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    DarkForest

    Human
    DarkForest
    DarkForest
    @DarkForestCap

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    📅RegisteredFeb 14, 2024
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    DarkForest
    DarkForest
    •over 1 year ago•
    $CLOUD

    Sanctum's $CLOUD TGE

    FRAMING Currently looking for tokens that have strong fundamentals combined with a community-focused distribution. A successful example of this that exists today is BananaGun’s BANANA token. The upcoming token generation event (TGE) for Sanctum’s CLOUD is a chance to get into position for something similar, with the pre-sale vault opening on 16th July. A couple of aspects are coming together to make this launch interesting: 1. Team has bucked current trends in a number of ways, including the Wonderland farming event which was a great user experience and engaged the community via quests, without lasting too long. This is being followed up by an airdrop with allocation to earnest users rather than objective criteria (like capital supplied) which is the norm. 2. Public sale via a Meteora vault. Valuation will begin at $1m and max out at $180m FDV before going live on Jupiter. Combined with the airdrop to earnest users, the launch is poised to reward early, genuine community for their conviction. 3. Opportunity for growth in the liquid staking token (LST) sector on Solana. Sanctum has a chance to capture a growing share of a growing pie. With block rewards forming a larger part of validator earnings, individual LSTs offer a simple way to distribute this revenue to delegators. This is vital as validators compete against each other for stake, now that stake-weighted quality of service (SWQoS) is live. 4. More than that, they’ve built ‘Curve for LSTs’. Using the governance token to vet new partners and direct attention to their LSTs, CLOUD becomes integral to capital and attention allocation in the LST ecosystem. Crypto natives have been clamouring for this type of launch, though it remains to be seen if the same crowd will put their money where their mouth is. Recent launches like Blast and Friendtech certainly haven’t painted a pretty picture of tokens with a generous community allocation. OVERVIEW Sanctum is attempting to bring the proliferation of LSTs to Solana by making them easy to launch and deeply liquid. By taking away the hassle of bootstrapping liquidity, teams can focus on creating unique LSTs that return idiosyncratic yields to holders. This ranges from hold-to-earn options like bonkSOL, where users receive BONK airdrops, to the classic validator tokens like hSOL from the Helius validator. There is also an interesting reflexive flywheel that Sanctum can benefit from, created by two properties of Solana. Firstly, Solana doesn’t offer a native way to return block rewards to delegators. Secondly, the service a validator can offer in terms of landing transactions is improved by having a larger delegated stake (SWQoS). As priority fees and tips have increased drastically in 2024 and validators are competing to attract stake, Sanctum’s LSTs offer a simple way to distribute this revenue to delegators, giving an edge in the race to accrue staked SOL. Traditionally, Solana’s liquid staking ratio remained low as validators didn’t earn significantly from block rewards and had less incentive to grow liquid delegations. The changes discussed above should see more of them enter the LST arena to stay competitive. Aside from the core offering, Sanctum also launched ‘profiles’ which are designed to ‘empower users to build identity and reputation within our community’. Profiles act as a sybil protection mechanism as users link wallets with social accounts, but the team clearly sees it as a way to reward genuine users more accurately in future. TEAM The team is Singapore based, and the project was founded by FPLee back in 2021. Was 5 team members until recently, now at 7 full time. Outside of Sanctum, Lee is contributing to Pathfinders, an NFT project inspired by Studio Ghibli and also built on Solana. TOKEN Despite being pre-launch there are a number of interesting aspects to $CLOUD. From their blog: Will be used/important during season 2 of Wonderland. Future LST partners will need to stake CLOUD to be considered for the verified partner programme. CLOUD holders will then be able to vote using their tokens as to where rewards and user attention are directed (becomes CRV for Solana LSTs). Broadly used as a governance token outside of the above. While the long term plan hasn’t been announced the founder has been open to discussing revenue share in the Discord. FUNDAMENTALS Season 1 of Wonderland led to a 155% increase in TVL in SOL terms. TVL taken from DefiLlama currently sits at $815m. More interestingly, shown below in SOL terms, this has continued to grow even after the end of Wonderland Season 1 and is 5% higher than when the season ended on 6th June. Raised $6.1m back in 2021, led by Dragonfly. With only 7 team members, and the upcoming public sale aiming to raise $10m, the team should have plenty of runway given the $6m has lasted them 3 years already. If we look at LST market dominance, the growth of INF (blue) and the most popular Infinity based LST jupSOL (grey) is clear. This appears to have come at the expense of Marinade’s mSOL (green). Liquid staked Solana has roughly doubled since November at last year, and now stands at 6.7%. Of this amount, INF makes up 7% and all LSTs on the platform account for almost 22%. They have captured a growing share of a growing sector. COMPETITIVE LANDSCAPE Taking the limited info available and historical data since launch, we can make some assumptions and come out with a back-of-napkin estimate for fair FDV on Sanctum. Firstly, from the team in Discord, Sanctum currently charges fees on a few different protocol operations: Combining these numbers with protocol data, we get the following range for annualised fees: From there we can give a range of fully diluted valuations based on price/fee ratio: The token is trading at very rich multiples on Whales Market, which is to be expected on low volume and before token is actually live. Now let’s see how Sanctum would stack up against the competition if things stay as they are. If we take max price at TGE then CLOUD will trade at 138x revenue given today’s numbers. Clearly this is quite rich but they will only need to double revenue to bring that ratio in line with the competitor set. As the protocol market cap climbs, we can see that the project is priced more ‘realistically’ i.e it gets closer to the tradfi consensus of 20-25x p/e. These protocols earn revenue in different ways, so there isn’t a metric we can point to as an anchor for how to value them consistently. Data compiled from Defillama, Token Terminal and Coingecko dashboards. FLOWS CLOUD will take ‘pride of place’ in season 2, acting as a supply sink. Taking Kamino as a recently launched example, 48% of the current circulating supply is staked, earning a points boost during their season 2 farming campaign. 50% of the airdrop is being given to community members who engaged earnestly without expecting anything in return. If any demographic is likely to hold for long term it is this one. They are also subject to 6 month linear vest. At launch there will be the 10% airdrop, plus the 8% set aside for launching on LFG, Jupiter’s launchpad. Any tokens sold via the community sale will be subject to 6m linear vesting. Team and investors have a 33% cliff unlock 12m after TGE. From there the tokens unlock linearly over the following 24m. Overall the launch is lining up to get the tokens into the hands of core believers, reinforced by vesting components, at a reasonable valuation. On top of that there is no significant sell-side supply from elsewhere. TRADE UPCOMING CATALYSTS 3 months: Season 2 of wonderland will grow the partner list and act as a supply sink for CLOUD. 6 months: Profiles will allow users to experiment with new types of LST (see fpSOL for the first personal LST). CLOUD will be important to decide the direction of the protocol. Would expect the LST space to become more competitive as validators vie for delegated stake. Sanctum is positioned to capture this. WHAT NEEDS TO GO RIGHT? The market needs to value the community-first launch as a narrative in and of itself. There has been lots of discussion in the space about airdrops, allocations and how to make things fairer in light of regulations favouring private investment. The Sanctum team have put a lot of thought into their launch, ensuring the airdrop goes to the right people (in their view), and that the community can buy at a price that is not heavily inflated compared to private investors. Want to see this translate to strong price action. The team needs to prove out demand for the protocol itself, rather than just the (admittedly very nice) Wonderland farming campaign. This looks achievable given the 5% increase in TVL since farming ended and the natural competition between validators to attract stake via rewards to LST holders. WHAT COULD GO WRONG? Recent ‘community-first’ launches Blast and Friendtech have both performed poorly. FT in particular is down >90% since launch despite being a 100% community allocation. Be careful what you wish for! The team have publicly stated they will not pay for CEX listings. This risks making the token less accessible as it only trades onchain. Some funds can’t/won’t trade onchain leaving them unable to buy, unless exchanges decide to list the token regardless. It can also hamper the addressable market. ALPHA The alpha here comes from the team proving their ability to execute + their commitment to doing things the right way, combined with market timing and in particular, the rise of a fair launch meta. Making your early community rich is a proven way to kick off a positive flywheel for a protocol. CLOUD will either be an example of how doing a launch this way can break new ground, or it will be consigned to the pile of community token corpses. SUMMARY Bull case: LSTs create a whole new category of governance token, combining PoS yield with idiosyncratic value, all returned to the LST holder. Liquid staking on Solana continues to grow, reaching >15% as validators are forced to compete for delegation and offer block rewards through Sanctum LSTs. Profiles become a schelling point for anti-sybil and other social applications. 20% chance of >$1. Base case: Sanctum is an interesting new way to approach LSTs but well-known, individual validators like Jito remain the most popular LSTs to hold. Liquid staking on Solana tops out at 10% ratio. 50% chance of >$0.3. Bear case: fragmentation of LSTs actually reduces their uptake as people prefer not to have to research the best option. InfinitySOL is too niche to break out and capture potential customers even as an aggregator of the underlying LSTs. This is made worse by the lack of CEX listings for the token as even fewer people are exposed to what Sanctum has built. 15% chance of <$0.22. Conviction score 4/5

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    DarkForest
    DarkForest
    •over 1 year ago•
    $YGG

    YGG - Web3 Gaming Kingmaker?

    Thesis and Catalysts The past year has seen a number of crypto projects pivot to infrastructure, including those in the gaming sector, cynically for a valuation bump. That's great, but having 300 games and no-one to play them isn't particularly valuable. YGG doubled down in the bear market to build a platform for player liquidity, with potential for a mutually beneficial incentive mechanism - We bring the players, you provide the assets. $YGG Staking - founder Gabby Dizon has hinted at the potential for $YGG staking multiple times. It makes sense if we extrapolate from the stake-to-airdrop meta, what better way to kickstart a gamer's progress than with tokens or NFTs dropped straight to their wallet. From the developer perspective, this model grants them attention and access to a community ready and incentivised to start playing. Onchain guilds - YGG are building out an onchain reputation system based on player activity. This comes via soulbound NFTs and experience points (XP), and could be used in combination with the staking mentioned above, to provide targeted rewards to the best and most engaged players in the YGG ecosystem. GAP quests - Through the Guild Advancement Program players can complete quests for rewards, it has been hinted that future quests will involve burning YGG for added player benefits. Progress here is being measured in XP, which lays the foundation for the upcoming reputation system mentioned above. DePIN - somewhat under the radar are YGG’s investments in Sapien and Synesis One, both gamified AI training projects. It seems like a natural fit for a play-to-earn userbase to be directed at DePIN projects such as these, allowing players to supplement their income while providing a useful service. Investments - not only do the investments create closer ties to YGG’s partners, there is obviously a financial benefit too. Current mark-to-market prices put the YGG investment arm up $20m on their portfolio. It is not just a static holding though, as the assets can be used productively by the community to play and earn. THE TRADE Narrative - web3 gaming as a sector is still yet to see a full blown rotation. It’s also true that excitement around guilds will naturally come after games have first shown promise. However the next few months are rife with highly anticipated launches, including blockbusters like Illuvium and Sipher, plus the ramping up of games like Pixels and Parallel TCG as they continue to see steady player metrics. YGG has forged partnerships with many of these, and stands ready to offer up player liquidity when the games go live. Providing YGG stakers with assets and tokens to kickstart their journey creates a symbiotic potential for growth. Over time we might expect YGG to become somewhat of a kingmaker in the web3 space, akin to how Curve tokenholders became important by voting to direct reward flow. An established community of avid players, who can be credibly sorted by skill using the onchain guild system provides a way to create an onchain group primitive. This can allow YGG to amass player liquidity, leading to better bargaining power with games for quests and rewards. Fundamentals GAP quests have grown with every season. Starting with less than 1k participants during season 1, season 4 had 6,184 account sign-ups and 33,681 quest enrolments. These programs have been shown to increase average revenue per user (ARPU) which will be of interest for longer standing and new games alike. Investor unlocks are 78% complete at this point, with $40m left to vest between now and July 2026. The founding team is only 27% of the way through unlocking, but at a manageable $3.5m/month at current prices. * Balance sheet assets total $67 when marked-to-market, with $17m in stable and large cap tokens. Between treasury assets and completing a $13.8m raise last year from DWF, a16z and others, the team has a projected runway of at least 20 months. Valuation This is a catalyst trade based on the upgrade, and therefore relies on charting levels rather than a fundamental analysis. Base case would be a revisit of the $1.36 level by the time the protocol rolls out, representing 36% upside from today’s price of $1. This would put the market cap at $505m, between GMT and ILV, which is reasonable in the context of the sector. The exuberant case would be that a confluence of YGG’s upgrade with gaming as a sector coming into focus. Flagship names like Illuvium launching, Immutable and Beam continuing to onboard games, and continued success of Pixels and Axie could drive a sector rotation. In this case I would look to $1.80 as the target, 80% upside from today. The downside risk is that this catalyst has been well understood and priced in over the last 6-8 weeks. The token ran to $1.80 already at the beginning of April, unfortunately right into a market-wide selloff. It has been quietly showing strength since then, rebounding well vs other gaming tokens. In the bearish scenario I would expect the token to remain in the $1.05 - 0.75 range. RISKS Reliance on gaming success - as mentioned, building a guild platform is predicated on the success of underlying games. If the games are not rewarding (financially or emotionally) then players will simply go elsewhere. For YGG to build a compelling case here we need to see the long awaited games like Illuvium build a solid base, proving out the web3 gaming thesis. Everything is priced in - as mentioned above it is possible $YGG has been pricing the upgrade in over a long period already. This presents a risk as the eventual upgrade could be a sell the news event. In the event that staking is included in the rollout, this will mitigate the sell pressure by providing a novel token sink. SUMMARY Introducing a major token sink via staking, combined with avenues for token burn, turns YGG into a structurally interesting play. Over time as web3 games proliferate, having the YGG community onside could potentially decide winners and losers in the gaming sector. The pieces are falling into place for what YGG is building as a virtuous cycle: Players complete quests and earn NFTs, XP > assets and score used in reputation system > onchain guilds build community around these players and their data > combined with YGG staking, games now have a rich data source for where to send their assets > game bootstrapped from day 1 with the right kind of players, who have ability to get stuck in immediately > can supplement with targeted GAP quests, increase ARPU and allow players to build reputation while bootstrapping healthy gaming eco. Further reading: Decrypt - building the guild protocol. YGG community update - Feb 2024 YGG Treasury Report - April 2024

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    DarkForest
    DarkForest
    •about 2 years ago•
    $PRIME

    PRIME: AI x Gaming play w/ product, bucks both narrative & cheap vs. peers

    THESIS AND CATALYSTS Sentiment (and valuations) for web3 games are still below the highs of last cycle, with players and investors likely scarred by the downside reflexivity and poor quality games that were on offer in 2021. Prime Studios have delivered a quality trading card game (TCG) in Parallel, and will use the momentum to roll players and liquidity into their lesser mentioned crypto x AI offering, Colony. Parallel open beta - after battle testing the game and tweaking match balance during private beta, the team will open the doors to everyone via the Epic Games store in February. Planetfall - the first expansion pack is available on Base, and the community via Echelon Foundation has built a marketplace there too. This makes building a set more accessible from a cost perspective, potentially bringing in a new playerbase. Bonds - Lending/borrowing of cards and 'bonds' aka guilds are not currently live, but will act as a token sink when they are. This will also draw in players from the likes of YGG and their guilds. Colony - The team has underplayed this part of the roadmap while focused on shipping Parallel. It could be one of the first games directly involving GPT tech, described as the first ‘1.5 player game’. THE TRADE Narratives - while the web3 gaming thesis is still being questioned by some, this underestimates the quality of projects that will come to fruition in 2024. The recent piece by Vitalik, and coverage from forward thinking investors like Zee Prime, Framework and 1kx have brought the potential crossover between gaming and AI more sharply into focus. Colony sits right at that intersection. Fundamentals • The founder, Kalos, recently shared some stats relating to the private beta. There have been 800k games played with over $500k spent in-game. • Card trading volumes remain strong with the Alpha set regularly seeing $200-500k volume per month. Planetfall achieved $770k volume during December, the month of its launch. • The rate of tokens being sunk is decreasing, this is expected to pick up with fresh players at open beta. The $Prime rewards rate will also be increased, making play-to-earn more viable and drawing in guilds. • We are 7 and 5 months into investor and team unlocks, which continue at a rate of 1.6m tokens per month until mid 2025. • Parallel Studios runway appears healthy, with creator royalties over 8.5k ETH for the lifetime of the Parallel collection, plus a $50m raise from Paradigm in Oct ‘21. Valuation - Priced as a TCG Prime looks expensive vs Gods Unchained at $346m vs $84m market cap respectively. When compared to the old guard from last cycle, Axie and Illuvium, Prime’s current valuation seems reasonable. If the first AI game were to come from crypto and have an investable token, then amid current AI offerings at $2-3bn FDV could be a reasonable target. Risks User friendliness - trading card games are difficult to master by design. This makes it tough to become a viral hit, but the implementation of token rewards and desirable sinks for those tokens goes some way to overcoming this hurdle. Also, seeing top Hearthstone players move to focus on Parallel suggests the game is on par with web2 offerings, and certainly more attractive for earnings. Token unlocks - with $17m of supply unlocking to team and investors per month at today’s price of $10.40, this is worth noting and substantial in the face of only $1-2m of daily trading volumes. While the token is listed on Coinbase, some effort on the market making side would certainly be helpful here.

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