The hottest fried chicken in the Crypto currency market this year is undoubtedly Decentralized Finance (DeFi). After nearly half a year of Bitcoin’s sideways trade, it finally swept away from the decline and stabilised to stand at $10,000. This is how the bull market has come in people’s long-awaited. And DeFi is seen as the fuse of this bull market.
However, what I never expected is that from the skyrocketing in June to the plummeting in September, in just three months, DeFi has fallen from the boiling point of the midsummer carnival to the freezing point of freezing, the beauty blown by users. The bubble was also burst by myself.
As more and more DeFi projects appear in the sun, many projects have been thundered after the test of time and users, and more and more people have returned from madness to rationality, and even from pursuit to doubt. What happened to DeFi? ? Is there a future for DeFi…This one hundred and eighty degree transformation has been staged countless times in the Crypto currency market and even in the field of traditional financial investment.
What the internal referee wants to say is that DeFi is not guilty. What is wrong is the unscrupulousness of some project parties, the ignorance and greed of investors.
DeFi goes from midsummer carnival to bubble burst
In 2020, DeFi, which is considered a “new financial revolution movement”, has grown at an alarming rate and has become the most attractive story in the entire blockchain industry. In 2018, the market value of DeFi stayed at US$6 million. In January 2020, the total market value of DeFi was still less than US$700 million. In April, the total market value reached US$2 billion. By mid-August, this figure had soared to US$10 billion.
DeFi is a relatively broad concept, including: currency issuance, currency transactions, lending, asset transactions, investment and financing, etc. Especially when Compound started “liquid mining” in June, DeFi ushered in its own “midsummer time”. After entering September, the enthusiasm of the entire cryptocurrency market has been occupied by liquid mining. As a new investment model, liquid mining has been sought after by investors due to its low risk and high yield.
The “liquidity mining” of DeFi with its own power has delivered rich rich stories one after another in the circle, making the DeFi circle almost crazy.
Since the advent of COMP, Curve, YFI, YFII, YAM, GRAPE, SUSHUI… various liquid mining tutorials and analysis articles have flooded the circle of friends. Farmers driven by the FOMO mentality seem to feel that sleeping is a waste A matter of time.
But with the intensification of DeFi mining, the problem has become increasingly apparent. DeFi’s liquidity mining has a high threshold for users with a small amount of funds, and the participation process is more complicated. Many users have bought counterfeit coins, lost coins by mistake, and transferred to the wrong address. Even if the mining is successful, the user finds that the profit may barely cover the transfer transaction fee after the calculations, which is a waste of work. What’s more serious is that, however, this kind of innovation , which was originally full of decentralized financial revolution, has slowly begun to change its flavor, and the profit-seeking mood has concealed the expanding bubble and risks.
Since the beginning of autumn in September, as Sushiswap has plummeted, several DeFi projects have run off, which has kicked off the DeFi plummet.
The overnight boom of SushiSwap once again interprets the madness of “DeFi for one day and the currency circle for one year”. Many people entered the market one after another to make a fortune. Sushiswap’s performance at the beginning was really surprising. It went from less than $1 to $12 that day, and some exchanges skyrocketed to $15. However, what was even more unexpected was that the price fell on the second day, and immediately after the anonymous founder of SushiSwap, Chef Nomi, sold the tokens, the price dropped to a minimum of about $1.5.
The SUSHI incident seemed to overthrow the first dominoes, triggering DeFi’s falling pattern, and it was shocking.
MoonSwap is a dex project in the Conflux ecosystem. Its platform currency firstly increased uniswap and then fell, and then fell by more than 70% within 1 day. The mining of “Kimchi” KIMCHI is very similar to SUSHI, and it is also a glorious project. Compared with the current price from the highest point, it has fallen by more than 95%.
Curve is a well-known DeFi project, which dropped more than 90% of its price within a month. YFV is the iconic liquid mining product after yfi and yfii, which fell by more than 50%, but among all the rapidly plummeting DeFi tokens, the rate of decline has been much slower…
In addition to the Ethereum-based DeFi project, the TRON-based project also experienced a serious decline. “Corn” CORN has soared twice in a single day and then began to fall sharply for many days. Compared with the highest price, it has fallen by more than 96%. After Carror soared, it fell more than 90% compared with the highest point of the currency price. After the “Pearl” Pearl went online on the gate, it surged from $300 to $6,000 on the 2nd, and then fell below $1,000, a drop of more than 80%…
The smart chain of the exchange did not spare Leek. Earlier, investors broke the news that the Bakery bread project plummeted, and the price of bread token BAKE continued to fall within a few hours. Many users took over BAKE to dig the second pool at a price of about 12BUSD. 90% loss.
I wanted to use the east wind of DeFi to bring a wave of traffic to exchange mining, but who knows it collapsed tragically, caused a fishy, and brought a wave of rights protection.
The plunge makes people want to cry without tears, and running away is even more heartbreaking.
The founder of “Sushi” SUSHI took less than ten days to complete tens of millions of cash in the copied code and instantly became a rich man. The “Emerald” EMD project took a shorter time and successfully ran away less than 24:00. EOS’ first Defi project, EMD, was really a malicious project, and it ran away in less than a day. A total of nearly 2.5 million US dollars of assets have been transferred.
Skyrocketing prices, plagiarizing codes, mining acquisitions, collecting money and running away… one after another, the bull market started because of DeFi, but it will also end when DeFi is exhausted. If DeFi wants to make great progress in the future, it must have the determination to “break the wrist”, gradually get rid of the dependence on “conceptual hype”, and truly base on the value of DeFi itself, rather than the current code “copy and paste”, issuing coins “Drumming to pass flowers.”
DeFi three levels of investment risks must be recognized
There has never been a lack of hot spots in the blockchain field. What is lacking is determination. In recent years, hot spots such as 1CO, forks, TPS, FOMO3D, STO, transaction mining, 1EO, DeFi, etc. have emerged endlessly. However, no matter what the concept is, the launch of each token cannot be truly verified at the irrational stage. The high price is not the real value, and there are too many bubbles. DeFi is no exception.
The bull market will not continue to rise, but the crazy rise before the big correction will indeed make people lost, and there is a feeling of throwing beans into gold. If you enter blindly at this time, you will easily become a picker. At this time, investors will directly face three levels of risks: one is the risk of technology, the other is the risk of human nature, and the third is the risk of being harvested by capital.
As far as the DeFi field is concerned, there are four major risks in the DeFi protocol.
Smart contract risks: DeFi smart contracts are easily exploited by hackers. For example, bZx, Curve and Lendf.me were hacked this year. The explosive growth of the DeFi industry has led to a large amount of funds being injected into new protocols, and attackers can easily find loopholes in these immature protocols;
System design risk: Many DeFi protocols do not operate for a long time, but they provide a lot of incentives, such as Balancer. With a simple loophole, FTX can obtain more than 50% of the benefits;
Liquidation risk: The crypto collateral in the DeFi protocol is susceptible to market fluctuations, and there is a risk of insufficient collateralization of debt positions in market fluctuations, which will then induce a liquidation mechanism and cause users to suffer further losses;
Bubble risk: The price dynamics of some underlying network tokens (such as COMP) will be relexive, because the expected future price is usually related to the degree of network popularity and application, and the network usage is affected by the future price of the network incentive token influences.
These technical risks make investors hard to guard against, and will make investment funds suffer unexpected losses. Even if investors want to know, they will be unable to start because of technical barriers.
Risks at the technical level are caught off guard, and the same goes for risks in human nature. In recent years, scammers in the industry have become more and more rampant. Although the various scams have not changed much, because there are too many scams, it is inevitable that they will be deceived and have no way to defend their rights.
For example, Emerald’s scam is mainly due to our contempt for risk. Liquid mining is still the biggest hot spot in the currency circle, from ETH, to TRON, to EOS, and even domestic chains and platform coins’ own public chains, each chain There will be different ways of playing the game, but scams are often hidden in it and it is difficult to identify them.
As an old leek, everyone knows that risk management is more important than high returns. These are all summed up on the basis of blood lessons. In the Crypto currency market, cyclical risks will occur from time to time, and the nature of harvest is that human nature is harvested.
To sum it up carefully, there are three types of people who are most likely to be harvested: The first type is those who do not do research. Blindly entering the market, whether you lose or earn depends on luck; the second type of people are those who love to follow suit. He likes people like others, does not research projects, does not participate in the community, and loves to chase ups and downs, this kind of people is the most; the third kind of people are long-term currency holders who are unknown. Such people are very easy to be PUA by some people, waiting for false promises. Such people often lose the most, and even lose their money.
A very important reason why DeFi can continue to be hot is that prices are rising and in a positive cycle. DeFi amplifies data through repeated mortgages, and many people believe it is a real trend. In some projects, relying on the rapid rise of tokens, investors continue to increase leverage to invest and obtain high returns. However, due to the existence of the law of the same source of profit and loss, if the cake does not grow larger, it will not create a tenfold or a hundredfold utility. , Then who will lose money in the end? It can be imagined.
As ordinary investors, we face all kinds of scams, both open and secret. Perhaps the most important thing is to learn how to survive in the currency circle, see through various scams and prevent being harvested.
Back to reason, choose DeFi first, choose platform
For investors, Crypto currency investment is still in the initial stage of development, and many infrastructures are not very sound. DeFi is even more so.
Entrusting investors’ huge funds to the code, the security of the code is the lifeblood of DeFi. When one project after another does not even have a code audit, they dare to go online to manage hundreds of millions or even billions of funds. This is a completely irresponsible attitude. Even if these projects are a social experiment, the scale of fund management should be set. But we have not seen this behavior.
DeFi Lego is a complete innovation, which has excited many geeks who want to subvert traditional finance. But the question is also before us, whether this deep integration will bring greater risks. When a group of rigorous project teams are carefully building a DeFi ecosystem, the few projects that are eager for quick success may become the rat shit that ruins a pot of good porridge. Therefore, an enterprising attitude and rigorous style are a very important part of controlling industry risks.
Therefore, before deciding to invest in cryptocurrencies, you must be cautious and cautious. We should pay more attention to what role the issued Token plays in the entire economic model, what functions it has, and what value it creates. If you do not design from a long-term value perspective, many Tokens will eventually become rubbish. A large amount of mortgage or transaction data is only an illusion of liquidity, and those who enter the market later can only become receivers.
In order to avoid or reduce investment risks, ordinary investors can grasp the following points to reduce investment risks.
First of all, we must learn to read the project white paper. The white paper includes the project’s market positioning, sales proposition, comparison with competitors, project team, token application scenarios, and project progress. This is very helpful for the analysis of encryption projects. The white paper can be used as an important reference for investment.
But we should also remind everyone that the white paper is not the holy grail of project authenticity. It is entirely possible for fraudulent companies to create convincing white papers.
Secondly, it is necessary to know as much as possible about the information of the project founding team, especially the background information of the core members. Developers and management teams are a key part of the success of any token project, which is why you should have a deep understanding of the project’s founding team. Find out if anyone has participated in a well-known project or a well-known member in the blockchain field. In addition, their qualifications and experience should also be important considerations.
However, it is difficult for ordinary investors to do this. Due to the sensitivity of cryptocurrencies, the founding members of many projects are either abroad or hidden. The most channels to contact them are on social media or projects. So a lot of information is difficult to be truly transparent.
Finally, if the above two points cannot be achieved, ordinary investors must choose a creditable head exchange when investing in cryptocurrencies. For example, Huobi, which has not followed the trend and hyped the “smart chain” hotspot, has done a good job in this regard. They have extremely strict rules on the currency listing process. We cannot do things personally and have thresholds. The platform will provide some solutions to be responsible. Solve and review, which greatly reduces the risk of investment.
In addition, the head exchange also has a leading effect in the industry in terms of innovation. For example, Huobi is the first platform to seize the DeFi opportunity. Since the first half of the year, the platform has launched a series of measures, digging out many high-quality popular projects, and creating the largest wealth effect this year. At the same time, Huobi is also the first to introduce the concepts of “DeFi mining” and “new currency mining”, which once again aroused the enthusiasm of the market to participate. Many CEXs such as Binance and OKEx also imitated and launched exchange platform currency DeFi mining. Although there is no soaring crazy returns, investors who continue to follow Huobi to make HT lock-up investments have already made considerable returns.
Some experienced investors just follow the announcements and activities of these leading exchanges to invest, which can largely lock in good returns.
DeFi has a full history of about 3 years. Compared with the traditional financial market for hundreds of years, DeFi is still very small. No one can be sure whether it is ready to manage super-large-scale funds. For such a new paradigm of the market, we must maintain a sufficiently open attitude, but the premise must be built on a cautious basis.
We should also clearly realize that although DeFi is currently hot, it is only in the early stages of development. After this in-depth adjustment, DeFi will enter a relatively mature stage. We hope to see more DeFi and more innovative products. .
The big waves and the sand show the true qualities of a hero. Only after experiencing the baptism of time will valuable and viable DeFi projects stand out. What we can do is to discover new opportunities in DeFi while waiting.