Decentralized finance (Defi) and tokens issued under this auspices have become the most high-profile event in the world of cryptocurre...
Decentralized finance (Defi) and tokens issued under this auspices have become the most high-profile event in the world of cryptocurrency since the ICO boom that happened in 2017. We are talking about exchanges, users of which can trade Ethereum and other coins directly from their local wallet, without trusting them to be stored on the site. And about applications that allow you to take out a loan secured by digital assets or open a deposit in them.
The huge interest in this area is most clearly shown by the rise in the price of Defi-tokens. Many of them begin to rise in price in the first days, hours and even minutes after release, and in a short period of time add hundreds of percent of the cost. The most prominent example is the coin of the yEarn Finance (YFI) platform. The asset was created on July 18. At that time, it cost $ 32. Now - $ 15,000, that is, more expensive than bitcoin. The monthly price growth was about 46,000%, writes RBC Crypto .
* July price of YFi token is indicated at the time of issue
The YFI token has two features. First, this insane increase in value is largely due to minor emissions. There are only 30,000 YFI coins. Secondly, it is an "absolutely useless cryptocurrency" with no fundamental value. This was stated by the developer of the project during its release.
YFI is not the only example, although the most impressive one. The Just token, developed by Tron CEO Justin Sun, also showed a significant rise in price. This altcoin was released in the spring and traded in the $ 0.005-0.01 range for the first months. But at the end of July, the coin began to rise in price rapidly. The reason for this was Sun's announcement of the launch of the Justswap decentralized exchange, which took place yesterday. During this period, the Just rate increased by more than 1000%, to $ 0.06, at the moment it rose to $ 0.094.
Drivers of growth in the price of DeFi tokens
There are two key drivers of growth in the value of DeFi tokens. The first of them is entering a new exchange. And the larger it is, the greater the effect can be. For example, Binance added the Balancer platform coin on August 6. Within a minute after that, the asset price rose more than 50%, from $ 10 to $ 15.6.
In the last month, the listing of DeFi tokens by major exchanges has been especially frequent. Probably, the sites see the community's interest in a new type of assets and try to keep up with the development of the industry. The Coinbase platform is the most active in this regard, it was one of the first to start adding coins to decentralized applications. On July 31, the company posted on its blog a list of projects it is considering for listing, including Ampleforth, Band Protocol, Curve, Fetch.ai, THETA, UMA, and WBTC and others.
It is risky to buy DeFi tokens immediately after the news of a listing on a large platform is released. As a rule, the price soars literally in seconds after the official announcement and immediately begins to decline. This happened with the Curve DAO Token (CRV) cryptocurrency. Its unplanned launch took place on August 14, after which it was added to several trading floors, one of the first among them was Poloniex. On it, the asset rate rose above $ 50, but was unable to gain a foothold above this level and has been falling since then. The current value is below $ 4.
CRV Token Chart
A listing on a large marketplace can also help drive the value of DeFi tokens by entering a new market. New exchange - more people get the opportunity to invest in the coin. However, there is no guarantee that traders will believe in a new type of assets that has not yet been tested by time and will start investing in them.
Another driver is the development of a new product, as Justin Sun proved with his Just token. Buying DeFi tokens in anticipation of an update or launch of a new feature is a more realistic option than trading on the listing news, as it is almost impossible to predict when and which coin a major marketplace will add. But this option also involves many risks. For example, an event may have no impact on the price or be deferred indefinitely.
It is also extremely important to consider the number of tokens issued. The fewer there are, the higher the price should be relative to this. If you find an asset that costs more than BTC, while its emission is more or approximately equal, then it is terribly overvalued. In other words, YFI is now trading higher than Bitcoin, not because it is better or more popular, but because of the small number of coins created.
Risks of working with DeFi tokens
There are many risks. The most important of these is insane volatility. The DeFi token price can fluctuate by hundreds, sometimes thousands, per day. For the most part, this concerns projects that have not yet been added to large trading floors and are currently only traded on small decentralized exchanges such as Uniswap. The latter is the most popular in its segment.
Another risk is a hacked or malfunctioning platform. This happened with the Yam DeFi project. In the first day after its launch, users transferred over $ 150 million in cryptocurrency to the site. On the second day, the protocol developer reported a critical error. Within half an hour after that, the Yam token rate fell from $ 167 to below $ 1.
The third risk is that there are a lot of scammers. Users who are actively involved in working with DeFi tokens trade on the Uniswap platform. Such projects appear on it first of all. Traders try to buy new, newly released assets before someone else finds out about them or they are added to larger platforms.
Scammers are in such demand. They create fake tokens and add them to Uniswap. Since the site is decentralized, there is no project verification procedure on it. It is now possible to release your token based on Ethereum in half an hour, this does not require investment and programming skills, detailed instructions can be found on Youtube. In this regard, many fake cryptocurrencies have appeared on Uniswap. For example, at the moment there are 4 Geeq DeFi tokens traded there, however, at the beginning of the month there were more than 10 clones. A similar problem was discovered on Sana's Justswap platform launched the day before yesterday.
Geeq token clones on Uniswap
There is a sure way not to lose money buying fake cryptocurrency on decentralized platforms. To do this, you need to open an aggregator such as Coinmarketcap or Coingecko. Find a token on it. Then follow the link to the asset profile in the browser. If you copy the address of the smart contract from there and paste it in the search on Uniswap instead of the name, the exchange will issue only one coin and it will be real.
The decentralized finance industry is extremely young, but already booming and oversaturated with fraudsters. There are signs of a blowing bubble in this market. Users are ready to indiscriminately buy DeFi tokens only because of the DeFi set-top box and invest in projects that have not been tested and work for less than a day. Therefore, it is extremely important to invest in a new type of assets only those funds that are not a pity to lose, and not to succumb to the feeling of lost profits. Otherwise, you can lose all the money.
