Crypto investors have endured a rough ride over the past few months, with liquidity and value bleeding from virtually every project in the space.
It came as a nasty shock. The price of Bitcoin and various other tokens peaked early in 2021, to be followed by a short correction in mid-summer that saw prices fall. But towards the end of the year crypto rallied with a vengeance, with Bitcoin reaching a new all-time high of just over $68,000 in mid-November 2021. Meanwhile, overall crypto transaction volume rose to $15.8 trillion, growing by a stunning 567% from the previous year.
Just as everyone was expecting to find themselves on the moon, the crypto markets did a sharp U-turn. What started as a trickle in December quickly turned into a cascade, with crypto values plummeting throughout January. That month, the overall value of the cryptocurrency market fell below $2 trillion, and the negative sentiment quickly accelerated.
With the sudden loss of liquidity, dozens of crypto projects soon came a cropper – none more so than the Terra ecosystem, whose TerraUSD and LUNA tokens famously bit the dust over a span of just 48 hours in May. Shortly afterwards, the DeFi protocol Celsius took drastic action to avoid a similar fate, halting all customer withdrawals from its platform. Similar events quickly unfolded at the likes of BlockFi, Babel Finance and Vauld.
By mid-June, the wider DeFi ecosystem had seen its value collapse from a peak of $175 billion in November 2021 to just $40 billion in early June, according to data from Coingecko. With the market apparently now in freefall, a lot of people are naturally asking if the DeFi sector has come unstuck.
Bear Markets Are For Builders
Observers could be forgiven for thinking this is the death knell of crypto, but long term crypto watchers know full well that what’s happening now is just the latest dip in a roller-coaster ride that never stops. Fact is, the crypto market is characterized by its violent ups and downs, which seem to get progressively worse as time goes on and new all-time highs are reached.
Rapid declines in the crypto market have come to be known as “crypto winters” and while they do lead to the demise of many unsustainable projects, faithful developers know such periods are the best time to get their heads down and build. When expectations are low, viable projects can quietly get on with their work, gathering traction for when the next bull run arrives.
Most analysts believe the crypto market will bounce back sooner or later. While the crypto winter may endure for several years, Citi is confident that the metaverse economy, which will be powered by crypto, will reach $13 trillion by the end of the decade, driven by an active user base of more than five billion people. While Citi’s report concludes that traditional money will still play a part in the metaverse economy, a lot of commerce will be powered by crypto too.
As such, DeFi is expected to play a key role in driving this growth, and history tells us that many of the most successful crypto projects get built during bear markets.
A prime example of this is the OpenSea NFT marketplace. Launched in 2017 at a time when NFTs were just getting vocal with projects like CryptoKitties and CryptoPunks, it soon found itself in choppy waters. By the beginning of 2018, the crypto market was in freefall and endured a winter that lasted for over two years, during which time the price of Bitcoin fell by more than 80%.
As others celebrated the demise of crypto yet again, OpenSea appeared destined for mediocrity. As late as 2020 it was still struggling, with just 4,000 users and a mere $1.1 million in monthly transaction value. But the team kept on building and its efforts finally paid off. With the 2021 crypto bull run, OpenSea rapidly emerged as an NFT powerhouse, and today is valued at over $13 billion with more than one million active users on its platform.
OpenSea isn’t the only example though. It’s not a coincidence that the foundations of multiple iconic crypto projects were laid at a time when crypto appeared to be at death’s door. Coinbase emerged during one of the earliest crypto bear markets in 2012, while Ethereum was born at the height of another crash in 2015, and Uniswap came to light around the same time as OpenSea.
DeFi Regulation Is A Solid Bet
History suggests that now could be the time for the next generation of groundbreaking crypto projects to emerge, and nowhere does that look to be more true than in a struggling DeFi sector that’s currently on its knees. The market decline is undeniably painful for many investors, but on the other hand it’s likely to weed out many of the unsustainable projects that have no business being in the space. In turn, this can create new opportunities for healthier projects to eventually power the next period of DeFi’s growth.
One DeFi startup that’s not only likely to survive, but perhaps even thrive in the coming years is Phree. With this year’s crypto crash proving to be the most painful yet, calls for greater regulation in the space have reached fever pitch.
That’s good news for Phree, which has set itself the ambitious goal of bringing regulation to the DeFi sector. Specifically, Phree is aiming to bring the same kinds of rules around compliance found in the traditional finance sector to the DeFi space. In this way, it will make DeFi much more palatable to traditional institutions like banks, opening the floodgates to the massive liquidity they control.
Phree believes that DeFi will only achieve its potential of “banking the unbanked” when it’s able to tap into the world of mainstream finance. There’s a good case to be made for that argument, but traditional institutions won’t touch DeFi with a bargepole until things change. They’re too wary of the risk, lack of security, prevalence of fraud and scams that abound in the space.
Phree hopes to change this perception of DeFi by building a compliant ecosystem-as-a-service platform with compliant, permissionless and transparent protocols to attract institutional investors. With its compliant platform, Phree will be able to provide investors with a safety net in the event of smart contract vulnerabilities and scams. By increasing regulation in DeFi, it will also lessen the danger of rugpulls by making it harder for non-compliant protocols to attract investment.
There’s every reason to think Phree will be playing a key role in bridging the world of DeFi to traditional finance in future. Phree is aiming to launch its platform, along with an asset-backed stablecoin, by early next year.
Bringing Transparency To DeFi
It could be argued that one of the reasons why DeFi investors lost so much value amid the current bear run is due to the complexity of the protocols they invest in. Had investors understood what they were getting into with projects such as Terra’s Anchor Protocol, or Celsius, they may very well have steered well clear and saved themselves a lot of pain.
It’s for this reason that we’re optimistic about the prospects of HyperDEX Finance, which aims to help investors choose the right investment strategy to fit their risk versus reward profile.
HyperDEX does this by simplifying DeFi investment through products called “Cubes”, which enable users to choose from a variety of investing strategies that match their risk tolerance. That’s different from most existing DeFi protocols, which advertise generous APY but are often too complex for users to properly understand the risk they’re taking on.
HyperDEX’s cubes provide three main investment strategies, starting with a Fixed Income Cube that provides a guaranteed fixed return over a specified period; an Algo Trading Cube that promises a variable return through HyperDEX’s trading algorithms; and a Race Trading Cube that allows investors to speculate on the price of specific assets.
While the three strategies available are easy to understand, the protocol spices things up with something called “HyperCubes”, which allow users to simultaneously deposit the platform’s native HYP tokens in addition to their primary investment. Doing so increases the risk but also provides a generous bounty on user’s returns. For instance, a Fixed Income HyperCube provides a 20% return on deposited HYP tokens, while the Algo Trading and Race Trading HyperCubes both provide an additional return in HYP that’s equivalent to whatever profit, or loss, the original investment returns. In other words, HyperCubes provide a way for users to earn “parallel profits”. At the same time, it’s expected that demand for HyperCube investments will eventually increase the value of HYP, leading to even greater rewards.
The key benefit of HyperDEX is not so much the rewards but the way it simplifies DeFi investing, letting users understand exactly the level of risk they’re facing with their investments. Given the numerous scares DeFi investors have endured in recent months, investors have become increasingly wary of any platform that promises high returns. So it’s likely that there’s going to be a lot of appetite for more transparent products of this kind.
Building From A Solid Foundation
Another DeFi app that’s making life simpler for DeFi users is Klever, which aims to tackle two of the most pressing issues in the crypto space today – namely security and user experiences.
Klever is an emerging application that sees itself as the trusted gateway to DeFi, creating a safe and fast experience with simple onboarding for new users who’re just getting started in the crypto space.
The foundation of Klever is the Klever OS wallet operating system, which third-party developers can use to create smart and secure wallets within decentralized applications, hardware, smartphones, flash drives, wearables and almost anywhere else. Klever’s own application is built atop of Klever OS. It’s centered on a crypto wallet with easy access to a range of DeFi products and services that are unavailable through other wallets. With it, users can buy, sell and save crypto, play games and access a range of DeFi services. It also provides an on-ramp to the real world, allowing users to do their shopping online, book holidays and more using crypto.
Klever’s DeFi services include Swap, which is an easy-to-use mechanism for users to exchange cryptocurrency tokens at a fair rate. It works by monitoring the live price action on various top-tier crypto exchanges, using this data to create a price index on which transactions are based. Users can quickly check the quoted price of any two cryptocurrencies, choose the amount they wish to swap, then complete the transaction and have the tokens deposited directly to their wallet. The other major service is Klever’s Spot Exchange, which caters to both beginners and advanced traders alike.
Klever has the products in place to make an impact on the DeFi scene, but what really sets it apart is the transparency and professionalism of its team. The company has created a reputation for consistently hitting the deadlines published on its product roadmap, while building tools that are not only easy to use, but also provide advanced functionality. It has big plans too, with NFTs, hardware wallets and its very own blockchain all on the horizon.
What’s notable is that Klever is doing all this under its own steam. Uniquely, the project does not have any venture capitalists or private investors behind it. Rather, it has implemented a sound business model that has allowed it to generate the revenue it needs to finance its development from the get-go.
With a sustainable business model in place Klever is able to continue building out its ecosystem even while the wider DeFi market faces considerable pressure. It’s a breath of fresh air that promises to sustain itself for the long run. As such, Klever is a project that’s slowly but surely growing both its ecosystem and user base, leaving it well placed for further expansion when the boom times return.