All of the biggest names in the crypto industry are gathered in Singapore for the Asia Crypto Week and TOKEN2049 Event in Singapore today! Boxmining is here today to witness the biggest web3 event in history, where blockchain innovators, major investors, and the crypto community discuss and decide the future of crypto.
Asia Crypto Week is Asia’s largest web3 event, involving a series of conferences, exhibitions, workshops, and meetups with some of the biggest names in the crypto industry. This week-long event offers the best networking opportunities for crypto investors and developers alike.
The last Asia Crypto Week event took place in March 2019 in Hong Kong. This year features a week of various independently organized side events around TOKEN2049, running from 26 September to 2 October 2022 in Singapore. TOKEN2049 Singapore is the main event of this year’s Asia Crypto Week.
What is TOKEN2049?
TOKEN2049 is the premier crypto event in the world, organized annually in Singapore and London, where founders and executives of the leading web3 companies share their insight on the market as well as crypto regulation and the institutional landscape.
Today marks the debut of TOKEN2049 Singapore, which will take place for two days (28 September to 29 September 2022) in the Marina Bay Sands. It brings together all of the largest web3 names, FinTech corporations, uniting entrepreneurs, investors, developers, industry insiders and global media. TOKEN2049 announced a record-breaking 7000+ attendees, 2,000+ global companies, 250+ exhibitors, and 200+ speakers for its Singapore debut, making it the industry’s most well-attended event in years.
TOKEN2049 Singapore has an impressive all-star lineup of speakers including Galaxy Digital CEO Mike Novogratz, Pantera Capital CEO Dan Morehead, Axie Infinity co-founder and COO Aleksander Leonard Larsen, and even Hanson Robotics social humanoid robot Sophia A.I. With in-depth presentations and panel discussions, these key decision-makers and thought leaders will chart the latest milestones in digital assets and define what is next in the crypto space.
TOKEN2049 Singapore will also be showcasing a grand NFT exhibition with immersive experience, titled the Op3n Whale NFT Exhibition. Developed by Op3n and Whale, two of the most popular NFT platforms, the NFT collection is reported to have a market value exceeding $100 million. This will be the first time such a collection owned by a single entity has ever been on display to the public.
In the crypto industry, discovering early-stage moonshot projects can be difficult. Investors who manage to enter early usually secure massive returns, and some of these projects end up becoming successful in the long run. However, there are many low-quality projects and scams looking to take advantage of early investors, resulting in pump-and-dump schemes. Therefore, the market needed a more secure mechanism to raise funds for crypto startups. This is where launchpads come in.
Before we take a look at what crypto launchpads are, it is important to learn about its predecessor — Initial Coin Offering (ICO) and why they are no longer practiced.
What is ICO and Why does it Matter?
Similar to all business ventures, crypto projects require capital to build their product and meet their objectives. They typically achieve this via crowdfunding, and the first fundraising model in the crypto industry is an ICO, where crypto projects would raise funds by selling a part of their total token supply to the community. This allowed investors to purchase tokens at the cheapest price possible before they are listed on a crypto exchange.
In 2017, ICOs began to take off thanks to Ethereum’s open-ended smart contract protocol. Developers can easily create new applications and tokens (ERC-20 tokens). Moreover, smart contracts can be executed to calculate raised funds and distribute tokens once crowdsale is complete. As a result, the majority of ICOs took place via the Ethereum network.
Numerous projects saw substantial gains of their token as high as 10,000x, making a lot of early investors very rich. By the end of 2017, an estimated $4.9 billion was raised through ICOs reported by the Wall Street Journal. However, ICOs quickly became a way for investors to gamble in hopes of making easy profit. As a result, project fundamentals became less important to would-be investors.
This led to many security issues. For example, since cryptocurrencies were unregulated at the time, anyone can launch an ICO anonymously. Many malicious actors took advantage of the hype and created false projects and ICOs. They would rug pull investors’ funds, or even just run away with the money, abandoning the project before it ever got listed on an exchange. It became so severe that the U.S. Securities and Exchange Commission (SEC) intervened, imposing strict securities laws on ICOs which subsequently led to ICO bans worldwide such as South Korea and China.
Crypto Launchpads – The Beginning of IEO and IDO
Because of the ICO bubble, faith in the crypto industry was lost. This made it very difficult for legitimate blockchain projects to raise funds and build products with real value. Fortunately, not long after, crypto launchpads came to the rescue. Launchpads are essentially platforms that help crypto projects raise capital while giving access to early-stage token sales for their group of investors.
There are two main types of crypto launchpads — Initial Exchange Offering (IEO) and Initial DEX Offering (IDO). The difference between the two is where the fundraising is being held. Let’s look at the first one, IEO.
What is IEO?
An IEO is a fundraising model where the project receives the backing of a crypto exchange like Binance or FTX. The fundraising event is administered by the exchange, in contrast to an ICO where the project team themselves conducts the fundraising on their website. With IEOs, users can buy tokens on the exchange’s launchpad directly from their exchange wallet.
IEOs generally have high security as most crypto exchanges are regulated to an extent. They actively follow stringent protocols to prevent fraud including know-your-customer (KYC) and anti-money laundering (AML) verifications. The projects are carefully scrutinized, vetted, and selected by the exchange team for their IEO. Project teams must at least have a white paper and minimum viable product (MVP) ready for the exchange to review. Thus, would-be investors are assured that the startups under IEO listings are legitimate. After all, the exchange is staking its reputation behind the projects on its platform, offering a higher degree of trust behind the project.
For crypto projects looking to raise funds, an IEO offers the promise of an immediate userbase that can see their product. In other words, IEOs help create exposure to the project. This also means that the project can reduce their outside marketing funnels for fundraising, enabling them to focus only on the development of their product.
Top IEO Launchpads
Some of the top IEO launchpads include Binance Launchpad, Huobi Prime, KuCoin Spotlight, Gate.io Startup, and many others. In fact, the first IEO in history was launched by Binance Launchpad in the first quarter of 2019. Moreover, these top IEO launchpads are more than a platform for offering tokens. They also provide full advisory service for projects, leveraging their insights and experience to help build better products.
Disadvantages of IEO
Though IEOs are generally secure, not all crypto exchanges are equal. Some may not be as strict in doing due diligence or implementing regulations. This means that there is still a risk of a pump-and-dump scam, as advanced scammers could pull a meticulous long con.
Moreover, listing fees may be quite high, especially on reputable exchange platforms. Startups may also be asked to pay commission from token sales. They can be considered as centralized gatekeepers about the types of projects that proliferate, meaning that only somewhat established projects can earn a spot.
What is IDO?
On the other hand, IDOs are approved by the community of a decentralized exchange (DEX) instead of a crypto exchange. Given the decentralized nature of these exchanges, anyone can become an approver. The community can vote on projects that they are interested in. This alleviates the gatekeeping bottleneck that IEO exchanges have, giving smaller legitimate projects a chance to shine.
Similar to ICOs, some DEX teams also provide advisory service to listed startups, offering them a tool for engaging their communities in an economy that enhances their products while allowing them to make smart business decisions regarding their assets. However, unlike centralized exchanges, most IDO launchpads have their own native tokens, which in some cases serve as an entry requirement for users to participate in crowdfunding.
Though IDOs are more transparent and accessible to everyone, there are also drawbacks. Since DEXes tend to be a lot smaller than centralized exchanges, new projects might receive substantially smaller traffic than IEOs. Moreover, because every one gets a say in the approval process, long-con projects can also sneak their way in with eye-catching proposals and marketing.
Key Takeaway
Investing in potential crypto startups can generate massive returns if successful. IEO and IDO launchpads are a great place for you to research upcoming innovations and learn more about what they offer. Though not completely risk-free, they offer far more security advantages than ICOs.
The newly launched Ethereum Merge has rendered mining obsolete. So what will happen to all Ethereum mining pools and its miners as well as the millions of dollars worth of hardware in the ecosystem?
What is Ethereum Mining?
Before Ethereum’s Merge on 15th September 2022, the blockchain used proof-of-work, the same consensus protocol as Bitcoin, to validate and record transactions. But unlike Bitcoin which solely uses application-specific integrated circuit (ASIC) miners, you could use graphics processing unit (GPU) of gaming computers to mine ETH. As a result, it was generally easier to mine ETH than Bitcoin since GPUs are more accessible and widely applicable than ASICs.
There were two main ways to mine ETH – pool mining or solo mining:
Pool Mining (working together)
Work with others to mine and share rewards
Get paid per share, on a hourly or daily basis
Less random / dependent on luck
Pools take some fees (0.5-8% depending on pool)
Solo Mining
You mine the entire block reward (differs based on mining difficulty changes) – no pool fees
Random chance and probability – you can go days or months without rewards
Not viable if hashrate is low – single GPU might take years to mine a block
Ethereum mining pools were the go-to options for most miners as solo mining took a very long time to earn rewards. However, this work drew criticism for its impact on the environment and its excessive electricity consumption. It is a highly energy-intensive process as miners around the world pool together large amounts of resources and power to mine ETH. But all of that has changed with the arrival of the Merge on 15th September 2022.
How does the Merge affect Ethereum Mining?
On 15th September 2022, Ethereum switched its consensus protocol to proof-of-stake as part of an update known as the “Merge” that links Beacon Chain and the Ethereum Mainnet. The Beacon Chain is what allows users to stake ETH, which has been operational since the end of 2020. Many people have staked their ETH to support the transition as well as earn rewards on their stake. Here’s the kicker, after the Merge begins, mining difficulty will soar due to the “difficulty bomb”. It is a kind of self-destruct mechanism meant to make proof-of-work calculations almost impossible, incentivizing the move to an environmentally-friendly proof-of-stake model.
What will happen to Ethereum Mining Pools and Miners?
There is a divide in the Ethereum mining community between the organizations that have helped coordinate the resources of individual miners (mining pools) and the individual miners themselves.
Good for Ethereum Mining Pools
For mining pools, the transition does not affect them at all. Since these organizations never did the actual work of generating computing power themselves, they are not affected by the sunk cost of the eventual obsolete mining rigs. Instead, these pooling companies have human capital and infrastructure necessary to organize the pooling of resources, source new clients, and overall manage and maintain the operation and its security.
For this reason, leading Ethereum mining pools like Ethermine or f2pool can simply transition to staking pools. They do not rely on the actual mining itself. It is not a matter of product, only business model. These companies operate on a fee structure, charging individuals for participating in their pools, and it will be unaffected by the move from mining to staking. They only require business development, customer service, and communication with core developers, softwares, and client teams.
Bad for Individual Ethereum Miners
However, for the miners who make up these pools and other independent Ethereum miners, the transition could mean the end for them. People who have benefited from mining ETH, either by managing large mining farms or by contributing moderate amounts of GPU power to mining pools, may be left stranded. They have invested large amounts of money in expensive GPUs or specialized mining rigs that are useless in staking. Some will not even be able to recoup their initial investment as they hoped to profit from mining.
Although validating via proof-of-stake only requires a home PC with stable internet connection, it would require a minimum contribution of 32 ETH, which is a sum far greater than most people’s savings. Essentially, in order to fully cover the hole of lost mining revenues via staking, individual miners would have to establish and operate their own staking pools, which would be a considerably more difficult task than maintaining their own mining rigs.
Potential Solutions for Ethereum Miners
There is really no good option for ETH miners. They can still salvage their GPUs by selling them in the market as gaming computers are still popular products, but it is safe to say that there is certainly no demand for ASICs in the market. They could use them to mine other cryptocurrencies that are compatible with their processors such as Ethereum Classic, Ravencoin or Ergo, but they are also much less in demand than Ethereum. The profit margins are substantially lower.
However, there are certain staking pools that encourage bringing current miners into the fold. According to Bitfly, EtherMine’s parent company, their goal is to “onboard current miners from proof-of-work to proof-of-stake.” They also noted that most deposits to EtherMine’s new staking platform have come from existing miners. But whatever the case is, there is still no easy answer as to how Ethereum miners will ever again come close to generating the revenue produced by mining ETH.
A hard fork is a major change to the blockchain’s protocol that results in the splitting of the blockchain, creating a seperate blockchain that inherits all of its history with the original, but is on its own towards a new direction.
Hours after Ethereum’s successful merge on 15th September 2022, a group known as ETHW Core launched a proof-of-work hard fork of Ethereum known as ETHPoW or ETHW. The hard fork’s purpose is to preserve PoW and keep ETH mining alive beyond the Merge.
The Problems with ETHW
Although ETHW could be a safe haven for ETH miners, there is not a lot of optimism about its success. In fact, there are a lot of underlying issues that the core team has yet to address.
ETHW Post-Launch Network Error
ETHW is getting off to a bad start. Shortly after the ETHW mainnet debut, users began experiencing issues accessing the network. It became clear that the problem was that ETHW had chosen a chain ID already in use by a Bitcoin Cash testnet. If ETHW fails to change its network’s chain ID from the Ethereum mainnet, users could be susceptible to a replay attack — an exploit in which the attacker intercepts and then replicates a valid data transmission going through a network. Given the transparent nature of blockchains, this means that hackers can duplicate your transactions, allowing them to withdraw your funds.
No Backing for Forked Stablecoins
The two leading stablecoins USD Coin (USDC) and Tether (USDT) have officially confirmed to exclusively support Ethereum 2.0. This results in a smooth transition that is essential for the long-term growth of the decentralized finance (DeFi) ecosystem and its platforms.
However, that leaves ETHW high and dry as lack of stablecoin support means insufficient liquidity. This is because 1:1 backing will only exist for the officially recognized blockchains, thus USDC and USDT balances cannot be duplicated onto a new blockchain. This is further amplified by the fact that ETHW announced they would temporarily freeze tokens in certain liquidity pools to “protect user funds.” This did not go well with many as this move is done without their consent and the community did not vote on such change.
No Oracle Support
Apart from facilitating transactions, decentralized applications (DApps) also interact with external data which requires off-chain computing. This is where blockchain oracle technology like Chainlink comes into play. They enhance smart contracts by connecting them with real-world data, events and transactions.
On August 8, Chainlink has also officially confirmed to stay with Ethereum 2.0. This means that any DApps on ETHW can be negatively affected since oracle solutions are essential in retrieving and sharing data without jeopardizing the security of the blockchain.
Lack of Support from Leading DApps and Projects
On 16th August 2022, Aave, a leading decentralized lending protocol on Ethereum, proposed a governance vote to commit to using Ethereum 2.0, giving power to shut down any Aave deployments on any alternative Ethrereum forks. On their blog post, Aave advised developers and DApp teams on the Ethereum network to halt smart contract operations on forked Ethereum blockchains until they become stable.
The lack of support from projects means that any tokens or NFTs on the forked Ethereum chain will less likely be accepted in marketplaces or DeFi applications. In turn this would affect investors who are looking to profit from trading these assets.
Choosing the right cryptocurrency exchange is crucial to optimizing your crypto investments and trading. In this article, we will be comparing two of the top crypto exchanges in the world: KuCoin and Kraken.
What is KuCoin?
Company Overview
Since its launch in 2017, KuCoin has grown to be one of the largest exchanges by trade volume worldwide, with over $1 trillion accumulated trading volume. 11 million people from more than 200 countries are registered on the platform. Known as the “People’s Exchange”, KuCoin puts user experience first, providing users with multi-language and 24/7 customer service. As such, KuCoin has established local communities all around the world including Japan, Italy, Russia, and India, just to name a few.
Trading Bot Feature
While KuCoin provides advanced trading tools for experienced users, its platform also benefits beginners in the trading scene. In fact, KuCoin offers trading bots in which users can enter specific trading parameters and let the bot take over trading activities. As a result, traders of all levels do not have to go through the hassle of timing entries and exits. It is a passive approach to trading cryptocurrency and maximizing potential profit. The best part is that traders do not have to monitor the market constantly, knowing that their crypto trading portfolio is working for them.
Top Altcoin Exchange
KuCoin has one of the largest selection of altcoins available compared to other major exchanges. There are currently over 700 tokens with new ones being added regularly. Even crypto users from Binance or FTX will often keep KuCoin as a secondary exchange to acquire new altcoins that cannot be found anywhere else.
The platform also offers fiat support for over 50 different currencies. As a result, users from remote locations have access to swapping tokens while avoiding high conversion rates.
In 2015, Kraken opened the first dark pool for Bitcoin, resulting in the trading platform becoming a primary place for institutional investors and high-volume whales to trade Bitcoin in discretion.
Who Founded Kraken?
Kraken was founded by Jesse Powell (CEO) who was a security consultant for Mt. Gox. Powell anticipated the fall of Mt. Gox and began developing Kraken as a potential replacement. According to Powell, he realized that “the exchange is the most critical part of the Bitcoin ecosystem” after learning the situation with Mt. Gox. When it indeed collapsed and failed security audits in 2014, it paved the way for newer and more robust exchanges like Kraken to gain market share.
Key Features of Kraken
Though Kraken only offers 185 coins which is fewer compared to other major exchanges, Kraken allows users to stake popular cryptos and earn attractive APY rewards as high as 23% in yearly rewards. To this day, over $10 billion worth of digital assets are staked on Kraken’s on-chain staking platform, rewarding more than $100 million to clients.
Kraken was also one of the first exchanges to offer spot trading with margin, regulated derivatives and index services. Similar to Coinbase, Kraken also has two apps: Kraken and Kraken Pro. The latter is designed for traders on the go and provides an interface for advanced trading, charting, and order types that are not available on the standard app. Advanced traders can easily trade large volumes at stable prices with low spreads and high rate limits.
Kraken is also active in providing in-dept crypto education. Similar to Binance Academy, Kraken has Kraken Learn that are full of articles, videos, and guides that users need to navigate the crypto world. Crypto is still a relatively niche market. As such, this is an important step to mass adoption as education is the key to onboard newcomers.
KuCoin vs Kraken Overview
In this section, we will take a closer look at what KuCoin and Kraken have to offer and compare them based on these features:
Cryptocurrencies and Products
KuCoin offers more cryptocurrencies than Kraken by a large margin. It prides itself in being the top major crypto exchange that is constantly up to date with the latest digital assets. KuCoin offers more than 700 supported coins, whereas Kraken only has over 185. However, Kraken focuses on providing large volume to its smaller number of cryptos, which is better for trading in general as users can easily trade large volumes at stable prices. If you opt for high risk, high reward investments, KuCoin is the pick. But if you prefer trading large-cap cryptos at a regular basis, Kraken is the better option.
Kraken also offers higher returns on crypto staking and savings. Take Bitcoin for example, Kraken offers a 1% APR, whereas KuCoin only gives 0.12%. However, Kraken’s Bitcoin staking is done off-chain via their internal programs, which is available in eligible countries only. Nevertheless, though both numbers are small, the difference becomes more significant over time.
Both KuCoin and Kraken offer a wide array of trading tools for advanced users. But KuCoin also provides a trading bot for users to earn passive profits without constantly monitoring the market. In terms of convenience, KuCoin is the winner here as traders of all levels can simply let the bot do the trading around the clock. After all, humans cannot compete with bots in terms of speed and calculation. According to their website, KuCoin has over 9 million bots created worldwide.
Fees
Kraken has a more complex fee structure than KuCoin. Fees are incurred across multiple purchase categories such as (1) Kraken Instant Buy, (2) Kraken Pro, (3) Stablecoins/Pegged Token/FX Pairs, (4) Margin, (5) Futures, and (6) NFTs. On the other hand, KuCoin only has differing fees for spot and futures.
Both exchanges charge no fees for crypto deposits, though Kraken charges an address setup fee for certain assets. In terms of trading fees, KuCoin’s maker and taker fee is between 0.01-0.1%, whereas Kraken’s maker and taker fee is between 0.00% and 0.26%. KuCoin lowers trading fees based on the amount of KCS (KuCoin Shares) the user is holding, whereas Kraken gives discounts based on monthly trading volume.
For most retail investors, KuCoin is the clear winner as the benefit of holding KCS is twofold: lowering trading fees and appreciation of KCS value over time. However, for whales who trade large volumes regularly, Kraken is the better option.
On the other hand, though KuCoin shares most of the security features as Kraken including KYC verification and multi-factor authentication, KuCoin has suffered a major breach in 2020. The hackers managed to obtain the keys to some of the biggest wallets on the exchange, stealing over $281 million worth of coins. Although $204 million were recovered within weeks of the attack, a lot of users in the crypto space had lost faith in KuCoin. However, since the incident, the exchange has been actively upgrading their security mechanisms and performing periodic reviews to protect users’ privacy and assets.
Key Takeaways
If you prefer spot trading and investing in high risk, high reward altcoins, KuCoin is the better choice.
If you want to trade without going through the hassle of monitoring the market constantly, KuCoin is also better as they have a trading bot who can help you trade within specific parameters you set up.
If you are an advanced trader or a whale, Kraken is far superior than KuCoin as they have an app (Kraken Pro) specifically designed for high-level trading and deep liquidity to support large volume trades with low fees.
If you value security first, Kraken is the clear winner as they have never been hacked before, and is one of the few exchanges that operates under U.S. regulations.
Decentralized finance (DeFi) has revolutionized financial services, creating new possibilities unlike anything that exists in traditional banking. DeFi protocols allow you to transfer value, exchange tokens, take out loans, provide liquidity, earn yields and so much more. As the market expands, it is likely that even more innovations will surface.
This is because of how smart contracts work. The open-source and permissionless nature of blockchains allows anyone to code their own contracts or even integrate a component of another protocol in their own application. As a result, the applications built on a smart-contract network can run interchangeably.
This is known as “composability” — the interoperability of DeFi protocols resulting in efficient and creative financial services and products for users. It is the core basis of DeFi and is what helped the ecosystem grow so quickly.
What are “Money Legos” in DeFi?
To understand how composability works in DeFi, we can view components of DeFi protocols as Lego blocks, giving rise to the term “money legos.” Each building block has its own functionality such as borrowing, lending or staking assets, just to name a few. Developers can stack multiple protocols together like Aave, Compound, Yearn, Curve or Synthetix to create a new DeFi protocol, just as you would a Lego set.
For developers, money legos save a lot of time and complications around building a new decentralized application (DApp). They do not need to start from scratch as they can simply integrate existing money legos into their own. What money blocks provide are solutions to more complex processes which require more steps than usual.
Moreover, developers can build smart contracts that can operate the legos in any order, be it one before or after the other, or in parallel. For example, by joining the money legos together and then specifying the order of events through a smart contract, users could
Put up collateral for a loan on Aave
Stake half of the loaned amount on Curve
Trade half of the loaned amount on Uniswap
Pull out both amounts simultaneously and take profit
Pay off the loan on Aave
This is just one type of scenario. As you can see, there are infinite possibilities with money legos. It is up to your creativity how much use you can make of the combination of their functions to optimize your crypto. Furucombo is a great platform to experiment different possibilities of DeFi money legos.
Why “Money Legos” Matter?
“DeFi” is a buzzword that gets thrown around a lot. People often associate DeFi with low fees and yield farming, but do not exactly know how the underlying infrastructure works. Therefore, it is important to learn about money legos as they are the building blocks for programmable money, hence its name. While developers can compare and choose specific DeFi protocols to cut down on fees when building new applications, investors can better optimize and manage their crypto by having a better understanding of money legos.
As savvy investors, we know that key performance indicators (KPI) of a healthy market and ecosystem are trading volume and activities. As such, money legos are powerful tools that can expand the potential possibilities of the ecosystem. They add to the utility of each existing protocol, while improving the blockchain’s network effect.
In other words, each time a new protocol is created in the DeFi space, a new money lego is born that can also be used to offer more new services within the sector. These new protocols will offer faster and more efficient services, giving investors more ways to generate profit. For each new money lego, hundreds or thousands of new combinations become possible.
However, as of now, composability mostly favors protocols of the same blockchain. For example, DeFi protocols on Ethereum can only interact with other protocols on Ethereum. Same goes for Solana or Cardano. Perhaps in the future, true multi-chain interoperability will allow protocols on one blockchain interact with a protocol on another blockchain. This means that crypto will become more accessible, further increasing their adoption.
Risks of “Money Legos” Composability
Since DeFi protocols can seamlessly integrate with each other, this means that the entire ecosystem hinges on each of its money legos. If one of the core money legos is compromised, it could lead to a chain reaction, potentially affecting other integrated applications.
This is possible because of the interoperability between the DeFi protocols. For example, you can carry out complex strategies like borrowing Synthetix (SNX) from Aave, depositing SNX into Synthetix to mint sUSD, then swap sUSD for DAI on Curve. Now if any one of these protocols is attacked, then all of their liquidity pools will be severely affected.
Moreover, certain protocols also have wrapped crypto tokens (e.g. WBTC, renBTC, wETH) that are pegged to the value of another crypto. This means that you not only have to trust the protocol you deposit your funds to but all the others it may be reliant upon.
Key Takeaway
It is important to understand money legos as they are the building blocks of the DeFi ecosystem. Money legos help developers create new protocols, offering faster and more efficient financial services for DeFi end-users. It also helps investors get the best trades and the best yields when it comes to earning from DeFi protocols. That is the whole concept behind the idea of composability. Seamless interoperability among components helps to build the best and most creative solutions.
As savvy investors, it is easy to get carried away by flashy numbers like 1000% staking rewards. But what most beginners overlook is the three little letters standing right next to it: APY or APR.
Although APY and APR may sound identical, there is a significant difference to the calculations for returns over a period of time. There are also underlying risk factors of certain decentralized finance (DeFi) products with very high return on investment (ROI).
Therefore, it is crucial that you have a better understanding of the formulas used to generate these two measures as well as what they signify for the potential returns on your crypto investments.
What is APR?
APR, which stands for annual percentage rate, is interest you gain from your investment in a year. It is also known as “simple interest” and its formula is straightforward.
For example, if you stake 10,000 USDT at an APR of 10%, you will earn $1,000 in interest after a year. Your interest is simply calculated by multiplying the principal amount ($10,000) and the APR (10%). In a year, your capital will amount to $11,000, and in two years, it will be $12,000, and so on.
As such, APR is always quoted as a fixed yearly rate, thus a simpler and more static metric. However, with APY, interest calculations become slightly more complicated with compounding taken into account.
What is APY?
APY, short for annual percentage yield, is the annual rate of compound return earned on an investment. The keyword here is “compound.”
What is Compound Interest?
Compound interest is not only earning interest on your initial investment, but you are also earning interest on the accrued interests. This effect is called “compounding.”
A simple scenario would be like this. Let’s say this time you stake 10,000 USDT at an APY of 10% compounded monthly. This means that interest is added to your principal sum each month, and the sum on which you earn interest increases over time. In other words, you will have more money earning interest each month.
In one year, your capital will amount to $11,047.13, which is $47.13 more in interest by adding the effect of compound interest.
The Power of Compound Interest
The aforementioned scenario is an instance of monthly compounding. In fact, there are different compounding periods depending on the institution. Interests can be compounded quarterly, monthly, week, or daily.
The more frequent the compounding periods, the higher your effective yield is going to be. For example, if your staked 10,000 USDT is compounded daily at 10% APY, then you will earn $11,051.56 in one year, which is $4.43 more than monthly compounding.
It may not seem like a big difference but the power of compounding is more significant over more extended periods. After five years, you will have earned around $16,500 if compounded, which is $1,500 more than simple interest.
As illustrated in the graph above, the APR line is linear, whereas the APY line is exponential, which is always higher than the linear as time progresses. The principal remains the same if no investment is made.
You can use an APY calculator to calculate how much you can earn with different compounding periods and different time frames.
How does APY Work in DeFi?
The previous section is a simplified example of how compound interest works in general. However, APY investments work differently in DeFi. APYs in the crypto space constantly change due to several factors. As such, as a rule of thumb, the APY shown on DeFi products should be considered as estimates.
Supply and Demand
As with any market economy, the law of supply and demand influences the assets’ price. Since interest is generated based on the demand to borrow and trade crypto, market dynamics play a role in determining the rates.
Since the crypto market is volatile in nature, the APY changes according to the level of demand for trading liquidity of the token. If there is plenty of supply, APY interest rates tend to be lower. Conversely, if the demand is high, the APY usually increases as well.
Inflation
Inflation refers to the loss in value of a currency over time. In crypto, inflation is brought about by adding new tokens at a predetermined rate to the blockchain. The rate of inflation affects the staking returns. If the inflation rate exceeds the interest earned on a staked token, then the investor is losing money.
Different Compounding Periods
Different projects have specified blockchain protocols which play a part in the calculation of the APY. As a result, compounding periods may vary for each project. For example, some projects compound interest weekly, daily, or even according to the mined block per block cycle. It is important to note that the more frequent the compounding periods, the higher the APY will be.
Most crypto projects offer shorter compounding periods, with weekly compounding being one of the most popular ones. This is to help potential investors mitigate the effects of price swings in the long run, since crypto prices rise and fall over time. This way investors can do their compounding manually, and calculate their returns within specific time frames, so that they can strategize their entries and exits when engaging in DeFi protocols.
Comparing APY vs APR Investments
Although APY seems to be the obvious choice in maximizing ROI, there are also underlying risk factors when it comes to APY investments in general.
Prevalence of Non-Sustainable APY Projects
Projects with very high APYs, as high as 1,000% or more, are high risk/high reward investments. This is especially common for newly launched DeFi projects, because the price of a token is highly volatile during its early phase. To keep investors in the ecosystem, the project would provide trading pairs for the token also known as liquidity pools.
Liquidity pools are one of the products that allow for staking and generating returns for providing liquidity. As such, projects will offer high APYs to offset impermanent loss, which occurs when the ratio of tokens in the liquidity pool is unbalanced. This also incentivizes users to continue providing liquidity instead of selling.
However, there is a possibility of a dump for the project. Since most DeFi protocol tokens are inflationary in nature, the revenue capacity for the protocol might be insufficient for everyone to share. In other words, if everyone is earning 1,000% APY and the token has no real utility, it then becomes a race for the liquidity providers to see who cashes out first. As a result, this drives the token price and APY down, leaving real users of the protocol with no exit liquidity.
Distinction of DeFi Product Yields
Products with a higher APY will not necessarily generate more returns than those with a lower APR. It depends on what the APY and APR mean in relation to the DeFi product.
Some products advertise the term “APY” referring to the cryptocurrency earned, and not the actual yield in fiat currency. Some beginners often mistake the APY crypto rewards for fiat currency, which blindly clouds their judgement.
This is a critical distinction to point out because the value of your investment in fiat terms may increase or decrease depending on the volatility of crypto asset prices. Even if you continue to earn high APY in crypto, the value of your investment in fiat terms may still be lower than the initial amount you placed in fiat, should the price of the crypto asset decline.
Key Takeaway
APR (annual percentage rate) is interest you gain from your investment in a year. On the other hand, APY (annual percentage yield) is the annual rate of compound return earned on an investment, which means you earn interest on previous interests accrued.
Although APY is the obvious choice in maximizing ROI, there are also underlying risk factors behind it. Therefore, it is crucial to comprehend how these two measures are determined as well as what it means for the potential returns on your digital investments.
Layer-1 refers to the base level of the blockchain’s underlying infrastructure. Bitcoin, Ethereum, Binance Smart Chain, and Solana are examples of layer-1 blockchains. These networks can process and finalize transactions on its own blockchain.
On the other hand, layer-2 refers to a network built on top of a layer-1 blockchain. Its main purpose is to help offload computational work from layer-1s by processing transactions off-chain, increasing transaction speed and throughput. Polygon, for example, is a layer-2 solution that runs on top of Ethereum to facilitate transactions away from the mainnet.
Layer-1 Overview
Underlying Problems of Layer-1
Scalability is the biggest issue that has been plaguing most layer-1 blockchains. As more users carry out increased simultaneous transactions, the blockchain becomes slow and expensive to use. Ethereum, for example, is the most used decentralized network, but its gas fees and process time are high.
Blockchain Trilemma
This is known as the “blockchain trilemma” — an impossibility for blockchains to simultaneously achieve decentralization, security, and scalability. As such, a decentralized and secure layer-1 blockchain cannot provide scalability. And a scalable, secure network lacks decentralization.
This happens because of the fundamental nature of a blockchain. All transactions require the independent verification of the nodes who are running the blockchain’s software. The verified data will then be logged and stored on the blockchain.
Transaction Confirmation Time
However, depending on the network, this entire process takes time. For Bitcoin, all transactions require six confirmations in the blockchain from miners before being processed. The completion time varies between ten minutes and an hour. A node can only handle so much at a time. In times of network congestion, users will experience longer confirmation times and higher gas fees due to high demand.
How do Layer-1 Solutions Work?
There are several ways to increase throughput and overall network capacity of layer-1 blockchains.
Transition to Proof-of-Stake
For blockchains using proof-of-work as their consensus mechanism, they may switch to proof-of-stake to increase transactions per second while reducing gas fees. Ethereum is a great example of this as they are undergoing a transition to proof-of-stake called the “Merge.”
The blockchain’s development team can also introduce a hard fork or soft fork of the network for their community to vote and approve:
Soft Fork
A soft fork is when new features are implemented to the protocol at a programming level. It is a backward-compatible upgrade, which means that the non-upgraded nodes will still see the chain as valid and can still communicate with other upgraded nodes. In other words, the addition of a new rule will not clash with the older rules.
An example of a soft fork is Bitcoin’s SegWit update in which signatures are separated from transaction data, freeing up more space for transactions to be stored in a single block, increasing the throughput of the network.
Hard Fork
On the other hand, a hard fork is a major change to the blockchain’s protocol that results in the splitting of the blockchain, creating a second blockchain that inherits all of its history with the original, but is on its own towards a new direction. The new rules conflict with the rules of the old nodes, which means upgraded nodes cannot communicate with non-upgraded nodes.
In July 2016, the Ethereum network hard forked into two blockchains: Ethereum and Ethereum Classic. Ethereum Classic is the old Ethereum with a completely seperate cryptocurrency (ETC). They have different technological and philosophical goals.
Layer-2 Overview
How do Layer-2 Solutions Work?
Layer-2 solutions are built on top of a layer-1 blockchain to increase its throughput and overall network capacity. They work in parallel or independent of the main chain. Rollups and sidechains are two of the most common layer-2 solutions that help offload computational load from layer-1s:
Rollups
Rollups scale layer-1 blockchains by processing transactions on layer-2 platforms before submitting the results back to the layer-1. The term “rollup” refers to the way that the chain bundles many transactions to be submitted to the main chain.
There are two types of rollups: Optimistic Rollups and Zero-Knowledge Rollups (ZK Rollups). The difference is in how they validate transactions.
In short, Optimistic Rollups assumes that the transactions are valid, hence an “optimistic” outlook, whereas ZK Rollups attempt to prove that the transactions are valid.
Sidechains are secondary blockchains that run parallel to the layer-1 blockchain. Since they have their own virtual machine and validators, they can operate independently. In short, the sidechains validate the transactions and then send them back to the main chain via bridges.
Polygon is the most popular sidechain that aims to scale Ethereum by building and connecting Ethereum-compatible blockchain networks. Polygon operates on its own consensus mechanism and also has its own native token known as $MATIC.
Are Layer-2 SolutionsViable Long-term?
Although layer-2 provides a quick solution to improve scalability, questions have been raised as to whether layer-2 will be irrelevant once scalability issues are solved on layer-1’s end.
Ethereum 2.0 will ultimately be able to speed up transactions while drastically reducing gas fees. This not only affects layer-2 solutions but also impacts other competing layer-1 blockchains like Solana or Avalanche.
However, as of now, because of the upcoming Merge in September, we still see bullish sentiment surrounding competing layer-1s of Ethereum and several other layer-2 projects. Perhaps the completion of Ethereum 2.0 will indirectly foster other layer-1 and layer-2 ecosystems, instead of the other way around.
Key Takeaway
If you are new to crypto, it may be confusing to distinguish between layer-1 blockchains and layer-2 solutions. It is helpful to understand the differences between the two as well as the different approaches to scaling that they offer.
Layer-1 blockchains are networks that can validate and finalize transactions by themselves, and their scaling solutions involve improvements to the existing protocol. On the other hand, layer-2 solutions are built on top of a layer-1 blockchain to help scale its throughput and overall network capacity.
GameFi is a financial system in which users can earn money by participating in video games. These play-to-earn (P2E) games are powered by blockchain technology, allowing players to earn while they play.
It sounds too good to be true, right? Earning money from playing video games? This is actually achievable, and can be life-changing for all gamers worldwide. However, the GameFi market has been bottleneckedby two main issues:
The cost of entry is too high for most players. Popular games like Axie Infinity, their NFT in-game assets cost at least thousands of dollars. Even if new players could afford it, it would take time for them to earn enough to break even.
GameFi is still a niche in the crypto market, let alone the gaming market. There is more emphasis on the “earning” aspect than the “playing” aspect. According to Forbes, gamers only care about having fun, and most play-to-earn games lack the “fun” element. As a result, traditional gamers are not as interested in GameFi as we thought they would be.
How can we find a solution to this issue? This is where crypto gaming guilds come in.
What is a Crypto Gaming Guild?
Gaming guilds have been around for a very long time. Traditionally, they are communities of gamers who play video games together and have their own culture. Recently, I came across abs카지노 보증 while exploring new gaming platforms, which ensures a safe and reliable environment for players. Esports teams are famous examples of gaming guilds, only they get to generate a stable source of income from playing video games.
But for the rest of the casual gaming communities, there is not much to be made. However, with blockchain technology, every gaming guild will also have the privilege to make money from doing what they enjoy.
A crypto gaming guild is an organization that is made up of gamers, investors, and managers. Their goal in the crypto market is twofold:
They invest in promising web3 gaming projects, providing them funds and confidence to build a healthy play-to-earn ecosystem.
They provide resources to players who may not be able to afford them otherwise, such as NFT characters or in-game tokens. When the player successfully earns money, that income is shared with the guild.
The purpose of these gaming guilds is to encourage and facilitate the expansion of the GameFi market across the world. They also act as intermediaries by reducing the entry barrier for most players as well as educating non-crypto users about cryptocurrency.
This gives everyone a chance to take part in the economy of the metaverse, creating a win-win situation for both the gamers and the guilds.
How do Crypto Gaming Guilds work?
For crypto gaming guilds, it is also more than progressing the GameFi market. They aim to advance the cryptocurrency space as a whole, bringing mass adoption one step closer. They have five main roles in the crypto space:
1. Community Connection with GameFi
The core of every gaming guild is its community. Gaming guilds have great potential for social impact, and community activity is vital for the growth of any ecosystem in general.
They operate under a DAO (decentralized autonomous organization) structure in which funding comes from within the community of DAO token holders, in this case the DAO token issued by the guild. Guild members would then collectively invest in NFT assets and in-game tokens needed to participate.
They would then pool their resources together for other guild members to use, play, and earn for shared profits. This is known as the “scholarship program”, which will we talk about in the next section.
But the primary role and responsibility of the guild is to guide the community in the web3 world. Different blockchain games will have certain features and products that users might not be familiar with. Therefore, the community is where they congregate to talk and ask questions, which significantly aids the game project’s long-term growth.
2. Scholarship Programs for Players
The DAO model of guilds first emerged as a solution to the play-to-earn entry barrier. It is known as the “scholarship program.”
Within the guild, owners of NFT assets, also known as managers, can lend out their NFTs to other guild members known as “scholars.” Scholars can then use these digital assets to play and earn in the crypto game.
Afterwards, the profit is shared amongst the guild. The distribution of revenue varies depending on the guild. (vulcanpost.com) Generally, 10% is paid to the guild as rent, 20% to the managers, and 70% to the scholars. Other guilds split the profits in half.
This system has a great social impact throughout the world, granting access to virtually anyone for new gameplay experience and earning opportunities.
Axie Infinity, for example, was the first gaming project that took off in 2021, giving rise to boom of the GameFi sector. Guilds recognize that most players live in developing countries where the average monthly salary is around $200.
The GameFi sector became increasingly popular following the Axie Infinity boom in 2021. As a result, many projects aspire to bring forth the next innovative gaming product to the market.
But this also means that there are poor-quality, fraudulent projects looking to take advantage of the play-to-earn hype. It is the guild’s responsibility to prevent their members from being exposed to scams or rug pulls.
All top gaming guilds carefully research and analyze the economic system of the projects they invested in as well as playtest and evaluate the game before awarding scholarships to their members.
4. Bridge Between Traditional Gamers and Crypto
Blockchain-based games are different from traditional video games. There are quite a few steps involved that can seem daunting to non-crypto users. Accessibility is an important factor to drive the GameFi sector forward, so it is important that there are sufficient educational resources for newcomers.
As such, guilds play an indirect role in supporting non-crypto gamers to access the market, for example:
How to create a crypto wallet such as Metamask to access the game and marketplace.
How to deposit and withdraw funds on exchanges and DApps for trading.
How to secure accounts and make transactions.
Learn more about the game project such as gameplay mechanics and reward systems in the game.
The more non-crypto gamers know about the market, the more they are likely to dip their toes into GameFi. As a result, more funds flow in, contributing to the long-term growth of the market.
Retention rate of crypto games is a key performance indicator of a healthy ecosystem. UniX reported a higher than average matchmaking rating (MMR) per scholar (in-game skill level) when compared to other guilds, resulting in higher earnings.
5. Connect Investors with the GameFi Market
Crypto gaming guilds also functions as a venture capital for the GameFi sector. They would scout new crypto games and invest if they see potential.
Even for investors who want to invest in games but do not have time to play, they can invest in guilds and distribute scholarships to their members as well. This way guilds can help investors to indirectly invest in games through them without going through the hassle of doing research, managing accounts or operating the game.
Conclusion
Despite the bear market, the GameFi sector still shows a lot of potential in the future. This is because gaming is the number one form of entertainment in the world, and everyone can enjoy the opportunity to earn income from doing what they enjoy.
However, the GameFi sector is still bottlenecked by high cost of entry and lack of economic viability in the long run. This is where crypto gaming guilds come in. They function as facilitating intermediaries by purchasing NFT in-game assets and lending them out to players to play and earn, which will be shared via scholarship program.
Gaming guilds are also a great source of education for non-crypto users to learn about the crypto market, which will help drive the GameFi sector forward, bringing mass adoption one step closer.
Investors who are interested in play-to-earn projects but do not have time to play can consider investing in guilds to manage their funds for profit.
Frequently Asked Questions
What is a crypto gaming guild?
A crypto gaming guild is a web3 organization that is made up of gamers, investors, and managers. Their main goal is to provide resources such as in-game NFTs to players who can’t afford them. The players will then use the NFTs in crypto games to play and earn tokens which will be shared with the guild.
How do crypto gaming guilds work?
Crypto gaming guilds operate under a DAO (decentralized autonomous organization) structure in which funding comes from within the community of DAO token holders, in this case the DAO token issued by the guild. Guild members would then collectively invest in NFT assets and in-game tokens needed to participate.
What is a scholarship program?
Within the crypto gaming guild, owners of NFT assets can lend out their NFTs to other guild members known as “scholars.” Scholars can then use these digital assets to play and earn in the crypto game.
How are profits shared in crypto gaming guilds?
The distribution of revenue varies depending on the guild. Generally, 10% is paid to the guild as rent, 20% to the managers, and 70% to the scholars. Other guilds split the profits in half.
Can you invest in crypto gaming guilds?
Yes. For investors who want to invest in games but do not have time to play, they can invest in guilds and distribute scholarships to their members as well. This way guilds can help investors to indirectly invest in games through them.
The potential of blockchain applications is endless. It is based on principles of cryptography, decentralization and consensus, which ensure trust in transactions. It eliminates the need for intermediaries in a wide array of transactions, virtually transforming every corner of the global economy.
Cryptocurrency, as a result of blockchain technology, gives us total control over our money, thereby becoming our own bank. On paper, crypto is generally safe thanks to the blockchain’s decentralized distributed ledger and the encryption process every transaction undergoes.
However, the crypto space is still in development, and most of us still have to rely on third-party wallet providers to store our crypto. The security of our fund is only as safe as the safeguards and security measures the provider has in place.
As crypto evolves, so do hackers and scammers. Malicious actors are getting more creative at exploiting vulnerabilities in blockchain projects, devising new tactics to bypass their security controls.
How Much Money Has Been Stolen to Date?
Over the years, hackers have exploited loopholes within the platforms of these third parties, especially on DeFi protocols. They have also coordinated attacks on certain cryptocurrencies directly such as utilizing flash loans to their advantage — borrowing a large amount of funds without collateral to quickly carry out pump-and-dump schemes.
To this date, more than $7 billion have been stolen in the crypto space. As crypto prices tend to change, that $7 billion would be worth so much more today. If the hackers were to cash it in today, they would have amassed a fortune worth more than $40 billion!
This number alone is from exploits and thefts by hackers. It does not include other events such as rug pulls or corporate fraud. Those numbers would be even higher if they are added together.
There are 365 recorded attacks so far and the five largest hacks make up more than one-third of the stolen $7+ billion:
Ronin Network (Axie Infinity) – $620 Million Stolen
Ronin Network is an Ethereum-linked sidechain that powers Axie Infinity, one of the leading blockchain games. On 29 March 2022, Ronin Network was hacked and 173,600 ETH and 255,000 USDC were stolen as a result, worth $620 million at the time.
The U.S. Treasury Department attributed the hack to Lazarus, a North Korean hacking group. Lazarus reportedly reached out to developers of Axie Infinity via LinkedIn on the pretense of a fake company, offering them an “extremely generous” compensation package.
A senior engineer took the bait and clicked a PDF which supposedly contained the “offer.” This led to the engineer’s computer being compromised as well as the validator nodes of the Ronin Network.
Poly Network – $610 Million Stolen
Poly Network is a cross-chain protocol that implements blockchain interoperability in DeFi. In August 2021, a hacker managed to exploit a vulnerability in Poly Network’s code which enabled them to transfer more than $600 million worth of tokens to their own account.
Through a series of negotiation, Poly Network pleaded with the hacker to return the stolen funds, calling him “Mr. White Hat.” The platform even offered him a $500,000 bounty and a job as “chief security advisor.” Surprisingly, the hacker returned all of the stolen funds!
Security experts believe that it was likely the hacker realized it would be impossible to launder the money and cash out, since all transactions are recorded on the blockchain.
Coincheck – $532 Million Stolen
Coincheck is a Japanese cryptocurrency exchange and NFT marketplace founded in 2012. In January 2018, its NEM (XEM) tokens worth more than $530 million at the time were stolen and transferred to 11 different addresses.
Hackers exploited the fact that the tokens were being stored in a “hot wallet”, which was connected to the server. This made it susceptible to phishing attacks.
Coincheck also did not have a multi-signature security measure in place, which requires more than one person to sign off before funds can be moved. As a result, a single point of failure would be established.
MT Gox – $470 Million Stolen
MT Gox was a Japanese Bitcoin exchange founded in 2010, and it was handling over 70% of all Bitcoin transactions worldwide by early 2014.
The attack on MT Gox was not a solitary event. Rather, the exchange had been leaking funds since 2011, until it was discovered in February 2014. During this period, around 100,000 BTC were stolen from the exchange and 750,000 BTC were stolen from the exchange’s customers. At the time, these BTC were both $470 million, but today, they are worth around $4.7 billion!
MT Gox filed for bankruptcy shortly after the hack. Only 200,000 of the stolen BTC were successfully recovered.
Wormhole – $326 Million Stolen
Wormhole is a blockchain bridge between Solana and other top DeFi networks, allowing users to swap Solana tokens (SOL) for other crypto on DApps across the Ethereum network.
Cross-chain bridges are critical infrastructure in the DeFi ecosystem as users can move their funds between blockchains. A lot of money is being moved. This means that security is a number one priority for these platforms. However, Wormhole was harshly criticized for its lack of comprehensive security audit before going live.
According to an article by Hacken, though Solana may be blamed for providing the instrument with security flaws to its projects, Wormhole might have “prevented the incident by auditing the instruments it used.”
The Bottom Line
Despite improvements, the crypto industry still faces security concerns, especially in peer-to-peer ecosystems where anybody can join anonymously. It becomes almost impossible to track malicious actors when their identity is hidden.
New forms of cyber threats are emerging that are capable of causing massive, irreparable damage. And this list will only continue to grow unless there is a solid security measure that is widely established.
Therefore, it is important to learn about the potential security flaws that are prevalent in third-party platforms like DeFi, crypto wallets and exchanges. As investors, we should recognize the kinds of attacks that hackers pull off so that we can spot and avoid them beforehand.
Crypto, as a new asset class, is volatile in nature. Its price fluctuates because it is heavily influenced by supply and demand, and it reflects how the public feels about the asset. This is known as market sentiment — bullish when prices are rising, bearish when prices are falling.
The market is constantly changing. In many cases, it does not matter how you feel about it, it only matters how the market is going to feel about it.
Market sentiment is a critical indicator to predict price movements and make investment decisions. An easy way to gauge market sentiment is by looking at chart patterns. They tend to repeat themselves, and once you are able to recognize them, it becomes easier to strategize your entries and exits.
However, it is important to note that they are NOT a guarantee that the market will move in that predicted direction. It should only serve as a frame of reference for you to feel how the market moves.
Bearish Chart Patterns
These are some of the most common bearish chart patterns you will see in the market. This cheat sheet will help you identify real-time candlestick patterns whenever you’re on Binance, FTX or other crypto exchanges, so that you can spot bearish trends earlier and better prepare your exits to cut loss.
Head and Shoulders (Bearish)
Head and Shoulders (Bearish)
The head and shoulders pattern is regarded as one of the most reliable trend reversal patterns. It is one of the top patterns that generally signals the end of an upward trend. The pattern is most prevalent among two of the largest coin by market cap, Bitcoin and Ethereum.
The pattern occurs when a large peak has two slightly smaller peak on its side, resembling the shape of a head in the middle and the shoulders on the sides.
The only thing you have to know is that all three peaks will fall back to the same level of support, also known as the “neckline.” Once the third peak has fallen back to the support line, it is likely that it will continue into a bearish downtrend. (Alprazolam) Traders would opt to short the market as a result.
But if the tide turns in favor of a bull market, the asset will attract buying pressure, and the price will reverse into a bullish uptrend as a result. This usually happens if the third peak is slightly higher than the first peak.
This is why the head and shoulder pattern is reliable because the result of the market being bullish or bearish is 50/50. There is a possibility the price action would go sideways following the third peak.
Descending Triangle (Bearish)
Descending Triangle (Bearish)
A descending triangle is a bearish pattern which signifies the continuation of a downtrend, hence “descending” triangle. It happens when the downward-sloping line of lower highs crosses the support line, continuing the downtrend.
This means that the market is dominated by sellers. Typically, traders will also enter a short position during a descending triangle in an attempt to profit from the continuous price drop.
Successively lower peaks are likely to occur and unlikely to reverse. However, it could turn out to be a false breakout in which the price moves sideways for some time after breaking through the support line.
Rising Wedges (Bearish)
Rising Wedges (Bearish)
A rising wedge occurs when the trend line is sandwiched between two upwardly slanted lines, getting narrower as the support line gets closer to the resistance line. In this case, the line of support is steeper than the resistance.
It may seem like an upward trend but it isn’t. In fact, it is a reversal pattern. A rising wedge is usually indicative that an asset’s price will rise before it drops and breaks through the level of support, as shown in the second picture above.
Generally, the asset’s price will eventually decline more permanently as a result. The rising wedge is difficult to spot because it resembles a bullish consolidation formation — the series of higher highs and higher lows keep the trend inherently bullish.
There are no measuring techniques to estimate the decline. But the next best thing is to look at the trading volume. If volume declines as the price rises, the wedge gets narrower. This marks the exhaustion of the buying trend which is a sign of a bearish reversal. Thus, a break of the support line accompanied by high volume confirms the bearish pattern.
Double Top (Bearish)
Double Top (Bearish)
A double top is when the price experiences a peak, before retracing back to the support line. It will then climb up once more before dropping more permanently. It resembles an M shape, hence “double top.” Jokingly, the M stands for working at “McDonalds” during the bear market!
It may seem like a bullish trend, but it is in fact a bearish reversal pattern. The buyers push the price higher, creating a series of higher highs and higher lows. However, at a certain point, the buyers cannot extend this bullish trend, and the second peak is registered as an equal high as a result. This is when the sellers target this weakness, pushing the price even lower.
Summary
These are some of the most common bearish patterns you will see in the market. This cheat sheet will help you spot bearish downtrends earlier so that you can exit and avoid loss. However, it is important to note that crypto is volatile in general.
These chart patterns are NOT a guarantee that the market will move in that predicted direction. It should only serve as a frame of reference for you to feel how the market moves.
