For me, 2022 is going to be all about productive assets and protocols that can support me and other retail traders/investors in achieving additional yields on coin holdings.
You are not hearing this from me for the first time. I have been pretty vocal about the fact that I mainly hold coins that can be used to earn additional returns in addition to price appreciation.
I also believe that in 2022 we will see the first wave of retail mass adoption in the DeFi sector.
You might now be asking yourself why I do not consider the first DeFi rally in early 2021 as the first wave. This is because I believe that crypto native institutional traders and funds (and not retail) drove that rally. Also, I believe that we will be in a multi-chain universe and not only mainly on the Ethereum platform as we were in early 2021. And that is why I am on a lookout for aggregator tools that will make it easier for the retail customer to put their capital to work. Finally, yet very importantly, is the fact that I believe that derivatives, leveraged products, and dApps will also be available and easy to use for the retail trader/investor.
But please do not misunderstand me here. I will also have my eyes on the institutional flow, which will definitely increase in 2022. However, the flow will be far away from the DeFi ecosystem and mainly include a handful of coins. In terms of the institutional space, I see infrastructure plays, investments, and tokenisation projects as the predominant hot topics. But regulatory uncertainty will hinder institutionals to move aggressively into the DeFi space.
In mid-2021, my personal risk capital allocation shifted: it went from 85% bitcoin exposure (the rest in stablecoins) to roughly 55% bitcoin, and the rest in various altcoins plus some stablecoins. The trigger for me was the NFT hype, the DeFi rally, and the dApps and platforms that emerged during that time that gave me the possibility to properly manage my risk capital across different coins and ecosystems (in a multi-chain universe).
Allow me now to get a bit more concrete and show you the dApps, platforms, and aggregators I use to manage my investments in a multi-chain DeFi universe.
Initially, I always struggled to keep an overview of all of my different investments. It limited me to only a handful of coins or farms in order not to lose control or oversight of it. One of the most useful multi-chain portfolio tools is the Ape Board. It allows me to add different wallet addresses from different chains and view all investments on one overview page. There are also very good portfolio tools on a chain specific level such as Step, Sonar, Zapper, and DeBank.
Another topic I needed to deal with was finding reliable cross-chain bridges that would help me to move coins from one ecosystem to another. Would it not be much easier if there were cross-chain bridge aggregators? Something like 1Inch, which is the most widely used aggregator for DEXs? There are a few out there, but this is definitely a sector that has some room for improvement. It is absolutely viable for the retail trader/investor (see some suggestions of cross-chain bridges and aggregators below):
Please keep in mind that bridges are a complex animal, and that they bear high risks, which are not always obvious to the user. As a side note, cross-chain bridges are also important in the NFT space. The NFT sector is slightly behind the DeFi cross-chain bridge developments, but it is building, too, so it is really just a matter of time. My guess is that as soon some of the larger DeFi investment platforms start accepting NFTs as collateral, the race for a proper NFT cross-chain bridge will heat up.
The last puzzle piece I had to deal with was the investment platforms or dApps. For single coin investments, e.g. borrowing and lending or liquidity mining, they already exist. Each of the larger ecosystems, e.g. Ethereum, Solana, Terra, Polygon, and Avalanche have their own dApps (mainly forks of the first editions built on Ethereum). The main issue with those yield-enhancing products is that you have the additional yield in the form of tokens tied up in the platform (e.g. their governance token), which usually has very high inflation/emission often resulting in very fast drops in the price of the coin, and as a consequence in a drop of your APY of your investment. To make a long story short, it is and was not a sustainable return. With staking on the one side and derivative products on the other side, it opened up a much wider investment horizon. For example, Tulip Garden offers leveraged farming. It uses the liquidity from the two large Solana ecosystem dApps: Raydium and Orca. The maximum leverage is 3x, and you have the possibility to use three different collateral types (currency1, currency2, and a USD stable coin). The dApps profit from each other. Due to the leverage possibility on Tulip, Raydium, and Orca, they can show higher deposit rates than other money market protocols. If this is a bit too complicated, you can also use Yearn, which offers many strategies that I described above but in an automated fashion.
On the options side, we have finally reached the stage where retail investors can earn additional yield by strategies, e.g. writing covered calls. It presupposes that you own the coin (like bitcoin) and that you are willing to cap your upside at the strike level. Those strategies make sense if you believe we are in a consolidation phase. There are two dApps I am currently using to execute those strategies. One is Katana and the other is Friktion.
On Friktion, there is currently a BTCUSD strike $55k with a January 7th expiry running. The APY of 36% is an average of the past two epochs from this strategy. After expiry on January 7th, the new epoch will start with a new strike and maturity. Right at the beginning, the “share token price” will be 1.0 BTC. If the strategy is yielding positive, it will increase like in the current one, and you can redeem your share with a profit or let it run, and it will compound it into the next epoch.
If you play around on those dApps, you will realise that they offer many coins that are from different chains. This means that you need to bridge your coins from the native chain over to wherever the dApp you are using is running to produce your additional yield.
The trading desk wishes you a successful 2022!