• Sat. Sep 24th, 2022

Observations from Yield Nodes’ Audit Report

Full disclaimer, I’ve been an investor in Yield Nodes and have been since March this past year. But like I’m sure many of you are (or at least should be), I have been a bit skeptical about Yield Nodes as they were one of the few protocols in my portfolio that were able to consistently produce net profits in the depths of the bear market. That’s why I read with great interest YieldNodes’ latest audit report that was conducted by 10 different attendees, 9 of whom were invited across the globe, and the 10th who was a Maltese native who filled in at the last minute due to the last member’s cancellation.

Before I start with a deep dive, I do feel like I need to state that I am in no shape or form a corporate or financial auditor, so please bear with me if I don’t have some of the technicalities down but as I’ll get into later , this is exactly the point — I am just a random guy on the internet giving my own opinion. You must do your own research (or preferably seek the advice of a financial advisor or even an accountant) to see if Yield Nodes is the best investment for you.

After reading the “audit,” and also seeing some youtube videos/reviews of some of the “auditors,” there are several key takeaways that I have gathered, which have influenced what I think about Yield Nodes, and how I think it will impact my future investments with them. And if you are unfamiliar with Yield Nodes, please be sure to check out my previous review where I do a bit of a deeper dive, but essentially Yield Nodes is a masternoding service that has consistently put up average monthly return on investments of 10% (120% APY).

Without further ado, my key takeaways from the “audits” were…

It’s not really an audit if it’s not done by an actual auditor:

Any corporate auditor will tell you that an audit is not an actual audit if it’s not done by an actual auditor. And I think that this is probably my biggest criticism of Yield Nodes’ so-called audits. I’m not sure what the regulations are in Malta, but even with the loosest requirements in the States, at the very least you need some type of bachelor’s degree in finance, which maybe only one of the “auditors” actually had — Irfan Mohammed, who has listed in his very short bio “Equity derivatives trading”:

Does this just mean that he’s a degen?

That being said, I appreciated the transparency in some of the other bio’s, and I also guess it’s better-than-nothing that many were picked randomly rather than selectively, even though it appeared that no one had any formal finance or accounting background. However, the fact that the “auditors” were normal users brings me to my next point:

If the “auditors” were also investors, then this wasn’t really an independent audit

There’s a big reason why corporate auditors have to disclose financial holdings and investments before being tasked to perform a corporate audit — they are trying to avoid or remove conflicts of interest. In the TradFi world, if I had my life savings invested in company X’s stock and then I was placed in charge of auditing company X, how objective could I possibly be? For the same reason why real auditors have to disclose their financial holdings, I would expect that these 10 investors to have had done the same. What’s even a bit more ironic is that the “Participants Audit report” states that the “auditors received no payment,” but I argue that this is categorically untrue for all of the “auditors” were receiving dividend payments from Yield Nodes, whether it was directly tied to their “auditing” services or not.

In the same vein I would also make secondary argument that the influencers James Pelton and Kris Mccauley have even a bigger conflict of interest — they both have 10’s of thousands of followers and have multiple videos on Yield Nodes with affiliate links, meaning that not only are they personally invested into Yield Nodes, but that they too have an added incentive for it Yield Nodes to be seen in a positive light so that they can get more money from new users that they are able to refer. Does this mean there’s something unethical about James Pelton or Kris Mccauley? No. (In fact, I’ve been following them both of them for some time now and I trust that they strive to be as accurate and transparent as possible.) What I do see a problem with, is that this makes it clear that these “audits” have a great deal of bias, and are clearly not independent. I believe that this is not an issue for James or Kris because once again, they are not real auditors, and the onus is not on them to avoid conflicts of interest; however if they were real auditors, then this would be a problem. If the purpose of this exercise was to conduct an actual audit, the onus is on Yield Nodes to have given this type transparency or else to do everything possible to try to minimize these conflicts of interest. In simpler words, how much can we trust a review if the reviewer comes in with a great deal of bias?

User assets are 130% over-collateralized:

After some seeing some of the missteps of the likes of Celsius whose liabilities far exceeded their assets, this was the biggest pro and the most relieving. Wallets were individually checked for verification of all positions and assets. Also, props to James Pelton, one of the “auditors,” for having the wherewithal to suggest doing the extensive wallet check, for tedious as it must have been, this is the type of due diligence that an actual corporate audit would entail. If you want a more detailed account of his “audit,” I highly recommend checking out his video where he shares his personal breakdown from his visit.

Verification of assets (essentially taking an inventory) is perhaps the most tedious chore of any audit, and I’m glad that someone did the dirty work and sorted through it.

Yield Nodes token prices are manipulated through liquidity:

Speaking of James Pelton’s review, another takeaway I got from his video (which incidentally wasn’t in Yield Node’s “audit report) is how Yield Nodes prop up their token prices through liquidity.

As is the case with many of the different Yield Nodes projects, you’ll notice that the corresponding tokens ($SAPP, $MONK, $DASHD, etc.) are pretty controlled in accessibility for you can only get many of the tokens on just a few exchanges, exchanges/platforms that Yield Nodes owns. $SAPP for instance, which could be considered Yield Nodes’ flagship project, is listed on only 4 different exchanges, and it’s perhaps the most accessible:

In fact, if you look up any on coinmarketcap and you’ll find that most of the corresponding tokens out of the 15-or-so tokens are listed on only one or maybe two exchanges. In addition, all of these tokens have a relatively low marketcap with SAPP topping out at barely around 250th, which is usually an indicator for higher levels of volatility. However despite the low marketcaps, Yield Nodes’ coins are actually pretty stable, and with James’ review it’s now easy to understand why — these token prices are manipulated with liquidity.

If you’re unfamiliar with how prices can be manipulated with liquidity, I highly recommend watching Chris Titus Crypto’s video, but in a nutshell a token’s price can be impacted significantly and easily if a significant amount of liquidity is added or conversely taken away. Is this necessarily a bad thing? No, and in fact I completely understand the need to keep the price stable, otherwise so called “stable” products like the US Dollar would be running a muck with inflation…oh wait.

Jokes aside, it appears that the Yield Nodes team has been able to control liquidity enough to thereby control the price, which helps increase stability of the project. In a normal market, I would be worried about a hidden whale dumping a price to depeg (as we saw with the depegging of UST), but in Yield Nodes’ case they appear to have a pretty tight hold over their coins’ market place, which should essentially mitigate the risk of a whale attack.

How do they make Revenue?

OK, so we know the money is there, and we know why the token prices are what they are, but what I still am left feeling unanswered is how they’re generating revenue. The hard reality is that this is this might be something that every investor (except for the ones that went to Malta) just has to deal with. Hypothetically speaking if I were able to plug in some masternodes and somehow generate a lot of utility that is able to produce constant and consistent revenue no matter the market conditions, I personally don’t know if I would share the secret sauce with others. What I think that Yield Nodes has to deal with however is that there will always be speculation about whether or not Yield Nodes is a ponzi (or some other type of nefarious scheme) until that secret sauce is revealed.

If this were an actual audit in the TradFi world, this speculation could be avoided, as auditors are tasked to report illegal and nefarious activity with real (often legal and/or financial) consequences. For instance if a brokerage company was found to be doing insider trading, then this could be reported to the SEC. By undergoing a real audit, Yield Nodes could hypothetically safeguard their secret sauce by having their auditors sign non-disclosure agreements, while still undergoing their regulatory screenings.

Conclusion

Did all my questions get answered? No. But does the “audit” report raise any new red flags for me? No. The Yield Nodes team has obviously been able to tap into something very profitable, and they are back by a 40-month track record to provide consistent and solid results. I personally had the plan to take out enough profits to remove my initial principal, but with the extreme devaluation of the euro (which Yield node pegs their investments and profits to), I think I have enough information to feel comfortable enough to keep compounding my profits as long as there’s near parity between the euro and the dollar, and I imagine that I will continue to do so until the regains some of its strength.

Out of all the articles, reddit posts and reviews that I’ve seen, I still have yet to find a single review of someone that has invested their money and hasn’t gotten returns as-stated, or hasn’t been able to withdraw their money as-stated. This is not the first bear market that they’ve been able to gain profits from and I imagine that it won’t be their last.

If you yourself have tried Yield Nodes and had some less than desirable results, I’d love to hear about it in the comments below. And if you haven’t tried out Yield Nodes but are wanting to poke around and check it out, please consider supporting me and this blog by using my referral link: https://yieldnodes.com/?a=OKe9wjw2dbXnLMr. Also, be sure to get all my latest updates by following me on twitter: https://twitter.com/CryptosWith

Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!

New to trading? Try crypto trading bots or copy trading


Observations from Yield Nodes’ Audit Report was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.