There was a time when pretty much everyone in crypto was in agreement that so-called “DeFi tokens” were going to grow to a point where they entered the top 10 cryptoassets by market cap. Well, obviously that never came to fruition and pretty much all DeFi tokens have lost a lot of value against both USD and ETH - disappointing both true believers and speculators alike.

sassal.eth 🦇🔊🐼 @sassal0x

Remember when we all thought DeFi tokens were going to be in the top 10

May 17th 2022

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The thing is - this belief that DeFi tokens would perform well wasn’t unjustified - it was born out of DeFi summer of 2020 where many of these tokens went absolutely nuts. I’m sure those who were around back then remember just how crazy the YFI pump was - from basically $0 to $43,000 in less than a month. And it wasn’t alone in the craziness - many other tokens returned 10-100x (or more) within the 3 month period that was DeFi summer. Though DeFi summer inevitably ended and the tokens came crashing down - since then none of them have reached their all time highs against ETH again and only went up in USD during the last couple months of the bull market (leading into May 2021).

So, what can we learn from all of this? Well, it’s probably best not to take a 3 month period in time and extrapolate that out to form a long-term thesis on any asset. I mean, if you did this for every asset then we’d all be long-term bullish on the outright scams which do very well at the tail-end of a bull market but then collapse shortly after. Even outside of the scams there are plenty of examples of assets that people were extremely bullish on for a few months but then the hype-cycle ended and these assets faded into irrelevancy.

Lastly, I think what a lot of people miss are that DeFi tokens are essentially tied to on-chain businesses and so these tokens are viewed as an “equity” in these businesses. If the business is doing well by generating profits, then it would follow that the token should increase in price eventually (especially if some of those profits are flowing back to token holders). Though if the business is doing poorly (of which many DeFi businesses are), then the token has no reason to increase in price and every reason to fall in price (especially if it is already highly valued).

All of the above isn’t to say that DeFi tokens are uninvestable - far from it - but it is to say that picking the winners is really hard (just like picking non-crypto business winners). To pick a winner requires lots of research, patience, experience, conviction, maintaining a position (aka not blowing yourself up) and, of course, a little (or a lot) of luck.

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.