A not-so-obvious secret in the crypto world, especially among well-capitalized individuals and entities like hedge funds and institutions, is the allure of Decentralized Finance (DeFi). 💋
Despite traditional finance and crypto critics scoffing at DeFi since the market peak in August 2021, savvy players with a long-term perspective have quietly accumulated boatloads in the space.
In our December 30, 2022, analysis of the Stocktwits Crypto Indices, DeFi, often ridiculed and overlooked, emerged as the fourth best-performing index of 2022 out of eleven. Fast forward to this year, and DeFi is leading the pack as the top-performing index, boasting a nearly 200% increase, closely followed by the Proof-Of-Stake Index at +196%.
Growth vs. Yield In Crypto vs. TradFi
In traditional finance (TradFi), capital typically shifts back to growth sectors like the stock market when yields diminish. However, this trend isn’t mirrored all the time in crypto. For newcomers, this is where DeFi becomes particularly enticing. 😃
Despite being relatively new and about 75% down from its all-time highs, DeFi offers compelling opportunities. Many high market cap cryptocurrencies in DeFi, DEX, Lending, and Proof-of-Stake categories offer in-kind yields exceeding 8%.
Consider the BDCcompany $PSEC, popular for its monthly dividend, which you get in $$$. Unlike receiving cash dividends, ‘in-kind’ means receiving the asset itself. For instance, in staking (a key component of DeFi), rewards are paid in the staked asset. Our Crypto 101 article on staking delves deeper into this.
Take, for example, a Cardano wallet’s staking rewards shown on Cardano PoolTool:
The appeal of in-kind rewards lies in the potential appreciation of the underlying asset, which is still significantly below its peak value.
Imagine receiving 31.42 $ADA, valued at about $8.11 (or roughly $0.258 per ADA). Fast forward a month, and that 31.42 ADA is now worth $12.20, a 50.43% increase. 👍
DeFi and Crypto: High Reward, High Risk, Guaranteed Heart Burn
While the above example is promising, glancing at any crypto chart over the past two years reveals the sector’s volatility and risks.
However, on-chain data suggests that some entities with substantial wallets view the past year as an opportune time to acquire assets at a discount, aiming to capitalize on their growth and yield potential. 😍