How To Value DeFi Tokens & Find GEMS!! ๐Ÿ’Ž

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– TIMESTAMPS –
0:00 Intro
2:13 How do you value a protocol?
6:24 Value creation and capture
10:24 Lack of DeFi moats
13:04 Bittrex shoutout
14:00 Competitive advantages
18:57 Future of DeFi?
21:18 Final thoughts

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โ›“๏ธ ๐Ÿ”— Useful Links ๐Ÿ”— โ›“๏ธ

โ–บ DeFiPulse: https://defipulse.com/
โ–บ SushiSwap takes $830M from uniswap: https://www.coindesk.com/sushiswap-uniswap-migration-defi-amm-wars
โ–บ DeFi wars? Uniswapโ€™s UNI token: https://cointelegraph.com/news/rise-of-defi-wars-uniswap-s-uni-token-airdrop-starts-a-crypto-rivalry
โ–บ Users rush back to Sushiswap: https://cryptobriefing.com/uniswap-users-rush-back-sushiswap-after-uni-rewards-end/
โ–บ Swerve Finance VS Curve: https://www.theblockcrypto.com/linked/77133/swerve-finance-tvl-curve-deposits
โ–บ Harvest Finance exploited for $24 million: https://cryptobriefing.com/hackers-drain-defi-protocol-harvest-finance-24-million/

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๐Ÿ’ฐ How Do you Value A DeFi Protocol? ๐Ÿ’ฐ

Itโ€™s easy right? Just go onto Coinmarketcap and you can see the market cap for the project? Hold your horses, cowboy! Itโ€™s not so simple.

Uniswap only very recently issued a token and was Uniswap worth $0 before this? I think not!

Even today, DeFi protocols like DYDX do not have a token. This all makes market cap a highly problematic valuation metric.

Another commonly used metric is True Value Locked. Thatโ€™s a fancy way of saying the balance sheet of a protocol. However, the value is hardly locked and can flow from one protocol to another in the blink of an eye.

Take SushiSwap for example; earlier this year it forked from Uniswap and took $830 million in TVL with it.

๐Ÿ“ˆ Value Creation and Capture ๐Ÿ“ˆ

The key question here is value creation for who? To understand that, we need to know the key stakeholders in a DFi protocol. These are:

โ–บ Liquidity suppliers
โ–บ Users
โ–บ Developers
โ–บ Token holders

Tap into my thoughts on how value is created for all these stakeholders in my vid!

๐Ÿฐ Lack of DeFi Economic Moats ๐Ÿฐ

In short, an economic moat is simply a distinct advantage that a company has over their competitors. This allows a business to protect or increase market share and profitably.

With DeFi, these moats are difficult to build, seeing that value can be withdrawn instantly from a protocol and can quickly flow to another.

Also, most crypto projects are open-sourced which doesnโ€™t lend itself well to traditional moats like economies of scale, patents and regulatory licenses.

๐Ÿ’ช Competitive advantages for DeFi protocols ๐Ÿ’ช

Here are the key DeFi protocol moats I personally have my eye on:

โ–บ Integrations
โ–บ Strength of community
โ–บ Great UI/UX
โ–บ Track record for security
โ–บ The resources at the projectโ€™s disposal
โ–บ The team

I expand on all these points in my video. So, be sure to watch it if you want to download my thoughts on this.

๐Ÿ”ฎ Future of DeFi balance sheet monetization? ๐Ÿ”ฎ

When it comes to value capture in business, everything is quite straight-forward. The company that monetizes their balance sheet the best usually wins.

The issue is that most DeFi protocols havenโ€™t exactly monetized these balance sheets very well just yet. Hereโ€™s how that could all change:

โ–บ Long term Vs short term liquidity: right now there is no differentiation between the two and that means liquidity providers can hop from one protocol to another. This prevents true value capture. That can all be changed by rewarding long-term liquidity provision and this would lead to real TVL.
โ–บ Today, a load of crypto simply sits in smart contracts and does nothing. These are assets on a DeFi protocolโ€˜s balance sheet that could be monetized. One way of doing that would be by using rehypothecation.

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๐Ÿ“œ Disclaimer ๐Ÿ“œ

The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.

#defi #crypto #blockchain #ETH #UNI #YFI

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