Surviving the 2020 Crypto Bull Run: 10 Tips on How to Ride the DeFi Boom
On the back of Ethereum’s decentralized finance sector booming in 2020, it seems the cryptoeconomy once again is entering a bull market some two-and-a-half years after crypto’s last bull market ended in January 2018.
Of course, much has changed since then. Ethereum is now pulling in more transaction fees than Bitcoin, DeFi’s top projects have finally found product-market fit with growing volume as the proof, and Chainlink’s LINK token has soared into a top 5 coin per market capitalization.
In other words, Ethereum’s ecosystem is leading the 2020 crypto bull run just as it did in 2017 when the ICO boom exploded atop the smart contract platform. The difference between then and now is that Ethereum’s fundamentals — and the fundamentals of the best projects built on it — are exponentially better today.
That said, some of the risks and pitfalls of crypto in 2017 are just as relevant to our present cryptoeconomy, while new cryptonative dynamics have been introduced since then that warrant new kinds of vigilance accordingly. As such, in this post I’ll walk through a series of basic tips that will help you weather the 2020 crypto bull market in generally sound fashion.
Don’t Chase Everything
The big hit in DeFi this year has been yield farming, where protocols reward users for supplying liquidity to their projects. With this phenomena comes new kinds of cryptonative earning opportunities, but it also brings new risk avenues.
For example, this week Yam Finance launched and within the span of about a day the protocol had already amassed $600 million in assets under management. Then a bug was discovered that ultimately rendered governance of the project impossible, which in turn rendered the project useless.
The point is this: at first, Yam seemed like an interesting avenue to yield farm and the team meant well. But the project launched unaudited, and a big problem was soon discovered that cost more than a few users money.
The takeaway? Seemingly sexy projects will abound in a bull market but risk will, too. Take time to seriously scrutinize what projects you’re willing to participate in, and be choosy. If you try to chase every earning opportunity, you could lose everything instead.
Bad Projects Will Bloom, Too
Whenever the cryptoeconomy proves itself as seriously profitable, scammers start turning up in droves. The profit motive is simply there. Expect more malicious actors to arrive if crypto continues to heat up in the months ahead.
One thing to watch out for is malicious actors forking reputable protocols and trying to entice new users with “new projects” by cheaply riding on the coattails of other teams’ work. Simply put, if a project appears to good to be true and has unreasonable risks involved, avoid it at all costs.
Great Info = Great Insights
A cryptoeconomy user is only as good as the information they take in. This is why it’s extremely important to know where to find reputable information streams.
Luckily for all of us, there are now loads of great resources freely available to the public when it comes to analyzing blockchain activity, e.g. on Ethereum or Bitcoin. And as this bull market is Ethereum-led, some of the current Ethereum-centric resources I’d recommend are as follows:
- DeFiPulse (great for tracking DeFi stats)
- CoinGecko (a DeFi-centric alternative to CoinMarketCap)
- Dune Analytics (amazing resource for Ethereum stats)
- Zapper (a streamlined DeFi dashboard)
Using reputable and useful sites like these will help you navigate the space nimbly and with the best information possible.
Learn Your Metrics
There’s no shortage of jargony metrics in the cryptocurrency space, but none of them are too difficult to understand and the basics are important to grasp. They include:
Volume: how much a given a crypto was traded in a particular span, e.g. 1-day, 30-day, 90-day volume.
Total Value Locked (TVL) = a metric for DeFi projects that illustrates how much one protocol or all DeFi protocols together presently have in assets under management.
Dominance rate: the percentage that an asset’s market cap accounts for among the combined market cap of all cryptocurrencies. You can use the metric for DeFi, too: “Lending project Maker currently boasts a dominance rate of 26% in the DeFi sector.”
Fees: how much users for paid for transactions within a particular span, e.g. 24 hours.
Circulating / total supply: circulating supply refers to how much of a crypto is circulating at any given time, while total supply is the maximum amount of a crypto that will ever be issued. Since some project’s have issuances set to take place over decades, these numbers can be very different.
Mind Gas Prices
If you’re using Ethereum in the coming weeks, be mindful of gas prices. These prices are the amount in ETH you have to pay in order to have an Ethereum transaction or transactions successfully processed.
As users have raced to participate in various DeFi projects in recent weeks, gas prices have been very high lately. Layer-two scaling solutions are just around the corner, but in the meantime some shrewdness can save you a good bit of ETH.
Use resources like the ETH Gas Station to try and time transactions when gas prices are lower, or check out Loopring Pay, a live L2 scaling system that lets you send ETH and ERC-20 transactions extremely quickly and virtually for free. There’s also the 1inch team’s Chi Gastoken, which is worth looking into.
So much of the activity that’s helped to kick off this current bullish breakout for the cryptoeconomy has been centered around decentralized exchanges, or DEXes.
That said, if you’re new to the space you’ll be doing yourself a favor now if check out some DEX tutorials and trial trading with a small amount of losable play money to get comfortable. Uniswap is the king of liquidity in the DEX arena right now, so it’s a great place to start. Some other DEXes or DEX aggregators you might want to check out include:
- Kyber Network
Track Communities of Interest
You’ll want to keep your ear to the ground in the communities of projects you’re interested in. The best way to do that is to go to the places where community members mass for discussion.
As far as social media goes, Twitter and Reddit are thriving centers of crypto community activity. But you’ll also want to consider downloading chat apps like Telegram and Discord, as many projects maintain their own respective chats that can prove to be goldmines of helpful information and like-minded colleagues.
Cryptocurrency prices can rocket up quickly and spike down just as fast.
This isn’t to say you should constantly expect extreme volatility in the cryptoeconomy. Just don’t be surprised if prices move fast in a particular direction, it’ll most certainly happen sometimes and often to greater extents than you might typically see in traditional markets.
Never Slouch on Security
Safety first, right? There are plenty of fun experiments to participate in around crypto right now, but you should always keep security at the forefront of your mind.
For instance, consider getting a hardware wallet to more resolutely secure your assets. Watch out for phishing attacks, and never input your wallet’s seed phrase anywhere online. Avoid sketchy sites and sketchy projects, and triple check URLs and addresses when you’re doing transactions. If someone’s offering you a deal that’s outrageously good, it’s surely too good to be true.
And most importantly, if you ever have any questions seek out the answers before taking any actions with your assets: there are lots of helpful folks around the space as well as beginner how-to guides that can help you get up to speed quickly on how best to use your crypto safely.
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