Are Stakedrops a Good Way to Gain Adoption for Your Cryptocurrency?

Cryptocurrency Staking

 

Many recent and new projects are utilizing stakedrops to widely distribute the native tokens of their platforms among people in the cryptocurrency market. For example, Persistence One, an upcoming project in the DeFi space is utilizing 1% of their total token supply, which is equivalent to 1,000,000 $XPRT tokens, for seven different stakedrop campaigns. Based on their team’s current valuations of their token, the entire Persistence One stakedrop is worth around $250,000 USD.

The team behind Persistence is not the only one that places such a large emphasis on stakedrops. There are many other recent, and new projects that are or have utilized stakedrops as well. A likely reason for so many projects to utilize a stakedrop mechanism to distribute their tokens is to attract new users for their projects. This article aims to take a look at stakedrops, and figure out why so many new projects are utilizing this method to distribute their tokens.

Stakers Defined

Before the article gets into why a stakedrop might be a good idea for your platform, it is important to define certain words that are commonly used jargon in the world of crypto. These words are staker, stakedrop, and staking.

A staker is anyone who takes part in a stakedrop campaign by staking their tokens on certain well known networks. A stakedrop is just the name of the method used to distribute tokens among these stakers. Staking is the process of staking your tokens on any of the well known networks in this industry by using a validator. These well known networks are Cosmos, Kava, Terra, IRIS, Matic, Polkadot, and Tezos.

Stakedrops are inherently unique because they target stakers. The important thing about stakers is that most of them tend to be somewhat experienced and well versed in the cryptocurrency market. This makes stakers an ideal demographic to target with your tokens or any other free trial in the crypto market, because they will not have such a hard time figuring out whether your project is right for them or not.

The Psychology Behind Stakedrops

The truth is that even though stakedrops might be new, the core idea behind the tactic itself has actually been used for decades, maybe even centuries. Stakedrops are really just a way for projects to give people a little sample or free trial of what they have to offer. Companies in the traditional world have been giving out samples or free trials for their products and services for a very long time now.

Cryptocurrency Staking

According to Forbes free trials are a great way to increase customer satisfaction. The reasoning is quite simple really, if a user has already tried the service they will most likely know what they are getting themselves into when they actually end up paying to use it. Increased user satisfaction generally means less negative reviews and more positive reviews. Satisfied users are also more likely to promote a service via word of mouth, or now a days text.

Another extremely important aspect of free trials is that it makes acquiring new users a lot easier. Think of it this way, people are generally averse to trying out new platforms, because they are afraid if they don’t like it they will end up wasting their time. If that person has to pay to use this new platform, they are most likely going to be even more averse to trying it out, because now they are worried that apart from losing out on their time they will also be losing some of their money. Losing money and time are a daunting thought for most people.

A great method to reduce people’s aversion to the risk of losing their time and money on new platforms are free trials. With a free trial the person knows that if they like the service they have nothing to lose. However, if they like the service they stand only to gain.

Why Crypto Companies Do it

Not many cryptocurrency companies have given an adamant reason as to why they utilize stakedrops, but one did. The team at Persistence One give a reasoning as to why they utilized a stakedrop campaign. From what the team at Persistence described there seems to be two primary reasons as to why they chose to hold stakedrop campaigns. The first reason was to get their tokens into the hands of a wider audience, and second to ensure community governance is done properly.

The first reason, which is getting their tokens into a large number of users seems very similar to the age old method of giving out your product or service as a free trial. This is a tried and tested method that generally has shown positive results.

The second method is in regard to community governance. Community governance is a term that is more colloquial to the crypto world. It essentially means that individuals from the community get to decide on the direction of the platform based on how many tokens they stake. In the crypto world we call these community driven platforms, Decentralized Autonomous Organizations, or DAOs for short.

25% APR Staking Rewards For Chromia Stakers

Cryptocurrency Staking

On November 9, 2020, the team behind Chromia launched their highly anticipated staking program for Chromia stakers. Participants of this staking program will be rewarded in CHR tokens, which are the native tokens of the Chromia blockchain. The Chromia staking program could prove to be a very lucrative opportunity for holders of Chromia tokens if they choose to stake them. The team behind Chromia have stated the potential return for stakers of their staking program will be as high as 25% APR. It is important to keep in mind that staking rewards are not automatically compounded.

The Chromia team have stated that staking chromia will have additional rewards in the future as well. The additional rewards will be in various formats but two most likely will be gaining early access to applications which are developed on Chromia, and entering into various promotional events.

Important Timelines

It seems like the Chromia Staking program will have two phases. This article will only focus on the first phase of the staking program as it is the most relevant right now. The first phase has already begun and will end at the end of this year. The staking program began on Chromia Network on November 9th, 3 PM UTC. You can learn more about the Chromia staking program and the second phase here. However, keep in mind that the second phase will not be rolled out until the beginning of 2021.

Even though the Chromia staking program has already begun, people can still continue to join in or add more stake into the pool whenever they want, so that they can earn more rewards. However, it is important to join in earlier as that way you can yield more rewards. The rewards from the staking program will be given every 30 days. Since the staking program began on November 9th at 3PM UTC, it is very likely that the first staking rewards will be given out on December 9th, 3PM UTC.

How to Participate

To begin staking you will need to get an ERC-20 non-custodial wallet that supports Chromia tokens. A great example of a non-custodial wallet that supports Chromia and can be used for staking is Metamask. Once you have your metamask wallet with Chromia tokens setup all you have to do is go to the Chromia Website to find the Staking dashboard. You can also use the link here to directly go to the Chromia Staking dashboard.

There are four simple steps you can use to participate in the Chromia Staking program. All four steps are listed below:

1. Once you have all the desired CHR tokens in your metamask, simply go to the Chromia website and find the header that says “Do You Hold CHR? Now you can Stake them!”, and click on the underlined section.

Stake cryptocurrency

2. Once you click on the underlined section you will be redirected to the taking dashboard, it has an option called approve, click on it.

3. Your metamask should automatically open and provide you with a prompt to accept the transaction. You will have to accept this transaction so that you can transfer funds into the Chromia staking program. The transaction fee is very low, it was around $0.4 USD when we tried.

4. Once the transaction is processed the dashboard’s user interface will display some new options. The new options allow you to choose the desired amount you want to stake. Once you have chosen how much Chromia you want to stake, simply click stake and you are done!

Cryptocurrency Stake

Important Details

There are some important details regarding the Chromia staking program regarding lock up periods, and minimum amount required to participate. The Chromia staking program has a 2 week lock up period, which means any funds transferred into the program cannot be withdrawn until after at least 2 weeks have passed. There is also a minimum 1000 CHR requirement to participate in the staking program. However, there is no maximum amount or limit that can be deposited into the Chromia staking program.

Cryptocurrency Money Market Financial Performance

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Money markets are one of the biggest sectors in traditional finance, and now they are quickly gaining traction in decentralized finance (DeFi) as well. The demand for cryptocurrency money markets is gradually increasing as more people are willing to borrow and lend cryptocurrencies. Borrowing and lending cryptocurrencies is considered to be the first venture most people take in the world of decentralized finance.

This article will look at the financial performance of three different cryptocurrency money markets’ underlying tokens and compare them. The three money markets and their respective tokens are Aave (AAVE), Compound (COMP), and Unilend (UFT). Aave and Compound are two of the most popular cryptocurrency money markets, whereas Unilend is a recently introduced entrant that has been rapidly gaining popularity. The aim behind comparing the recent financial performance of 2 established cryptocurrency money markets with a new arrival is to just see if there’s anything interesting going on in the market. Also, the comparison of these cryptocurrency money markets is not meant to be financial advice. This is merely to analyze how the 3 DeFi money markets have performed thus far.

Unilend has only been listed for less than a month, therefore the financial data collected for all three platforms is just from the 19 days between Oct 15, 2020 and November 2, 2020. All data was collected from coingecko, and you can find it here. This comparison is not financial advice, please remember to do your own research.

The Methods of Analysis

For the sake of this article two different methods will be used to evaluate the financial performance of the 3 platforms. The two methods are simple average daily return and historic volatility. It is true that average daily returns and volatility are generally conducted on a monthly or annual basis, but one of the tokens was listed very recently, so the amount of data available for all three tokens only permitted a 19 day analysis. A short term analysis can cause results to be slightly skewed, so it is advised to conduct your own research.

The simple average daily return is just meant to give everyone an overview of how a certain asset has been performing in a certain time range based on its price fluctuations. The method of finding the average daily return is really simple, it just involves finding the daily returns of a certain asset based on its day-day price movements, and taking an aggregate average of all those returns. Even though the average daily return is a really simple tactic to apply, it still provides valuable information about the financial performance of the underlying asset(s).

Historic volatility is the second method that will be utilized to evaluate the financial performance of the three tokens. Volatility is essentially meant to show how unpredictable the price of a certain asset is. Prices for higher volatility assets tend to be very unpredictable, whereas lower volatility assets are much more predictable.

Volatility can also show by how much, or to what extent the price of a certain asset tends to fluctuate. Historic volatility can be very advantageous because it shows the risk-reward dynamic of an asset. Higher volatility shows high risk and high reward, whilst low volatility shows low risk and low reward.

AAVE

Aave’s native token, AAVE’s price depreciated at an average rate of -2% everyday during the 19 day period. A -2% average decrease in token price might scare many people, especially those that are new to the cryptocurrency markets, but it is not something uncommon in these markets.

Aave’s market cap dropped to $344 million USD from $479.1 million USD at the end of the 19 day period. This decline in market cap can be attributed to the decline in the token’s price.

In the 19 days AAVE scored 7% in regard to its daily volatility, and 111% annual volatility. An asset with 7% daily volatility can be considered extremely high especially when compared with blue chip stocks. However, it is not very rare to find such high volatilities in the cryptocurrency market. Cryptocurrency markets are still in their infancy, and even the more established platforms have only been in the market for 2 or 3 years. Therefore, most of these platforms can be considered startups, and as such have very high volatilities.

COMP

COMP, the native token of Compound depreciated at an average daily rate of -1% in the recent 19 day period. Even though COMP tokens were depreciating they still managed to outperform AAVE by depreciating at a slower rate than them.

An interesting note about Compound is that its market cap increased even though its token’s price decreased. Compound’s market cap went from $358.4 million USD up to $365.3 million USD. It is likely that an increase in the circulating supply of COMP caused the tokens’ price to plummet, whilst its market cap rose.

During the 19 day period COMP tokens had lower volatility in comparison to both AAVE and UFT tokens. COMP tokens scored an daily historic volatility of 5%, and annual historic volatility of 72%.

UFT

Unilend Finance’s native UFT tokens are the only tokens in this analysis that were appreciating in value. UFT tokens earned an average daily return of 3% in the recent 19 day period. By earning an average 3% daily return UFT tokens managed to outperform AAVE, and COMP tokens.

Unilend is a much newer project compared to COMP and AAVE, therefore its market cap is significantly smaller. UFT tokens started the recent 19 day period with a market cap of just $2.1 million USD. However, it went up by a very decent amount at the end of the 19 day period. A 3% increase in the average daily value of UFT tokens resulted in its market cap rising to $3.8 million USD.

UFT tokens were more volatile in comparison to both COMP and AAVE tokens during the 19 day period. The daily historic volatility for UFT tokens came out as 15%, and the annual volatility was 233%.

200,000 $XPRT Cosmos StakeDrop from Persistence One has Begun!

Cosmos Stakedrop

 

On October 26, 2020, the team behind Persistence One launched their highly anticipated stakedrop for Cosmos stakers. Participants of this stakedrop will be rewarded in XPRT tokens from a total pool of 200,000 $XPRT. The Persistence One Cosmos stakedrop could prove to be a very lucrative opportunity for holders of Cosmos tokens if they choose to stake them. The team behind Persistence One has stated the potential return for the participants of their liquidity mining program can be as high as an estimated $50,000 USD. It is important to keep in mind that this estimated return is based on the current valuation of the tokens and they could be even higher depending on the market.

The 200,000 $XPRT stakedrop might seem good enough on its own, but the Persistence One team have announced that this is just the first of many more stakedrops to come. The team has stated that they have delegated 1% of their total supply of 100,000,000 $XPRT tokens towards stakedrops. After today, there will be six other stakedrops for stakers on some of the largest networks in this space. The six other stakedrops will be for Terra, Kava Labs, IRISnet, Polkadot, Matic Network, and Tezos.

Important Timelines

The Persistence One Cosmos staking program is already live. The staking program began on Cosmos Network at 12:00 am PDT on October 26th, and it will last for one month. This means that the Cosmos stakedrop will end around November 26th, 2020.

Even though the Cosmos stakedrop has already begun, people can still continue to join in or add more stake into the pool even after it has already begun all the way until it ends. However, it is important to join in earlier as that way you can yield more rewards. The rewards from the stakedrop pool will be given once the one month period is over when you unstake, and it is important to keep in mind that the maximum reward size will not exceed 5000 $XPRT tokens. The team mentioned the reason they capped the total reward pool to 5000 $XPRT tokens is to maintain a fair and even distribution.

How to Participate

To begin staking you will need to get any non-custodial that supports Cosmos and allows on-chain staking. A great example of a non-custodial wallet that supports Cosmos and allows on-chain staking is the Cosmostation wallet. It is very important to note that anyone who stakes Cosmos tokens (ATOMS) on an exchange wallet will not be able to participate in the Persistence stakedrop, hence they will not get any rewards.

The Persistence One team mentions steps for two small tasks that you will have to complete to begin participating in the Persistence stakedrop. The first task is to just start staking your Cosmos tokens, which is not exclusive to Persistence. If you ever want to participate in any of the stakedrops happening on the Cosmos network you will have to stake your Cosmos tokens (ATOMS). For the first task you simply have to begin staking your ATOMS, which if you are already doing then you can move on to the second task right away. If you are not yet staking your ATOMS you can find all the steps the Persistence one team laid out here. It is important to note that once you have staked your ATOMS you don’t have to do it over and over again for future campaigns.

The second task requires sending a magic transaction to the Persistence One address so that you can register your address for the Persistence One stakedrop. The purpose of registering your address is to let the team know which address you want to be receiving your share of the $XPRT tokens on. The Persistence One team mentioned six small steps on how people can register their address and you can find them here.

Chromia and Hedget Announce Collaborative Liquidity Mining with APY up to 200%

Chromia Staking

 

On October 22, 2020, the team behind Chromia (CHR) and Hedget (HGET) announced a collaborative liquidity mining program. Participants of this liquidity mining program will be rewarded both CHR and HGET tokens from a pool of 700,000 Chromia and 7,500 HGET. The Chromia/Hedget liquidity mining program could prove to be a very lucrative opportunity for Holders of these tokens if they choose to stake them. The teams behind these projects have stated the potential return for the participants of their liquidity mining program can be as high as an estimated 200% or 120% APY. It is important to keep in mind that the APY of this program is dynamic, but even the lower end of the spectrum is 120% APY.

Some people might be curious as to why Chromia is collaborating with Hedget for this liquidity mining program. There is no absolute reason given, but there is ample reason to believe that the platforms are mutually beneficial for each other. Hedget is built on Chromia’s Rell blockchain, therefore the success of Hedget can be translated into being good for Chromia. For example, if Hedget succeeds to gain traction and adoption, the fees generated from Hedget should benefit the Chromia community as well. There are also a plethora of other reasons as to how the success of Dapps on Chromia or any blockchain can be great for the entire blockchain’s ecosystem.

Important Timelines

The Chromia and Hedget liquidity mining program has not yet begun. The liquidity mining program is expected to start on October 26th, 2020, and it will last for two weeks. This means that the liquidity mining program will end around November 8, 2020.

Even though the liquidity mining program will begin on October 26th, 2020, people can still continue to join in or add more stake into the pool even after it has already begun all the way until it ends. The rewards from the incentive pool will be given once the 2 week lock up period is over when you unstake.

How to Participate

The Chromia and Hedget team will be utilizing the popular platform Uniswap to facilitate their liquidity mining program. The teams will also be utilizing a Hedget/Chromia liquidity mining interface which will be made available before the liquidity mining begins.

The Hedget team mentioned four steps on how people can participate in their liquidity mining program which will be listed below or you can find them here. For those of you who are unfamiliar with the Uniswap protocol, you can find a complete guide on how to use it here.

To begin liquidity mining you will have to simply add HGET/Chromia tokens to the HGET/Chromia pool on Uniswap. Once you have added tokens to the pool, you will automatically receive UNI-V2 (HGET/CHR) LP Tokens. Take the UNI-V2 (HGET/CHR) LP tokens to the HGET/Chromia liquidity mining interface when it is available. The last step is to just wait until the staking period ends, and enjoy your rewards.

Amid DeFi Boom Layer 2 Decentralized Exchanges are Beginning to Emerge

Quickswap

 

QuickSwap is the latest decentralized exchange to make an appearance in the DeFi space. QuickSwap is essentially a fork of Uniswap built on the Matic Network, which makes it a layer 2 decentralized exchange. Decentralized exchanges have many unique features that traders in the cryptocurrency market appreciate. Layer 2 decentralized exchanges have all the features of a regular DEX, and a few additional features which will be covered in this article.

Decentralized Exchange Features

Quickswap is a decentralized exchange so users will be able to use it without having to create an account or go through any KYC procedures. Not having to create an account or doing any KYC is thought to be beneficial by many traders because it allows them to maintain their anonymity and trade with privacy.

Another interesting feature of QuickSwap and all other decentralized exchanges are non-custodial wallets. A non-custodial wallet is your personal hardware or software wallet that you can connect to an exchange whenever you want to make a trade. Non-custodial wallets are believed by many traders to be a more secure way to trade because it allows them to keep all their assets in their wallets while they are trading. There are many benefits of using non-custodial wallets but the most popular one is that the exchange does not have access to your funds and therefore cannot freeze them. Keep in mind that there are also downsides to using non-custodial wallets such as the entire security of your funds is in your hands, so you have to be careful when using them.

Permissionless listing is a popular feature among many decentralized exchanges including QuickSwap. Even though most decentralized exchanges offer permissionless listings, there are some that do not have this feature such as Bancor and IDEX. Permissionless listing just means that any cryptocurrency can be listed on the exchange by anyone who wants to list there. For example, if someone wanted to list some new coin that is not already listed on QuickSwap, they are free to do so.

Layer 2 Decentralized Exchange Features

As one of the very few layer 2 decentralized exchanges in existence QuickSwap has some unique features that are not available on other DEXes. Since Quickswap is built on Matic Network it has the ability to perform transactions at lightning speeds. According to the team behind QuickSwap transactions made on the platform will generally take only a second to be completed, which when compared to the 2 minutes it will take for an average transaction on most decentralized exchanges is literally 120 times faster.

Another feature unique to layer 2 exchanges such as QuickSwap are the significantly lower gas fees. As of writing this the gas fees on Ethereum are sitting at 96 Gwei for an average transaction, which roughly translates into $0.8 USD. Most people would agree that 80 cents is a very modest and fair fee, but according to the team behind QuickSwap the fees on their platform are even lower than that. From a report on QuickSwap’s official Medium the gas fees on their platform are just $0.000002 USD.

Are Cryptocurrency Markets all About who Moves First?

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Market values for commodities and assets are difficult to determine, but the value of cryptocurrencies is perhaps significantly more difficult to determine because the market for them is still very young and industry norms and metrics have yet to even be established. Out of all the existing metrics or practices that have been used to measure why certain cryptocurrencies are worth what they are, there is one that perhaps has not seen much use and that is the first mover advantage. Being a first mover gives a huge marketing and branding incentive that plays a huge role in the value of cryptocurrencies.

As defined by economists and financial experts the first mover advantage is an advantage gained by a company that first introduces a product or service to the market. It is important to keep in mind that the first mover advantage only applies if the company actually manages to gain some traction and is able to breach the existing market, otherwise the company might not even be able to survive let alone set the stage for the first mover advantage.

For the purpose of this case study two particular platforms and cryptocurrencies will be used: Matic Network and OMG Network. The reason for specifically choosing Matic Network and OMG Network is because they are both trying to fulfil the need for a similar service in the cryptocurrency market. Both Matic Network and OMG Network are trying to provide a layer 2 solution for Ethereum. The need to provide a layer 2 solution for Ethereum is considered important, because many in the space including Vitalik Buterin, the creator of Ethereum believe a Layer 2 solution is necessary to allow Ethereum to scale and achieve greater limits. The purpose of this article is to explain the first mover advantage in the cryptocurrency market, therefore it will not be going into much detail on what layer 2 solutions are and how they work.

The Facts

Matic Network has a total market cap of $66 million USD and OMG network has a total market cap of $462 million USD. Matic Network had its token sale on 26 April, 2019, whereas  OMG Network had its token sale back in 2017.

A simple glance into Matic shows that the network is supporting several Dapps such as Blockchain Cuties, Badbit, Oxracers and several others, the whole list can be found on Matic Network. The Dapps on Matic network also seem to be getting some traction because as of current the amount of total on chain transactions that have occurred on the Matic Network stand at an impressive 668,397.668,395.

Taking a look at OMG Network to find the amount of known Dapps listed on it we find out two things: the list is not easy to find, and the list of known Dapps on the OMG network is very limited. In fact, OMG network only has one known service, Tether. The total amount of transactions generated on OMG network mainnet are also relatively far less impressive, sitting at a meager 9,040 total transactions.

First Mover Advantage

Matic Network has 35 or more Dapps and 659,357 more transactions in comparison to OMG Network, therefore a person could directly translate that as Matic getting a lot more business and consumer engagement.  Naturally we would all assume that if a certain software has more users it should be considered more valuable, however the market cap of Matic Network (66 million USD) is significantly lower than that of OMG network (462 million USD).

In regard to making the first move, OMG Network began their marketing and token sale all the way back in 2017 as opposed to Matic, which had its token sale in 2019. One of the core strengths of being a first mover is getting access to the market before anyone else, which can play a huge role in the success of any organization because it can create a strong brand as a pioneer in a very young market. Making the first move and getting exposure to the market also has the potential of giving projects a lot of free publicity through media articles and even word of mouth, because people in every industry love to talk about pioneers and first movers.

The first mover advantage also isn’t something unique to cryptocurrency, because it exists in almost every other industry on the planet. A few of the many examples of first movers in other industries include Coca cola in the beverage industry, AirBnB in the home sharing industry and Uber in the ride sharing industry. All of the aforementioned companies have competitors that are providing similar services at the same prices (sometimes cheaper) and spend a lot on marketing as well, but they are still valued at a significantly lower price by the market. One of the most popular reasons as the why all the competitors are less valued by the market is because they did not make the first move.

Final Thoughts

Perhaps there is more to the price discrepancy between Matic Network and OMG Network than just the first mover advantage. After all, In reality there are multiple factors that can decide the value of any cryptocurrency, and the first mover advantage is just one of those many factors. Nevertheless, I hope this case study gave everyone a good insight into the first mover advantage and what effects it can have in the cryptocurrency market.

DeFi is Suffering from a Severe Lack of Competition

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Decentralized finance is one of the fastest growing industries on the planet, however most of the growth in this industry is taking place on just one blockchain, Ethereum. The Ethereum blockchain is extremely dominant in decentralized finance, and as a result of Ethereum’s dominance most of the DeFi market share is composed of Ethereum DApps. The DeFi Pulse website shows that virtually all current categories of DeFi such as lending, decentralized exchanges, and derivatives are almost exclusively done on the Ethereum blockchain utilizing a variety of ERC-20 tokens. 

Chromia is a blockchain platform that is popular in the crypto market for gaming DApps, but now Chromia is about to begin competing in decentralized financial markets with an upcoming DApp, Hedget. Hedget is an interesting project and it seems like it will provide a valuable service in decentralized financial markets (options). More important, however, is the fact that Hedget is built on Chromia; this creates an opportunity for competition between Ethereum and Chromia. 

Case For Competition

 It is important to keep in mind that the DApps themselves are actually in a highly competitive market, but most of this competition is within the Ethereum blockchain. This means that decentralized finance has a lot of intra-blockchain competition but there is a severe lack of inter-blockchain competition. Lack of inter-blockchain competition can create several problems such as monopolization, market inefficiencies, and stunt innovation.

A great example of market inefficiency in DeFi is already showing. At the time of writing this article the cost of transactions on Ethereum is sitting at 174.32 Gwei, which is an amount exponentially higher than what it was last year, 28.55 Gwei. More information regarding historic Gwei rates on Ethereum blockchain can be found on Ycharts.

Chromia making a leap into DeFi could be good for the entire industry, because Chromia could prove to be just the kind of inter-blockchain competition needed to resolve the issues lack of competition has created in DeFi. Also, the team at Chromia have mentioned Chromia can be good competition for Ethereum because their blockchain has far more scalability and will allow millions of people to utilize their Dapps while still being able to maintain relatively lower transaction costs. 

Hedget

The Dapp that will pit Chromia and Ethereum against each other is Hedget, one of the first decentralized finance Dapps on Chromia. Hedget is meant to provide decentralized European-style options in the DeFi market. Decentralized options can be used to hedge against unexpected price fluctuations and act as a kind of insurance, especially for those who intend on holding tokens for longer lengths of time.   

 

Cryptocurrency Lending Rates Soaring While Traditional Lending Rates Tank

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Traditional money markets seem to be in a tough spot right now. A recent graph (shown above) released by the Bank of Canada shows that the yields from traditional money markets have drastically declined in just these last few months. The report clearly indicates a sharp decline in traditional Canadian money market yields starting in February 2020 and they have continued to drop rapidly since. On the contrary, decentralized money markets are booming with cryptocurrency yield rates soaring as demand for DeFi services (decentralized lending/borrowing and trading) continues to increase.

Traditional Downturn

The year 2020 began with the traditional money markets in Canada providing relatively decent yields. For example the 3 month treasury bills were at 1.64% APY, 6 month treasury bills at 1.69% APY and 1 year treasury bills at 1.72% APY. As of now, however, the 3 month Canadian treasury bill is sitting at just a 0.15% APY, 6 month treasury bills are at 0.18% and 1 year treasury bills are down to 0.22%. The Canadian treasury bill yield decline is just one example of how low the returns have gotten in the Canadian money markets; financial instruments across the board are showing a similar decline in yield rates.

Canada is by no means the only country where traditional money markets are performing poorly. Financial institutions globally are also reporting drastically declining yield rates in the money markets. Canada represents a useful benchmark or indicator of traditional money market performance globally due to the relatively advanced and stable Canadain economy. The outlook is bleak for the whole traditional economy, at least in the short-term.

DeFi Competing With Traditional Markets

Decentralized money markets, unlike their centralized counterparts, are booming and expanding rapidly. At this very moment people are lending cryptocurrencies on decentralized money markets and earning anywhere from 0.01% APR all the way up to 100%+ APR. Many lending opportunities offer a yield of 3-8% APR and beyond. You might be wondering why the aforementioned APRs tend to have so much deviation, and the reason for this is that there are a variety of decentralized platforms, each with different cryptocurrencies listed. Each platform utilizes its own mechanics for establishing interest rates for specific assets.

It is important to note that decentralized lending and borrowing is an industry still in its infancy and it continues to expand. An example of this expansion is UniLend, an emerging entrant in the industry which claims that half of the decentralized money market still remains untapped. Their team intends to create a DeFi platform that will enable users to integrate any Ethereum-based cryptocurrency onto one platform for decentralized trading, lending and borrowing. The UniLend team estimates that allowing more cryptocurrencies to participate in the DeFi free market via permission-less listings could potentially increase the liquidity of the DeFi ecosystem by an additional $29 billion USD.