DeFi Summer 2.0

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14 Jan 2025

DeFi Trends
I love DeFi and wish it weren’t so seasonal. The next bear market might be less aggressive than previous cycles, and we can enjoy some additional time in the sun for our yield-generating assets. DeFi is typically super seasonal, and choosing the right time to participate in the DeFi ecosystem is crucial. I have been actively engaged in DeFi again for the past 3 to 4 months, as I discerned the beginning of “Summer.”
The yields are good and choosing wisely will expose you to great opportunities. The risk of exploits remains a risk in the DeFi space and should be seriously considered when utilizing DeFi protocols as a passive income source. It’s also important to note that the yields are far more significant than staking yields via Proof-of-Stake protocols like Solana or Polkadot.
DeFi yields generally range between 30% and 110% and I usually try to identify opportunities of at least 50% or higher. The effect of impermanent or divergence loss must be factored in, as this is an unavoidable part of the process. Simulation and well-thought-out strategies can keep these losses at a minimum. The key is to ensure that your earnings are significantly higher than your divergence losses.
Summer Intensifies
The problem with DeFi and bear markets is twofold. Not only do the valuations of your assets drop significantly in value, but so do the yields generated in various DeFi pools and protocols. This double-whammy effect can be fatal to new and inexperienced investors. There is a positive aspect to this dynamic. As mentioned in yesterday’s article, bull and bear markets are antithetical.
In other words, they are perfect opposites. This means that these dynamics are turned upside down in a bull market. Asset valuations and yields increase, ultimately creating a compounding effect. Altcoins have been performing much better in recent months. However, they are still at the bottom of their long-term trading range. There are a few exceptions. However, they are limited and isolated cases.
Historically and statistically we are about to enter DeFi’s prime time, when asset valuations and yields explode. One important point to consider regarding my own DeFi strategies… I only deploy 30% to 50% of a DeFi portfolio into pools and vaults. This is by design and acts as a form of risk management. I suffered a few DeFi hacks in 2021 and know it’s a threat that requires a backup plan.
In the event of a hack, working capital can be replaced. Diversification also helps in this regard. When you generate between 4% and 10% per month, risks are mitigated. These yields can be used to acquire assets for your long-term HODL portfolio. Risk is a packaged deal. There is no escaping it. However, we can do our best to mitigate it as best as possible. Plan, execute, and do your best. That’s all you can do.

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Final Thoughts
Bitcoin has already recovered from yesterday’s flash crash. We might still see prices edge lower. However, with the 20th around the corner, it makes sense that there is a correction before the “Trump Effect” kicks in. Either way, DeFi Summer is upon us and about to heat up. DeFi is a tool in a bull market and can be utilized as an instrument of multiplication. Enjoy the ride! See you next time!

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Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.