DeFi for Investors: Finding the Next Crypto Unicorn


Now that the crypto market has gone mainstream, there are large companies looking to invest in the next big thing. It’s a great problem to have, because if you can find the next unicup (coin that is a 10x+ return), you can make a lot of money. But where do you look?

While the amount of money raised by ICOs is growing exponentially, the number of successful cryptos is still very low and is still shrinking.

The market for digital currencies is getting more and more crowded everyday, but there are those who still think they can find the next crypto unicorn, and it’s not hard to see why. They see the huge upsides of blockchain technology, and think that crypto will make a comeback. Well, that’s the theory, and we may be seeing more of them come to fruition, but how do we know which ones are real?

Imagine having a superpower that allows you to invest in the next Google, Amazon or Apple.

I see this as a kind of spy sense that you can use to spot the next fast-growing company with a billion-dollar turnover. Let’s call this superpower Uni-Sense.

Today, I’m going to help you unlock this superpower.

That’s a bold statement, but that’s how much confidence I have in the growth of DeFi, the decentralized finance technology that will replace banks. I’m even more sure they have no idea what’s going on: TheFi gobbles up the boxes.

If you are new to this field: DeFi is a new type of financial service, developed in part in response to the confusing legal status of cryptocurrencies. Because governments cannot make a decision, they are surrounded by fierce innovation that cannot be stopped.

The World Economic Forum has developed an excellent toolkit for WiFi policy makers to inform banks and governments how this works and how they can respond. This report is a must read for blockchain investors, especially this chart:

Courtesy of the World Economic Forum for policymakers.

DeFi for Investors: Finding the Next Crypto Unicorn

This definition is an excellent model for understanding the new financial system. Once you understand these different levels, you can develop your Uni-Sense, which will help you discover the next unicorn (i.e. the lead company or project) at each level.

Let’s look at these levels in more detail. From bottom to top, we have:

Settlement layer

This is the infrastructure on which the DeFi is built. For the vast majority of DeFi projects, this layer is Ethereum. As I have said many times, the easiest way to invest in DeFi is simply to buy and hold ETH. This is the basis of the DeFi, and it is the basis of a reasonable DeFi investment portfolio (including mine).

Vegetation layer

These are stable pieces that serve as an on and off ramp between traditional and digital financial systems. Most of these stablecoins are pegged to the dollar, so it’s not a good idea to invest in them because they won’t increase in value – although stablecoin companies become extremely valuable when they enter the traditional stock market. (See my article on Coinbase shares).

Gateway level

This is the wallet in which your cryptocurrency is stored. At DeFi, Metamask, a Consensys product, has by far the largest market share. Consensys is currently a private company, but I expect that to change. (Coinbase recently launched its own rival portfolio, Metamask, another reason to invest in COIN stocks).

Application level

This is where it gets interesting. These are apps that run on your computer or phone, and the WEF report divides them into four categories (there will probably be more).

1) Decentralized scholarships : These platforms allow you to exchange (or trade) one cryptocurrency for another. Think of exchanges like Coinbase or Binance, but decentralized. This makes it even easier for investors: Instead of waiting for them to go public, just buy and hold their token, whose price reflects what investors think it will be worth in the future. The current DEX pioneer is Uniswap (UNI), which – like its name – is already a unicorn.

How DeFi Platforms Work (thanks to DeFi: Beyond the Hype)

DeFi for Investors: Finding the Next Crypto Unicorn

2) Credit : Instead of borrowing from banks, users can lend money to each other through DeFi platforms. You earn tokens from the platform for borrowing and lending, and these tokens generally increase as the platform attracts new users (see step 3 in the diagram above).

The current leader in this field is Compound, which is also a unicorn. To be clear, there are two ways to invest in COMP: You can either borrow a lot of cryptocurrency through Compound to earn COMP tokens (see step 3 above) – or, if you believe in the long-term potential of the project, you can just buy COMP directly and hold it.

3) Derivatives: This is where things get complicated. A derivative is essentially a blockchain-based token linked to another asset. There are too many to mention: Futures, options, prediction markets and even NFTs are all types of derivatives. The danger of investing in derivatives is that you quickly build a Jenga tower – derivatives made of derivatives – that can suddenly collapse. Be careful.

4) Insurance: Fi trading is risky, so one of the biggest opportunities is simply to invest in companies that insure against all these risks. (Consider Warren Buffett’s huge investment in the insurance company GEICO, one of the most profitable in its history.)

DeFi insurance protects users from smart contract failures or protocol hacks: The current leader is Nexus Mutual, whose NXM token has yet to reach unicorn status, making it an attractive investment opportunity. Look at this area with your laser eyes.

Aggregation level

This is where all these DeFi services can be brought together. That’s something that’s really unique in this region, and the banks can’t match that. Since everything is software-based, the crypto currency you invest in DeFi can be automatically redistributed and constantly strives to get the best return for your money. (Think of it as robo-advisors on steroids.) This category includes:

1) DEX Aggregators : Consider Kayak or Google Flights, which are airfare aggregators that save you time searching for the best fares. When you want to exchange one token for another, DEX aggregators automatically analyze all major decentralized exchanges, find the best rate and route your transaction there. The current guiding force is 1 inch. (See also our article on the best DEX aggregators).

2) Management of assets and revenues : Traditional money managers are people who invest your money in a well-diversified portfolio. In DeFi, you can do all this in code. One example is the Balancer (BAL), which is similar to a self-balancing index fund. If you want to hold a portfolio that is 70% Bitcoin and 30% Ethereum, the balancing pool will automatically balance them for you and make transactions behind the scenes based on the price movements of BTC and ETH. Traditional financial managers will be widely challenged by these new wealth management sites. Business models are changing rapidly, so put your Uni-Sense skills to use in this area.

A cult book. (From our Read & Become Rich reading list)

DeFi for Investors: Finding the Next Crypto Unicorn

The secret book to developing your Unisinn

There is a book that has gained cult status among successful blockchain investors: Technological revolutions and financial capital by university researcher Carlota Perez. (The hardcover is on sale for $125 on Amazon, and it’s worth it).

Perez says technological revolutions come in waves: The industrial revolution, the railroad revolution, the internet revolution, etc. Each of these technological revolutions requires a huge amount of money, as each requires a different infrastructure. So the financial and technological revolutions go hand in hand.

For example, a car revolution requires roads, access to cheap fuel, car dealerships, etc. Huge amounts of money are flowing into these related sectors, creating new financial innovations such as car insurance and finance. The world is beginning to change in profound and unpredictable ways: Cars are synonymous with freedom, so people go on more vacations, move to the suburbs, etc. These technological and financial revolutions are thus causing permanent and long-term changes in society.

Blockchain geeks love this book because they see the current era as the beginning of a new technological revolution. Bitcoin, cryptocurrencies and now DeFi are just some of the components of this new wave, which has the potential to be as disruptive and far-reaching as the industrial revolution.

But it was this page that I scanned and pinned to my desk when I first read the book:

Experienced technological revolutions and financial capital Carlota Perez.

DeFi for Investors: Finding the Next Crypto Unicorn

In one page, Perez clearly summarized the five types of financial innovations that accompany these technological revolutions. I consult this table regularly to improve my unicorn skills, and I encourage you to spend some time studying these five categories: You will also improve your academic skills.

Tomorrow’s most valuable companies will be the blockchain leaders in each of these categories.

Many of them will not be businesses in the traditional sense: These will be decentralised projects. Either way, you can invest in it today by simply buying and holding the corresponding token.

Bringing it all together

Now let’s combine Perez’s categories with the DeFi categories from the World Economic Forum report:

 

Financial innovation DeFi Category Conductor Capital goods
Provision of capital for new products or services Stable parts Tether, USDC (Circle/Coinbase) Coinbase shares
Promotion of growth or expansion Credit Composition COMP
Modernisation of the financial services themselves Distributed ledgers, centralized exchanges, decentralized exchanges, portfolios. Ethereum, Binance, Uniswap, Coinbase, ConsenSys ETH, NBB, UNI, Coinbase shares
Profit recognition and allocation of investments and risks Insurance, derivatives Nexus Mutual NXM
Refinancing of debts or mobilisation of assets DEX Aggregators, Asset management, Income management Balancing machine, 1 inch BAL, 1 inch

This is the basis for your future finances.

Just like in the early days of the internet, things move fast. These are the current favorites, but there are new contenders each week. Some of these projects may not exist in five years, but the general trend will continue: DeFi is modernizing financial services, and this is a great opportunity for investors.

TLDR: The easiest way to invest in DeFi is to buy and hold ETH. Those with the time and money should consider diversifying into the stocks and blocks in the table above, as they are likely to be the unicorns of the future (some are already unicorns today). Do your research. Develop your unique feeling. Take a ride into the sunset.

You may also be interested in reading:DeFi for Investors is an asset-backed crypto bank that is both a tangible and a digital product. Through our platform, investors can earn interest on a portfolio of bank-issued loans, as well as take advantage of other uses of the platform. We are currently issuing an ICO for a DeFi token, known as “dFi”. This token is an ERC20 compatible utility token that is issued by an existing bank we are working with.. Read more about billion-dollar bitcoin and let us know what you think.

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