The DeFi Dynamic – Enjoying Success Where Many Fail

Avoiding Disappointment

For many, their DeFi experience is somewhat of a disappointment. After envisioning a scenario of regular and consistent gains, they are faced with a reality that seems to pale in comparison. Their DeFi tokens have depreciated to such an extent that their yield is now almost worthless. This is the sad story of many a DeFi investor. Like many things in life, there is a process, and ignoring it can mean the difference between success and disappointment.

I was fortunate enough to be involved with DeFi way before it was even termed “DeFi”. Something that I learned early on was that there is a very specific process that needs to be adhered to if one is to realize any measure of success within this niche. Most DeFi investors approach yield farming as any other Crypto investment, and this is where the problem lies. There are two very important rules that are crucial to DeFi success.

The appropriation and execution of these two rules are imperative. Avoiding this process is likely to end in frustration and disappointment. The fact that many investors will be offloading yield as a form of income, simultaneously suggests that DeFi tokens face a heightened level of selling pressure. An increase in supply versus demand will always result in price depreciation. As a DeFi investor, you need to “overcome” this dynamic.

Ahead Of The Curve

In order to get ahead of the curve and outpace supply, one must exercise a practice that requires time. This is probably the most significant deterrent for many, as it will require a strong level of self-discipline. Once you begin to see your daily rewards becoming available, it becomes rather difficult to resist the temptation of withdrawing them. However, this is exactly what you must do.

The compounding of yield over time is essential in creating a DeFi business that will continue to provide income and remain relatively valuable, in dollar terms. One needs to exercise this discipline for months, even years. It all depends on the APR being offered and the price performance of the token in question. This is the first rule and is often directly correlated to the second rule, which I will address later.

In my early years of DeFi, I would often choose to compound 100% of my yield for a number of months before beginning to extract any level of income. Many will argue that they have been compounding their yield for months and they are still underwater. True, but only because they are practicing rule one in isolation from rule two. This is simply not going to work. Once again, we see the power of synergy being instrumental when it comes to efficiency.

Timing Is Everything

No other sector within the Crypto space is as sensitive to cyclical behavior as DeFi is. The purchasing and acquisition of DeFi tokens should be reserved for cycle bottoms, or as close as one can discern. Acquiring DeFi tokens during a bull market, and proceeding to hold them throughout a bear market will definitely set you back. It’s not necessarily fatal, just unnecessary. DeFi comes down to these key elements.

  • Compounding
  • Timing

I mentioned compounding first, as many are likely already “in the game”. However, the correct sequence for these two rules is, timing first, and compounding second. Choosing to simply stock up on DeFi tokens and begin “earning yield” is a somewhat naive approach, in my opinion. One needs to acquire the tokens prior to a bullish phase, and then one needs to compound their way into a position of strength.

It is from a “position of strength” that one begins experiencing the rewards of a DeFi business model. I saw a popular YouTuber speaking about how he had put millions into DeFi during the final stages of 2021. He later admitted how much he had actually lost in the execution of this move.

Final Thoughts

DeFi businesses are best initiated during the final stages of a bear market and then allowed to mature (compound) during the run-up to the next bull market. As prices begin to surge, investors begin taking nominal gains. I advocate further compounding, even in a bull market. For example, I would perhaps look at a 30/70 ratio. In other words, I will realize 70% of my profits, while compounding the additional 30%.

Being a seasonal business model, one can consider closing 70%, or more, of the business as the Crypto winter sets in. This is not financial advice, but rather how I choose to navigate the DeFi space. Catch you next time!

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