange on Binance Smart Chain. Within just 20 minutes, the price was in a 95% freefall. As of this writing, $LODI is hovering at 1 centavo per 11 $LODI, representing an unrealized loss of over 80% for pre-sale investors who bought at 1 centavo per 2 $LODI. It’s one of those dark moments in Filipino crypto history that is worth a closer look, and I spent a few days going through the social media reporting, Discord chats, and blockchain records to get a better sense of what actually happened.

2. Is $LODI a ponzi scheme/scam/rugpull? When I first saw the news about the price dump, my primary question was whether this was more like Forsage (a new-age pyramid scheme re-engineered for the Ethereum blockchain, back in 2020), or Surf Shark Society (an NFT project rug-pulled by a rogue insider, earlier this year). But as I looked closer, it seemed that it wasn’t a scam at all. It seemed way more likely that it was just a garden-variety, low-quality project, founded by crypto newbies (Jason Lent, Choy Calunsod) and shilled by local promoters (Rob Moya, “BuDaKhel,” etc) who didn’t know any better.

3. Check out the Lodicoins website and the original LODI whitepaper here. Both have all the usual hallmarks of a poorly produced crypto project: the writing is full of jargon-of-the-moment (they call themselves a “play-to-earn” platform even though there’s no apparent gaming mechanism), derivative ideas (NFT marketplace with creator royalties? what a novel concept!), and circular definitions ("The use of Lodicoin for transactions will increase its utility”). It indicates support from Manny Pacquiao, but links to a Discord community with less than 300 members. Importantly, it features a roadmap that is about a year behind schedule, as their original target for listing on PancakeSwap was November 2021.

4. For the disinterested, it would be easy to dismiss all of this as just another scam. My heart goes out to anyone who lost money on this project, and this is one of those moments when I feel queasy about the unregulated freedom that crypto allows for. I need to point out though that just because you lost money on an investment, does not automatically make it a scam. A scam is a project that is intentionally created to steal its investors’ funds, and it’s the intent that matters here. I don’t believe the Lodi team intended to steal their investors’ money. However, through their negligence, they massively devalued their investors’ positions, and destroyed the credibility they had spent the last year building in under 20 minutes.

5. How much did Lodicoins raise during its (extended) pre-sale? There are some estimates within the community that pegs their total raise at somewhere between 70 to 100 million pesos. The primary basis for these estimates are token distributions, beginning as far back as 13 months ago, and an established pre-sale price of half a centavo per $LODI. I don’t agree with this estimate. We did indeed see tokens being transferred from the original contract, but that doesn’t mean these were sold to investors. Why? Because young projects frequently use their own tokens to pay mentors, advisors, developers, supporters, or staff. To complicate things further, founders always want to make their projects seem bigger than they actually are, since that’s how you get more investors to participate. In other words, even if people were mistakenly concluding that Lodicoins had already raised over a million dollars, the founders probably wouldn’t bother to correct them. So, do I believe that an unproven team with no tangible product raised $1.5M during the worst bear market the crypto industry has ever seen? No, not really. (And if they claim that they did, I’d like to see the receipts.)

6. Why did the price drop so quickly? According to social media posts, the founders originally announced that they were going to debut on PancakeSwap at 11am on Sept 20th. This was a long-awaited event for the LODI community, as it gave them an opportunity to dump their pre-sale tokens on a larger public marketplace. Without telling anyone, the founders decided to get the process started one hour earlier, to give themselves time to test it out. The team added LODI tokens to the LODI/USDT liquidity pool to kick things off, and soon after, $15,000 worth of BUSD was added as well. (The founders claim they work with multiple liquidity partners but declined to name who this particular tranche of BUSD came from.) All we can see from the blockchain record was that the address had been newly created, and the funds originated from a Binance user’s account before 8am that morning. We can also deduce that it was intended to peg $LODI to an opening market price of 5 centavos per token ($15,000 BUSD against 15M $LODI in the blockchain tx). Of course, due to the pent-up sell pressure, that price target was instantly vaporized.

7. Who was on the sell side? Although there were accusations of “insider trading,” I believe it could literally have been anyone. With hundreds of salivating token-holders waiting in the wings, it seems likely that at least a few of them would know how to look up a token contract address on BSCScan, and would understand what it meant when an “Add Liquidity” flag was indicated on a particular transaction. With no organic buy demand (since interested buyers didn’t even know the public launch had already happened), the price dump was inevitable. The news of the crash traveled across the Philippine crypto community like COVID at a super-spreader, and was discussed at length at Bitpinas, PH Metaverse, YGG Alerts, Web3 PH, etc.

8. So what’s the bottom line? Although I’m unconvinced that Lodicoins is a “real” scam, and I think that the data is inconclusive that there was any insider trading, I can say one thing: $LODI is not a good buy. In a now viral video, the CEO Jason Lent talked about how he felt that many Filipinos were “ignorant,” because they still sold their tokens even when repeatedly asked not to sell. Firstly, it’s never a good idea to talk about your primary community that way, regardless of how angry or frustrated you are. To flip the perspective, if only ignorant investors have placed their money on a startup, what does that say about the startup? (Side note: in terms of legendary crypto trashtalk, Lent’s rant was pretty tame compared to say Roger Ver, Jihan Wu, or Do Kwon. This industry has seen some truly outrageous blowups.)

9. More importantly, instructing your investors to hodl is not a viable tactic unless you’re Bitcoin, and it’s precisely the reason why time-locked vesting agreements were invented. If you don’t want your investors to sell off their tokens, you put a lock on the tokens and unlock them slowly over an agreed period of time, usually 1 to 2 years. The lock period is there to give the team enough breathing room to actually build their product without having to worry about their token price.

10. Now, it’s totally possible that there actually were locking mechanisms in place, but because Lodicoins was delayed by a year, all of the holders had already fully vested, i.e., had 100% of their tokens already released to them. If that’s the case, then all I can really do is extend my condolences. What actually happened on the 20th of Sept was that we violently established a fair market value for the $LODI token. Unfortunately, it wasn’t even worth a tenth of a centavo.

    * If you’re a $LODI investor or are more familiar with the events I described above, I’d be interested to talk to you. Please reach out in the comments or DM me privately if you wish to remain anonymous.
    
    Thanks everyone for reading! See you all next week.