Each week, it feels as if another DeFi project becomes the talk of the crypto market with buzz surrounding the astronomical gains these assets keep bringing investors. It’s got investors on the hunt for the next big breakout star in the hot to trot world of decentralized finance.
However, one hedge fund manager and crypto advisor is warning that it may be dangerous to dive in headfirst to new DeFi projects in hopes of discovering the next big thing.
Decentralized Finance Bandwagon Keeps On Trucking Along
At the tail end of 2019 and into early 2020, the decentralized finance (DeFi) craze caused Ethereum to rally by over 125%. The asset’s best new use case went parabolic in user growth, as well as the amount of ETH locked up in related applications.
Soon, that interest and booming trend made its way into several Ethereum-based ERC20 tokens each with different benefits related to DeFi.
Related Reading | Fund Manager: DeFi Will Propel Ethereum To $1 Trillion Market Cap
Some assets allow for another big new crypto buzzword called yield farming. This let’s crypto holders put other assets up for borrowing, earning an interest yield on any asset lent out.
Being able to make an additional return on investment on top of asset valuation growth has prompted these assets to skyrocket. The trend is showing no signs of slowing, and each week another DeFi-centric token steals the limelight.
Weeks ago, it was Compound, and this week, it was LEND. Now, its got investors on the hunt for what could be next. But it could prove to be dangerous hunting grounds, according to one crypto fund manager.
0/ As the major DeFi tokens continue to surge in value, it is tempting to try and find the next undiscovered DeFi gem.
There is a reason the DeFi majors are the prime beneficiaries. They are battle-tested and are positioned to capture much of the liquidity flowing into DeFi.
— SpartanBlack (@SpartanBlack_1) July 20, 2020
Honing In On New DeFi Hype Could Prove Dangerous, Warns Crypto Advisor
According to a partner at The Spartan Group, a crypto hedge fund and advisory firm, it may not be wise to seek the next shiny new DeFi coin. In a detailed Twitter thread, the former Indus Capital Partner and Goldman alum explains why it is especially risky to invest in lower-tier DeFi projects over “majors.”
They claim that the largest assets currently are the biggest beneficiaries of the current DeFi craze because they are “positioned” to be so. These are “proven,” “battle-tested” projects with real promise and teams behind them.
Venturing out to find the next big thing could lead to projects that over promise and “fail to deliver.”
If this at all sounds familiar, its because this is the same exact thing that happened during the ICO boom in 2017. The first of its kind altcoins that caused the initial hysteria were the promising projects that brought investors wealth, while any coins jumping on the bandwagon left investors burned and scorn.
Related Reading | The Great Ethereum Debate: DeFi Versus ICOs
Several ICO projects are valued significantly less than their initial launches, and will likely never return to such prices. Many of these projects are completely abandoned today, yet cashed in on the surging buzz surrounding ICOs at the time.
DeFi, while a much more sustainable and promising in the long run than ICOs, still has the potential to promise too much, and provide too little in return.
And as the crypto advisor warns, although there’s always a chance to strike it rich, finding the next big thing sometimes ends up being a dangerous move. Sticking to the tried and true tokens that were embraced initially by the crypto market, often proves to be the wisest decision.
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