The Challenging World Of DeFi – Where Does Value Truly Lie?

Taking The Plunge

Regardless of if markets head lower or not, at some point, DeFi players have to re-enter the arena. It’s obviously ideal to re-enter once a bottom has formed. This is more important than actually timing the bottom. Why? Well, since you are in the DeFi sector to secure a form of passive income, the most important aspect is that your collateral doesn’t devalue, and along with it, your rewards.

Currently, we find ourselves in a rather unusual market. This is largely due to the economic climate, monetary policies, macro events, as well as the initial stages of a decoupling. There have been strong signs indicating that there may be more to this current trend than just a brief visitation. Obviously, the banking crisis has played an enormous role in triggering this decoupling.

Even though further downside (Crypto) is likely, I do however believe that it will be extremely brief. Picture a scenario similar to March 2020. I envision a flush-out, followed by significant upside. This is if it takes place. As mentioned before, when I envisioned a banking collapse back in 2022, I pictured it unfolding in the last half of the year. So, for me, it happened earlier than I had expected.

This is the basis of my modestly bullish shift that took place a few months ago. If we look at the Crypto market, in light of DeFi, there is a level of confirmation. If the Crypto market continues in either of my two scenarios, it’s a good time to begin thinking of DeFi. There is either a slow grind-up or a brief collapse. In either outcome, there is no long-term depreciation, which is imperative in the DeFi space.

However, if markets collapse and remain “compressed” at significantly lower levels, the story changes… and rather significantly. This brings me to the topic of value. Where do you find true value? If DeFi projects depreciate heavily over an over-extended timeframe, which ones are not only going to survive but also go on to regain value and eventually appreciate further?

Multiple Factors

Unfortunately, when it comes to DeFi, there are numerous factors outside of market conditions that can cause the value of a particular token to depreciate. For instance, an exceptionally high yield will inevitably encourage heavy selling. A hack or exploit of the protocol can trigger exceptional depreciation. Do you remember Bunny Finance? The protocol experienced a hack in 2021, I think it was, and has never recovered even in relative relation to the bear market.

The BUNNY token is currently trading at $0.11 with an all-time high of $512.75, according to CoinGecko! That’s a gonna! These are the dangers that come packaged together with the exceptional gains of the DeFi market. This is why I tend to look out for stablecoin opportunities. Firstly, the aspect of impermanent loss is greatly reduced, and secondly, due to the nature of stablecoins, there is a level of stability.

Now, these are definitely not guarantees. Personally, I think that Hive’s HBD currently offers the most attractive opportunity within the DeFi space. Not investment advice, but merely my opinion. Look at CAKE, the native token of the DEX and AMM, PancakeSwap. A change in the lock-up periods has completely devalued the token. Holders that staked their CAKE for an entire year recently offloaded their rewards on the market.

Prior to this adjustment, there was no lock-up period. There was a set APR, regardless of whether you held for a week or a year. Now, the longer you lock up your tokens, the higher the APR. This literally changes everything, and makes it rather unattractive, at least to me.

One has to factor in all of these possible scenarios, which can make the DeFi realm a rather daunting place, especially for noobs. However, there is no escaping it. This is DeFi, and until the sector matures, and hopefully improves… this is what it means to take part in the DeFi realm.

Final Thoughts

Despite the inherent risks, many investors do their best to navigate the DeFi market, in the hope of securing a prolonged period of satisfactory gains, at least in relation to the rest of the market. This is why I have signaled out HBD. To me, the risk/reward ratio makes sense.

Investors will have to do their own research and personal evaluation. Investing is always a risk. It’s like rain… it’s always wet. There’s no getting around it! Anyway, that’s it for this one, catch you next time.

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