Is It The Right Time For DEFI Investment?

DEFI was one of the favorite categories of the previous bull season. DEFI developed rapidly in 2018-2020 and entered a period of stagnation from the second half of 2021. In 2022, DEFI coins rapidly depreciated due to the bear season.

The chart below shows the Ethereum-based development of the DEFI market cap. The market cap of DEFI coins was around 5% of Ethereum in 2018. By 2022, this rate has increased to 34%. With the bear season, DEFI coins started to lose value compared to Ethereum.

The chart also shows that DEFI coins have gained value over Ethereum over the past few weeks. Will this situation continue? Or will the relative rise in the last weeks remain as reaction buying? The answer to these questions depends on the general state of the crypto market. With the bull market, DEFI coins and tokens will create new millionaires and even billionaires.

The categories that have been popular in the DEFI market have continually changed over the past five years. Lending apps, dexes, yield farming apps, stablecoins, blockchain bridges, and liquid staking became popular, respectively. Dozens of imitations of popular applications were produced. Each category now receives similar interest levels from users, and interest in replicas has dwindled.

In 2023, investors started to show interest in DEFI again. Since the start of the year, LIDO DAO, Maker DAO, Synthetix, and Compound have gained 89%, 117%, 101%, and 125%, respectively. DEXs such as Uniswap, Pancakeswap, and Thorchain performed poorly. Investors have shown more interest in pioneering protocols with a long history.

DEFI Investment Strategy

We can see the 2020-2021 bull season as the adolescence period of DEFI. Rapid growth, imitation protocols, and extreme price volatility were the hallmarks of this period. When bear season arrived, DEFI tokens faced downward price pressure. Applications that care about sustainability floated, and those with weak value propositions disappeared or turned into zombies. The surviving DEFI applications will enter the next bull season more robustly.

DEFI coins have higher price volatility than Bitcoin and Ethereum. High risk also brings high return potential. In the next bull season, well-founded DEFI coins can generate returns of 5x or more. Large-scale DEFI coins have already begun to attract investor interest. It would be wise to keep some DEFI coins in the crypto portfolio. The platforms to be invested should generate income from the services they provide. DEFI ecosystems, which use their revenues to reduce coin emissions, may be preferred because the value of platforms that make significant money from their financial services will increase in the long term, if not in the short term.

Thank you for reading.