In some ways, actively investing in top DeFi tokens based on the TVL may have become passe, with the returns dropping by 15% and above within a week. Among top DeFi tokens, returns on UNI dropped by nearly 15% over the past week while SUSHI’s price dropped by nearly 11%.
On the contrary, tokens like Compound and Vesper were noting high daily returns of 10% and 12% in the last 24 hours, at press time.
With returns varying like this, it makes sense to experiment with investment strategies. For instance, investing in these tokens or through Grayscale’s DeFi token offerings is one option, albeit a rather direct one. This active investing format has caught on with institutional investors and whales, and that is evident from the concentration of large HODLers, like 91% in UNI and 88% in AAVE.
Returns in active investing rely on the performance of a single token, and this may be largely volatile since DeFi tokens are popular for their volatility due to the low market capitalization for most and high liquidity. The concentration does not directly impact liquidity on top markets such as Binance, OKEx, and Huobi Global.
However, a new strategy that has emerged and become widely popular is passive investing. Putting together a portfolio balanced with DeFi tokens on exchanges, but with short and long-term POV, and with the intention to book unrealized profits every week, every few weeks. This new passive DeFi strategy has massively outgrown active ones due to yields that are easier to understand.
There is a significant alpha that emerges from the information asymmetry in DeFi. The effect of this information asymmetry can be flattened out with a balanced DeFi portfolio. Ergo, it is expected that there will be growth in the portfolio, without even taking token incentives into account.
Consider this – Despite the last 30 days seeing incredible inconsistency in movement, DeFi’s TVL was up nearly $10 billion over the said time period, at press time. What’s more, DeFi’s dominance was above 16%, with an increase in the same signaling the need for a shift in investment strategy.
Bitcoin and ETH maximalists booked the highest unrealized profits over several quarters every year, however, that has now changed with wider and numerous opportunities for booking profits in DeFi tokens. Besides, Bitcoin locked in DeFi tokens has dropped over the past 90 days, more significantly since 11 February 2021. Based on the ongoing price action, it can be anticipated that top DeFi tokens like UNI, SUSHI, YFI and, AAVE will hit local tops within the following two weeks.
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