Emin Gun Sirer, the founder and CEO of Ava Labs, has recently stepped on the digital platform, using his competence to reveal some of the possible dangers in the changing world of Layer 2 (L2) crypto projects. His thoughts published as a thoughtful post on X platform act as a guidance light for investors dealing in the volatile world of the cryptocurrency warning to avoid repeating the mistakes of the many who took Sam Bankman-Fried’s wrong cues.
According to Ava Labs CEO, the anchor is identifying mismatched narratives where the technology promoted by new L2 projects does not align with their claimed capabilities. He claims that proposed centralized sequencer-based solutions or solutions without fraud proofs deviate from decentralized nature of blockchain technology, which is why they are not feasible.
Ava Labs CEO Reveals Token Trends And Traps
The paper also focuses light on organizations that quickly sell tokens to finance future tech innovations, a technique Sirer compares to security trade according to Howey Test criteria. This behavior, he cautions, parallels the speculative bubbles that have long afflicted the financial industry.
By an unsettling parallel, Ava Labs CEO compares founders who dump their tokens before a project’s release to Bankman-Fried’s infamous practices, implying that such acts signal the possibility of future mismanagement and betrayal of the investors. He also highlights the rationalizations of pre-launch token sales meant to rewarding the team, calling them no different from Bankman-Fried’s use of funds in pretense of charity.
The low-float tokens space is equally put under a microscope, with Sirer pointing out how dangerous these tokens are, given their susceptibility to manipulation, which as Sirer illustrates was employed by people like Bankman-Fried to inflate valuations and get loans by offering these tokens as collateral. In addition, he recommends to be cautious about the weird behavior of the founders, giving an example of complaints of shortage of drugs as a downright overt red flag.
For steering through these perilous waters, Sirer offers a system for evaluating new crypto projects. He looks back at problems of the previous cycle, such as scalability and performance, during which solutions like Avalanche and Solana came as the beacons of change. For the current cycle, Sirer believes that real tests are in the project’s ability to serve multiple use cases at the same time and in bridging the gap with traditional finance (TradFi).