How To Value DeFi Tokens & Find GEMS!! 💎
DeFi tokens are not the most reliable asset to invest in
Only founders and early investors receive profits from DeFi tokens
90% of DeFi tokens are dummies and scams
International consortium of news organizations developing transparency standards.
The DeFi boom in the cryptocurrency market continues. Dozens of new coins appear every day, 90% of which may cease to exist in the next few days. This is because most of the created tokens do not have enough liquidity and are designed to quickly collect money from investors and disappear for good. BeInCrypto editors have learned from experts how to choose the right DeFi coin for investing.
Pavel Shkitin, CEO of Nominex cryptocurrency exchange:
– Most DeFi tokens Decentralized finance (DeFi) are financial services built on blockchain technology that offer users access to open, efficient and … More, which are created today by dozens, made, as they say, on the knee. They are specially released for the farming mechanism, when there is a certain pre-mining for the founders of the project. As a result, most of the tokens end up in the hands of the founders, and they inflate the price of the token using farming. Then in the first hours or days, when the price is pumped to the limit, they sell their tokens and get huge profits. Within a few days, the project is declining. In this case, people who invested even before the launch of the project can make money on the DeFi token. They also sell tokens at the peak price, lowering the coin rate. As a result, the project dies and leaves the market..
I would not recommend investing in projects that are aimed exclusively at pharming and do not have a quality product. If there is a high probability of losing money: either a token As the use of cryptocurrencies grows, new types of tokens appear. They can represent value or something intangible like voices. Two … More will not increase in price, or all holders will begin to massively sell tokens, dropping its price lower and lower.
If you choose projects for long-term investment, then you should give preference to projects that are backed up by a standing and finished product or which is based on DeFi technology, and not pharma. Pharming is just a small part of what DeFi technology can do.
Sergey Zhdanov, EXMO COO:
– Today, projects of different directions are referred to as DeFi, and this is already a fairly extensive market. On analytical cryptocurrency aggregators, decentralized finance is referred to as a hundred different tokens associated with DeFi projects. This includes all stablecoins, cryptocurrency wallets, infrastructure solutions, prediction markets, marketplaces, landing platforms, validators in PoS networks that implement staking, various financial instruments implemented on the blockchain.
However, since the summer, the DeFi hype has been the farming hype. It is often confused with staking, but these are completely different phenomena. In the case of staking, it’s not about tokens, but about cryptocurrencies. Large holders who own a significant share (stake) of a certain cryptocurrency are entitled to validate (confirm) transactions in the proof-of-stake blockchain of this cryptocurrency, for which they receive a reward similar to miners in proof-of-work networks.
I asked a DeFi expert which coins to buy and this was his answer…
Read our roundup of DeFi memes.
When pharming, users are credited with tokens of the site, with which they provide liquidity by borrowing their digital assets (other tokens). Apart from the bonus reward for users, such “farm” tokens have no intrinsic value. Their price is determined only by the popularity of the project with which they are released. For this reason, with the loss of mass interest in the site, the value of the token can drop hundreds of times, given the previous crazy growth..
Taking into account the fact that, in addition to the pharming token, the user receives a percentage in those tokens that he gave to the site, participation in the pharming is profitable in itself. And here the main risk is hacking the site and losing the entire pool of liquidity. But most people just prefer to buy a pharming token. In this case, they are not charged anything. They just keep tokens in their wallet, the rate of which is almost impossible to predict. DeFi tokens, like any other assets, are chosen depending on the goal pursued: it can be speculative trading, medium and long-term investment, diversification of an existing investment portfolio. Basically, the criteria for choosing tokens are the same as for all cryptocurrencies..
If we are talking about the purchase of tokens for the purpose of selling them in the near future on an increased rate, then in this case traders are mainly concerned with the growth of the popularity of this project in the crypto community. In other versions, the main question is still the same: is there any sense in this project and what is this token for? Or, in fact, this is just another rubbish. And here standard factors are taken into account: a proven team and its potential, real representatives, the main creators of the project, the presence of large investors. In the case of the ICO, they looked at the white-paper and the presence of a minimum viable product, now they primarily look at the audit of a smart contract and the absence of bugs in it.
Learn how to get a loan through the DeFi protocol. Review based on personal experience.
Since the beginning of 2020, we have repeatedly observed the hacking of the DeFi project, which occurred due to the presence of vulnerabilities in the code that allowed hackers to withdraw funds. I note that it is also worth looking at who conducted this very audit, and whether it is worth trusting such a check. In addition, recently we have been increasingly seeing how the hype is being developed around tokens that are at the testing stage, even launching the so-called test in production.
As a recent story with eminence.finance has confirmed, making purchases of tokens at this stage is extremely risky, even if people already known in the cryptocurrency space are behind the project. But, in fact, any project at any stage can be humbled or simply fail. We cannot count on absolute guarantees and the absence of any risks anywhere, and this applies not only to the cryptocurrency world.
As for DeFi, they are just at the start of their journey, many solutions are unique in nature, there is nothing to compare them with traditional finance in order to predict further development. It is definitely not worth investing all the funds in one project, it is better to choose several at once in order to increase the likelihood of making a profit. Also, for the purpose of investing, you should not buy tokens at the time of their active promotion. Better to wait for the price to stabilize slightly. But it may turn out to be much more profitable for you if you do not just buy a token, but try to understand how DeFi works and take part in such a project..
Jack Tao, CEO of the Phemex cryptocurrency exchange:
The DeFi craze is very similar to the events surrounding the 2017 ICO. The market is filled with innovative experimental projects. Like almost everything in cryptocurrencies, sentimentality makes it difficult to see the real essence of most DeFi projects. However, in some cases, the risk does pay off. Not so long ago, we added 6 DeFi tokens to Phemex.
When choosing projects, I am guided by the following criteria. First of all, you should make sure that the developers are not anonymous, and the project participants, especially the technical team and customer support, have sufficient experience in the industry..
I would also advise you to check the activity of the project in social networks and media. A public chat on Slack or Telegram is a very good sign for all investors. Read the reviews of the project carefully, especially if you do not understand its technical characteristics. If you are familiar with programming, check the codes and API of the project. He can be trusted if they are publicly available.
It is possible to identify a scam at the very early stage of the project. Before deciding on any investment, consult a third party about the project. Find out about the project on Reddit, or talk to a coder you know. Scams usually don’t care about listing on prestigious centralized exchanges. Check if the token is available on yours, and with which companies the project works.
Fake accounts are everywhere. Malicious bots are especially common in cryptocurrencies. Pay attention to the customer support service. Contact a real person in the company and see for yourself whether you can trust her.
Every seasoned crypto trader will give you one simple piece of advice: don’t invest more than you can afford to lose. Initially, hedge funds were funds that held both long and short positions in stocks for the purpose of making a profit no matter which direction the market was going..
The reality is that most cryptocurrency users have no way of identifying the market trend. The uniqueness of DeFi is that it is not on the exchange. There is no order book and there is no long / short ratio. When it comes to DeFi, we need to understand that when a certain rate of return is obtained, in most cases, assets are “locked” in smart contracts, so users can borrow from them. This opportunity allows the borrower to receive income in excess of the interest rate on the loan, or use borrowed funds for trading and receive income higher than the interest rate on the loan..
The market itself is undergoing a transformation, an increasing number of cryptocurrencies are appearing, which leads to even greater volatility. This market needs to be analyzed. This will be helped by tools that check the DEX trading volume, the profitability of various assets, the level of liquidity of various DeFi smart contracts and even the mempool network..
Vladislav Sopov, independent analyst:
– Choice (meaningful) in the framework of DeFi is possible only within the framework of a medium-term strategy. On a short horizon, anything can shoot – as well as collapse for unpredictable reasons, on a long horizon it is not clear what will happen to the context, technology, Bitcoin domination, etc..
Within this position, you can pay attention either to the “old” DeFi, which gained popularity even before the current hype war (Bancor, Kyber, Uniswap), or to this summer’s “unicorns” (Aave Protocol, Synthetix, Curve, Balancer) – here and the community, and teams, and technologies. But even here there is a high probability of buying an “overheated” token – on the contrary, bloody falls like September are the best entry points. We keep “in mind” DeFi created outside the “golden triangle” (EOS, Ethereum, Tron). It makes sense to see how DeFi will behave on the Solana (Serum), Neo (Flamingo Finance) blockchains, the Zilliqa and Polkadot experiments.
– there is no technical audit of the code. The audit should be done by a well-known, community-recognized team, and should be specific to that protocol. If the audit was done for the protocol code that was supposedly copied – this does not work.
– the project focuses on profitable farming as the only meaning of its existence. It can be either a pyramid scheme or a direct exit scam: bad DeFi live so little that one is indistinguishable from the other.
– the project “guarantees” unusually high profitability. As a rule, future exit scams offer sky-high farming strategies – recently, the Tron Supernode project, which offered up to 7.5% of income per day, was launched on JustSwap..
– remember the lessons of the ICO – an anonymous team, identity fraud (fake names and photos of the creators), closed code, “infancy”, large “premine” – all this should alert.
The best strategy – if you are not a day trader, not a scalper, think three times before investing in DeFi tokens or depositing a significant part of your deposit into protocols. As well as potential income, risks are multiplied here..
Hedging (not very important) can be done in two ways. First, remember that DeFi has different earning strategies – direct investment in tokens, participation in “farming”, direct or indirect (through Binance staking options, they added seamless access to some protocols) – can be distributed between them. Secondly, there are ready-made DeFi portfolios and “index” tokens. They are not a panacea, if the DeFi industry falls, then the whole falls. But due to the balance, the blow can be softened.
All information contained on our website is published in good faith and objectivity, and for informational purposes only. The reader is solely responsible for any actions he takes based on the information received on our website..
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