DeFi Is Great But POS Still Has Benefits
With the shift to DeFi over the past year or two, POS coins have taken a bit of a back seat. POS (proof of stake) projects do however have benefits in that they are generally a lot more stable, provided you select the blue chips. Recently Hive Backed Dollars (HBD) saw the APR on savings increase to 12%, which is pretty phenomenal for a stablecoin. During a bearish or uncertain time in the market, solid POS coins and stablecoin yields can offer a far safer form of passive income. This could even be considered hedging, as an increase in coins is in essence offsetting loss. I discuss this idea in “Hedging Your Portfolio Through Daily Habits”.
Bear Markets Initiate A Shift To Quality
Even if the bearish price action of a particular period is significant, one tends to see the real casualties after months of downward action. That is why strong bearish moves, especially prolonged moves, will always see a shift to quality. Many layer 1 alternatives are POS coins and will generally be a good option for those who choose to remain exposed in a Crypto downturn. Once a bear market has reached a certain point of pain and time, DeFi projects tend to suffer severely. In a short-term downtrend, they manage to hold up fairly well, relatively speaking.
Fairly Good APR
Sifting through POS projects and stablecoin options is important, rather than selecting just any option. If you do your homework and find some stellar opportunities, the yields can be relatively good. The quality zone ranges between 7% and 12%, which is at least a much-needed support in a bear market. Though we might not necessarily be in a full-blown bear market, it is always good to be aware of your options should things suddenly take a turn for the worse. Further accumulation of these projects at the ground level of any bearish season can also be extremely powerful in the long term.
DeFi projects are known to suffer hacks, exploits, and rug pulls. This does raise concerns in regard to the safety of allocated capital. This is why diversification is key. Investors have to sacrifice gain in preference of security, at least for the majority of their portfolio. Having complete exposure to high-risk investments is extremely unwise. A well-planned mix of risk exposure is imperative in order to maintain a steady income, as well as a relatively good measure of security. In essence, potential risks are a lot lower in POS than DeFi. Even DeFi operations that have a very good reputation are at risk. A good reputation also means a good TVL, which is obviously more attractive to scammers and hackers.
A Very Wise Move For The Bottom
This is something that I have often addressed in regard to staking projects. It is extremely powerful if executed at the appropriate time. Obviously purchasing a project in its infancy is first prize but making the most of a brutal sell-off is also a really good opportunity. Purchasing a project that is down 90% can become a massive passive income generator once the price regains its previous high. If the annual APR is 10% then investors would generate a 100% return on their investment every year. The APR is now in essence 10X because it is working off of a coin allocation and not a dollar basis, as with your bank.
This should be a strategy for those looking for great passive income generators. Buying POS coins in the depth of a bear market can help to bolster your economy and simultaneously hedge your portfolio.
The accumulation of quality POS projects can also be something that one can work towards. Let’s be honest, it’s great to have a goal to work towards. To see your stack growing over time can also be rewarding in its own way, knowing that eventually, it will produce supplementary income. Continued accumulation in the dips and crashes can definitely be beneficial years down the line, once the Crypto market as a whole has matured and become even more established. Obviously, selecting the correct coins is going to be of significant importance.
Add A Little Risk
Stacking up on quality POS projects is obviously the way to go but it wouldn’t be bad to add a little risk. Perhaps even 5% of allocations can be funneled to some potential up-and-coming projects. This puts you in the game for some really stellar staking rewards later on down the line, if indeed any take-off. Hive could even be a consideration here because powering up HIVE is a form of staking, when being active with curation on the platform. HIVE definitely has the potential to reach $5 to $10 in the not too distant future, in my opinion.
Obviously, due to the network effect within an ever-growing ecosystem, the potential upside is in many ways almost uncapped. This is definitely one of my personal choices. I see that HIVE has been added on Mycointainer but has of yet not been prescribed an interest rate. Mycointainer will obviously delegate HP and give the majority of the earnings to the stakers.
This particular area of passive income generation still has great potential, especially if utilized and planned correctly. It is also important to remember that an increase in price ultimately increases your staking return. If you bought $2000 worth of ATOM, which has an APR of approximately 10%, you would receive $200 in staking rewards every year. This is provided the price remains the same. If the price of ATOM surged by 5X, you would receive $1000 dollars each year in staking rewards.
This would be the equivalent of earning 50% APR on your initial $2000 investment. This is the beauty of staking coins! Over an extended period of time, investors in quality projects should experience an increase in returns, relative to their initial investment. The initial investment would obviously also grow during this time.
Playing this game well can be very lucrative! Anyway, that’s me for this edition. See you soon!