Bitcoin has, predictably enough, done well for itself. First it held over about $10.5K and then it tipped $13K yesterday. Everyone is waiting to see how high it will go during November and December. The DeFi market is a more troubled space. Uniswap (UNI) hovers around $3 and yearn.finance (YFI) has hovered in the $12K to $20K range, falling far short of $250K expectations voiced by some luminaries in the crypto space a few short months ago.
KAVA was a hot ticket item when ETH gas prices were soaring and the overhead in the space was prohibitive, but things have cooled off substantially since then. The question in my mind is this: what does the future of DeFi look like?
DeFi: How We Got Here
When I bought my KAVA for about $4 per token, I was expecting the DeFi boom to last longer than it did. I also expected ETH gas prices to stay higher than they did, for longer than they did. When I sold out at around $2.30, I had to admit to myself that I’d made the wrong call back then. Now, looking at KAVA under $2 as BTC rises, I wonder where the new bottom will turn out to be.
DeFi burned very brightly back in August. I set up Google News alerts for a variety of topics in the space and did all the reading I could to figure out what was going on. I bought KAVA in late August and held it for most of the subsequent dip, but I began to feel concerned when increased DeFi volume failed to deliver anything measurable in terms of the DeFi token prices.
Recently, total DeFi volume is approaching $12B, but the tokens that operate some of the most central applications in the space are slipping. How could that be, unless excessive hype back in August dramatically outpaced real growth in the sector?
The fact is, it is fairly typical for a new market segment to attract a ton of attention and droves of naive speculators. What happens next is anyone’s guess, but in this case it looks like some of the speculators held on and others left the space, resulting in a price collapse among the various tokens despite the successful creation of a new market sector.
KAVA was an appealing buy at $4 because the sky was the limit. DeFi was soaring, both in terms of value locked and in terms of speculation about the prices of the various tokens. Anyone who has had any success as a trader knows it’s 10x easier to fail than it is to succeed, but even with the limited information we have access to it is certainly still worth trying.
When I bought my Cosmos (ATOM), I didn’t realize what I was getting into. It was the most successful buy I’ve ever made, but it was more of a gut reaction than a well-researched decision. When I bought KAVA, on the other hand, I was trying to get in on a well-established trend that had already run most of its course. I did a lot of research to figure out which project was most likely to have a competitive advantage moving forward and even tried to buy a dip — just the dip went deeper than I’d thought it would.
I made a much smaller purchase of KAVA than I did of Cosmos, thankfully, but I shudder to think where the bottom is. Bitcoin has recently done well and there is reason to believe its success will translate into success for other tokens, but its main companion in recent growth is ETH and we do not yet know how these new DeFi tokens will sync up with the rest of the market. I was getting notifications about BTC being up and about YFI being down all morning yesterday. Is this the new price relationship between DeFi and BTC?
What is the market thinking?
Market Possibilities
Regrettably, I have to leave both of those questions unanswered. I simply don’t understand. But what I do expect to happen is this: led by BTC, the market will rise in the coming weeks. What we’ve learned this fall is that progress does not have to be shared evenly. I expect BAND Protocol to begin to outpace Chainlink by virtue of being a competitive service in the oracle space and costing less to use.
I expect ATOM to outpace KAVA because ETH-based DeFi services can rather easily migrate, as BAND Protocol did, to the Cosmos community from the ETH ecosystem. And I expect a new crop of tiny caps such as AWC and TERN to begin to make themselves known in the midrange market cap market by breaking $100M market capitalization through good old-fashioned partnerships and volume growth. The vast majority of DeFi tokens will struggle even if a few of them succeed, but the SDK developers and market makers and capitalists who are starting to see blockchain as legitimate will profit.
The trick to any gold rush is to sell shovels and tents to the miners. The reason to do this is that it allows us to hedge our risk and still make some profit. It turns out this applies to liquidity mining gold rushes as well. Ethereum’s newfound strength above $300 could likely never have come about without the DeFi rush, and as we move toward the ETH2 launch, it is increasingly likely that novel use-cases will emerge. Blockchain technology is here to stay.
KAVA is at least potentially a warning sign. Be careful what you wish for, DeFi gold rushers! The projects that are objectively best do not always succeed, because hype drives volume and volume drives price and Ethereum is where all the hype is these days. I may buy a bit of KAVA if it dips beneath the $1 mark just on the off chance that being built upon Cosmos will turn out to be enough of an advantage to offset the development team’s slow buildout of additional crypto token support, but to tell the truth a large part of my decision to sell KAVA had to do with my realization that it is better to sell pickaxes and shovels and tents to people than it is to try to mine for gold.
I’ll hold my ATOM* until it reaches scarcity, staked and growing even as the price increases, and I’ll benefit whether Uniswap eventually migrates or KAVA takes off and leads the next DeFi revolution. Either way, the only thing I’m not hedged against is a dominant ETH2 product wiping out all of its competitors. And frankly, that’s how I want to be set up heading into this launch. It seems like risk lurks around every corner for ETH backers, and I want to earn multiples when the inevitable struggle eventually sends investors rushing toward ETH competition.
