Crypto traders live for risk. Every day, small fortunes are won and lost on derivatives exchanges, where the loser gets liquidated and the winner doubles up. That’s the nature of the game, and players know what they’re getting into before they dial up the leverage and market buy.
Decentralized finance (defi) is an altogether different beast. A subset of the crypto market, defi comprises a set of tools for interacting with open finance protocols. These are permissionless systems, meaning anyone can utilize them for the purposes of borrowing, lending, and trading.
Defi has the potential to deliver financial inclusion to millions, but right now it’s being used almost exclusively for one thing: speculation.
Crypto Gamblers Get their Fix on DEXs
In the past, crypto gambling meant visiting an online bitcoin casino. While there is still a robust market for depositing BTC and spinning the slots, risk-inclined bitcoiners today have other options at their disposal. Defi has become a speculator’s paradise, to the extent where demand for yield farming (essentially staking tokens in pools to earn other tokens as rewards) has become Ethereum’s primary use case. In fact, Ethereum miners earned over six times more in fees compared to contemporaries working on Bitcoin in September, a consequence of surging defi activity and yield farming.
Decentralized exchanges (DEXs) such as Uniswap are the preferred mechanism for defi traders to speculatively swap Ethereum ERC20 tokens. Once dwarfed by centralized exchanges for volume, in 2020 DEXs have come of age. Last month, Uniswap surpassed $1 billion of daily volume in a single day, placing it ahead of US giant Coinbase.
Plz No Rug
Crypto is an industry in love with obscure acronyms, jargons, and portmanteaus, and the defi sector is no different. The world of DEX trading has spawned its own technobabble that is largely incoherent to outsiders. For example, to “rug” is to pull the rug out from under the participants of degen defi trading. This occurs when the anonymous developers of a particular token remove the liquidity from a DEX trading pool, leaving traders nursing worthless tokens. It’s just one of a multitude of ways in which unsuspecting defi traders can be scammed.
While a good proportion of the action that takes place on the frontlines of the fast-paced defi sector is of dubious value and has limited longevity (it’s not uncommon for a token to multiply in price by 10x and then wither away to nothing within the space of a day), there are some genuinely innovative projects pioneering new systems for trading, lending, borrowing, saving, and earning a passive return on crypto assets. All of which makes defi one of the most exciting sectors to be involved in – but also one of the riskiest. It’s no wonder that crypto gamblers have taken to it with aplomb.
Of course, not everyone who trades crypto is enamored with defi and all it stands for: not only do they view it as another bubble destined to burst spectacularly, 2020’s version of the ICO craze, but they are resentful of the slow confirmations and high fees it has engendered. The so-called “gas war” has even compromised the viability of some smart contracts and defi dApps.
While Ethereum founder Vitalik Buterin has previously praised defi protocols, he is hardly “all-in”: back in August, he compared the economics of yield farming tokens to the Federal Reserve’s money printing. “Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they’re all run by Ron Paul,” he said.
Crypto Competitions: The Ultimate High for Bitcoin Traders
Whatever Buterin or anyone else has to say, traders gonna trade – for the rush, for the margin, for the kudos. This fact has given rise to a number of trading competitions organized by platforms whose top performers enjoy a kind of rock star status on Crypto Twitter: figures like Crypto Cobain, Loma and Bitcoin Jack. These competitions only nourish their legend, whether it’s Bybit’s World Series of Trading (WSOT) with its eye-watering 200 BTC treasure chest; Binance’s Futures Anniversary Tournament; or StormGain’s Coin Contest. While some whale traders prefer to be completely anonymous, others bask in their fame and dispense wisdom to their loyal followers.
Anyone can utilize defi protocols for the purposes of borrowing, lending, and trading. And many small-time traders have taken to tracking the big cheeses whom they wish to emulate, either by monitoring their social media feeds, tracking their addresses using tools like Nansen or HAL, or by openly replicating their trades via a platform that supports Copy Trading. Observing the activities of top traders can also provide an indication of tops and bottoms.
With the total value locked in defi having recently crossed the $11 billion barrier, the bullish sentiment remains. It may be high risk but the sector is likely to remain a magnet for those chasing lucrative returns.