Reflections & Current Thoughts On DeFi

DeFi Season Kicks Off

In 2020 we had the initial DeFi craze that saw many small and unknown projects taking off by simply leveraging the term “DeFi”. If a project was said to offer some type of DeFi service, it was automatically sent to the moon. This was obviously unsustainable, especially since many of these projects did not even have an actual fully operational product.

DeFi Winter

As expected, the DeFi winter arrived, only to bring with it the collapse of both great and small DeFi projects. DeFi was soon labeled as speculative hype, which caused many to second guess their investments. I, on the other hand, believed that a second DeFi season was soon on the way. I did address this in my writings as I waited for the sector to bottom out. I began getting rather adventurous once I saw that the market was approaching a bottom.

The Second Round

We have subsequently seen a great run for DeFi projects over the past year or so. However, with the recent collapse of the market, many DeFi projects have been hurt quite significantly. Even the more well utilized and loved projects such as CAKE and others have taken a serious knock.

The upside to being exposed to DeFi is that there is new income being generated via farming rewards. However, if the applicable tokens are losing excessive value, the new coins or tokens being received are not really helping much at all. In the long term, it can be great, provided the project reaches previous highs.

The DeFi Effect

Unfortunately, many DeFi tokens rocket initially, only to dump and never quite reach the previous highs again. Hacks and exploits also have a devastating effect. The protocols that are unfortunate enough to suffer an attack never really recover. It really is a high-risk area of Crypto, regardless of the gains that are at hand. This is always a very real risk that needs to be considered by potential investors.

Outside of the risks, if you manage to time your moves, DeFi can be very rewarding but you have to be quick. Another important factor here is to take profits often.

DeFi Rewards The Strategic

DeFi is not really an idea for the more passive investor, as an active strategic approach is really best. Consolidating profits and waiting for a new entry is a critical part of a successful approach. It is very much like surfing, or even day trading. However, gains can be lost very quickly in the pumps and dumps often seen in DeFi. This volatility is typically much more aggressive than what is experienced in the Crypto market as a whole.

Extremely Speculative

If you think BTC is volatile and speculative, then DeFi might shock you, if you are new to the sector. More stable DeFi heavyweights might be a consideration for the more passive or traditional investor. The reality though is that much of the DeFi market is still quite speculative in that there are tons of “fly by nights” entering the space. Many of these projects crash and burn extremely fast.

Identifying and isolating quality in this niche is a lot more challenging than anywhere else in the Cryptoverse. There are a lot of opportunities but not without risk and even the most well-informed cannot tell the future.

My Thoughts Going Forward

Recent regulatory issues have made it almost impossible for me to personally utilize the world of DeFi, for the time being. There is expected to be more clarity later this year. So, for the moment it doesn’t really affect me too much, regardless of what transpires in the world of DeFi. However, I do believe certain projects will continue to do relatively well, provided the market does not head south again.

There are also many decent projects that have been overly punished. I would expect many of these to begin a bit of a “healing” process. This is provided the market plays along. There are also many that will just fizzle out slowly, regardless of if the market continues higher. Many of these projects are simply opportunist in nature and offer no long-term prospects or community growth.

A Shift I am Personally Sensing

Apart from having a small allocation for riskier investments, I am sensing a general shift to quality. This applies to DeFi, as well as the broader Crypto market. Bearing in mind that true wealth in Crypto is generated by investing in micro-cap gems before they are recognized by the market. This is obviously speculative and I personally allocate in this direction but the majority of my holdings are “blue chips”. However, they were not necessarily top projects when I bought them.

Purchasing a small allocation of say 1% of your portfolio will see that weighting change in the event that the project experiences a significant price explosion. There is a lot of junk in DeFi that can make you a quick buck but you definitely would not consider holding it long term. It is these projects that I have been avoiding of late. They exist in many sectors, not only DeFi.

Final Thoughts

The earlier you are in your journey, the more risk you require to gain some serious traction. Wealth is created by embracing risk, while wealth is preserved by avoiding it. I am personally expecting top DeFi projects to do fairly well this year. Projects such as PancakeSwap are looking at introducing some exciting updates. Interesting to note, CAKE was enjoying a solid trend reversal just as the market tanked a few weeks ago. I am expecting positive news from PancakeSwap will ultimately trigger a new reversal that can initiate some healthy movement to the upside.

Ultimately, a shift to quality will begin to unfold. This is generally the behavior of the market when the price action shifts bearish. It is also the behavior of the market when maturation begins to take place. As I said, there is still a place for speculative trades but quality projects will become more attractive through 2022 and beyond.

These are my thoughts, thanks for sharing your time. See you soon!

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