The Ethereum network is said to be the fastest and most scalable blockchain after the Merge in September, effectively cementing its position as the front-runner of smart-contract networks. What will this mean for other popular competing layer-1 blockchains known as “Ethereum Killers?” If you are holding any of these coins, you might want to consider its future prospects.
The Ethereum Merge in September
Ethereum founder Vitalik Buterin addressed at the Ethereum Community Conference in Paris that the Ethereum network will hit the 55% roadmap completion level after its much-anticipated “Merge” in September. The Merge will mark the beginning of Ethereum’s proof-of-stake upgrade, potentially enabling the network to process 100,000 transactions per second (tps), according to Buterin, which is significantly higher than even centralized financial services like Visa and Mastercard.
For the longest time, the biggest problem that has been plaguing Ethereum is scalability. In its current state, Ethereum can only process 12 to 25 tps with an average confirmation time of around six minutes. As a result, the network gets congested, leading to extremely high gas fees. To address that problem, the Merge involves many protocol changes that would allow users to enjoy fast transactions and low gas fees. Buterin has even given each of these planned upgrades rhyming names which he calls the “merge”, “surge”, “verge” and “purge.“
Merge
Refers to combining the Ethereum mainnet with the proof-of-stake beacon chain, also known as EIP-3675.
Surge
Refers to the addition of Ethereum sharding, a scaling solution which will further enable cheap layer-2 blockchains and lower the cost of rollups or bundled transactions, making it easier for users to operate nodes that secure the Ethereum network. This reduces congestion on the main chain by distributing traffic to 64 shard chains.
Verge
Refers to the implementaion of “Verkle trees” (a kind of mathematical proof) and “stateless clients”, aimed at making the network more decentralized. These features will allow users to become network validators without having to store large amounts of data on their nodes.
Purge
Refers to the removal of historical data in a bid to streamline the network, also known as EIP-4444, a proposal focused on storing said historical data in execution clients such as The Graph, BitTorrent and block explorers, since relying to store everything on existing nodes can hamper scalability.
What are “Ethereum Killer” Blockchains?
“Ethereum Killers” refer to Ethereum’s competing layer-1 blockchains, namely Solana, Avalanche, Polkadot, Algorand, and Cardano. They inherited the killer name because they offer similar features to Ethereum but at significantly lower costs and faster speed.
Ethereum Killer coins have been a very popular asset to investors looking for an alternative network to Ethereum. Smart-contract platforms have been dominating the market cap in the crypto space. According to Coingecko, it is the second highest crypto category by market cap, just behind the Ethereum ecosystem.
What will happen to “Ethereum Killers” after Merge in September?
If Buterin is able to deliver what he promised, then Ethereum will most certainly be the front-runner of smart-contract networks. People will look to Ethereum to being the primary platform for DApp development, DeFi activities, NFT minting and marketplace and more.
Although Ethereum Killer coins have been pumping recently due to bullish sentiment surrounding Ethereum and its long-awaited Merge, communities are speculating whether this is just hype as competing blockchains of Ethereum will no longer have competitive advantage in terms of speed and scalability. Even until now, none of them have been able to dethrone Ethereum from its number two spot by market cap. The upcoming merge will only propel Ethereum upward, but that is if Buterin delivers what he promised. He stated that they will soon test the merge on Ropsten (Ethereum’s testnet).
The largest future problem for Ethereum will most likely remain to be scalability. Although the new system will be faster, it is unlikely to solve the issue of high gas fees immediately since network demand is likely to rise as efficiency increases. But that is not to say that gas fees will forever be expensive on the Ethereum blockchain. But until Ethereum is able to achieve high scalability, Ethereum Killer blockchains remain to be viable alternatives for fast transactions and low gas fees. We will just have to wait and see in September.
There are tens of thousands of cryptocurrencies out there, with over 1,000 new tokens launched between January and July of 2022. Over time, people in the crypto community have realized that there are many bogus projects in the blockchain space whose sole aim is to entice unsuspecting people and defraud them. This makes it compulsory for everyone to research blockchain projects before making financial commitments.
What Does DYOR Mean?
DYOR (Do Your Own Research) is a well-known acronym in the crypto and blockchain space. DYOR means that people are encouraged to conduct due diligence and gather all the necessary information on projects before depositing any funds, especially for new projects. Adequate research protects new and existing crypto enthusiasts from scams and projects with no real value. By “doing your own research,” members of the crypto community can find viable blockchain projects and avoid fraudulent or deceptive ones.
Why is DYOR Important?
DYOR is important to avoid losses, especially from scams or fraudulent actors. The evolution of decentralized finance (DeFi) and blockchain tech has made it easy for creators to sell the promise of a revolutionary product and attract cash from the general public. Since anyone with enough technical knowledge can create an asset on a blockchain, people no longer require intermediaries such as banks and brokerages before investing in the opportunities available within the crypto market. However, without governmental checks and regulations on these intermediaries, it also means that there is a high risk that the average investor will fall for a scam or fund a project with nefarious intentions.
Furthermore, since there are no centralized authorities in the DeFi space, people have no place or authority to report their grievances should the project turn out to be a scam. Fraudulent development teams know this, and exploit it by making promises they cannot deliver. In addition, transactions recorded on a blockchain are immutable. This design is a significant reason DYOR is important, since funds lost to scams or harmful projects are usually irretrievable.
How to Do Your Own Research (DYOR) in Crypto Projects
Here are some tips on how to DYOR before investing in crypto projects:
Find the project team and its Unique Selling Proposition (USP);
Evaluate the project roadmap;
Check the project’s social media reputation and presence;
Research the project’s source of funds
Read the project’s whitepaper
Find Third-Party Audit Reports
Find the Project Team and its Unique Selling Proposition (USP)
People looking to invest or deposit funds must first find information about the project’s motives, purpose, and development team. The data could include the project’s past performance and detailed use cases of featured products. If a project team is anonymous, it should set off red flags in your head, as you should be wondering why they aren’t willing to put their name behind a project if it is reputable. Also, what is the project trying to achieve? Consider if it is actually something that there is likely a market for, and whether other competitors have attempted the same idea in the past and their results?
Evaluate the Project Roadmap
Reading and understanding a project’s roadmap, which provides a strategic overview of objectives, milestones, deliverables, and resources, is an effective way to DYOR. You should also evaluate if the roadmap is feasible – this relates to the above research on the team and their background. A fake or deceptive crypto project may publish a roadmap that promises all kinds of products or features in a short time. These projects sometimes do this to excite new backers into believing the project is viable in the long run and things are moving along quickly. However, the roadmap may be too good to be true. If a project makes promises like partnerships, new products, plans to raise a large sum of money, and full government approval all within a short time, buyers should be wary.
Check the Project’s Social Media Reputation and Presence
Reputable blockchain projects usually have a verifiable social media presence and reputation. Checking the project’s reputation on major social media platforms such as Facebook, Telegram, Reddit, and Twitter gives insight into people’s thoughts about the project. See how other users are interacting with the community. Also, see if there are any questions or grievances concerning the project, and whether the team is immediately on hand to address them.
Research the Project’s Source of Funds
Before making financial commitments to a project, it is important to determine whether a single individual or an established firm backs the project with capital and other resources. Prospective investors should also research previous projects backed by these sponsors to see if they were successful. Additionally, these sponsors should have a good reputation in the crypto community. This information can be located in the project’s whitepaper.
Read the Project’s Whitepaper
All crypto projects should have at least a whitepaper that documents information and technical aspects of the project. Whitepapers contain critical information about a project’s development process, potential opportunities, and utility.
Find Third-Party Audit Reports
Many auditors, such as Certik, Hacken and Quantstamp review the code of blockchain projects before launch to ensure their security. These audits involve double-checking the code and testing it for vulnerabilities, which results in the funds within the application being much safer than a non-audited smart contract. Looking up the audit report of projects before investing is a sure way to build confidence in a project. However, people should be aware that a positive report does not mean that the project is completely safe, as there are instances where malicious code was added after the report was released.
People researching crypto and blockchain projects should use multiple tools, common tools include CoinGecko, CoinMarketCap, Investopedia and social media.
CoinGecko
CoinGecko is a popular market research source for blockchain projects. The platform provides detailed information on market caps, prices, and daily trading volumes of various crypto assets. In addition to being a credible source of crypto information, CoinGecko also provides crypto-focused podcasts, industry commentary, and daily newsletters. When going into individual asset pages, you can also find the token’s website and social channels, allowing you to continue your due diligence.
CoinMarketCap
CoinMarketCap is the leading platform for cryptocurrency market information and research. The platform provides market information on nearly all the crypto assets available. CoinMarketCap also ranks crypto assets and projects in real-time, using features like market capitalization or 24-hour trading volume to sort projects in order. Like with CoinGecko, make sure to check the individual asset pages for more information on a specific cryptocurrency.
Investopedia
Investopedia is a leading online resource in the finance space. It is a repository that explains related terms and contains news and general financial information. Investopedia explains many complex blockchain concepts in layman’s terms, making it an ideal platform for newcomers in the finance and crypto space.
Social Media
It is almost essential to sample public opinion about a project before spending money. Social media platforms like Facebook, Twitter, Telegram and Reddit contain raw and undiluted information from members of the crypto community who may have in-depth details about the project.
Although the information posted on social media may be unverified, these platforms can still be an excellent way to get much-needed information about projects. Posts may be from people who have lost money, made money, or those who noticed specifics that they considered to be red flags. However with everything on social media, always confirm that the statements being made are legitimate before you take them as truth.
Conclusion
DYOR is crucial for investors in the cryptocurrency and blockchain space. The absence of easy-to-understand information and lack of regulation somewhat makes scams more likely in the crypto space than in traditional financial markets, so never overlook the importance of research and verification. Doing the proper research before getting monetarily involved in any project is a concept that has more relevance in the blockchain sector than in many other industries because it is a disruptive and highly volatile sector.
Bifrost Finance ($BNC) is a Polkadot-based parachain designed to enhance cross-chain liquidity and provide users with staking service. Bifrost pays vTokens (Staking Derivatives Voucher Tokens) to users who help with liquidity by depositing PoS tokens on the platform. Users can convert a Proof-of-Stake (PoS) token into a vToken (such as ETH to vETH) for cross-chain functionality.
Many blockchain networks in the crypto space offer various DeFi services supported by unique native tokens. Although the global DeFi and blockchain sectors are growing, most operate individually and have little to no interoperability with each other. This lack of cohesion between chains created a void that only cross-chain projects could fill.
Cross-chain infrastructure solutions are slowly gaining popularity. However, these projects still face problems with liquidity across networks and cross-chain reward mechanisms for staked assets. Bifrost Finance aims to address these blockchain limitations, allowing the easy flow of assets and user incentives between blockchain networks.
Ecosystem, Technology, and Utility
The Bifrost project lets users earn incentives for staking assets and providing cross-chain liquidity. The project functions as an intermediary protocol between decentralized applications, and supports these applications via PoS services and liquidity staking.
Usually, staking crypto assets require users to lock their tokens in smart contracts for a specified period. Staked tokens are generally not accessible until the lock duration expires. However, Bifrost uses its native vTokens to solve this problem through liquid staking. Liquid staking on the Bifrost platform lets users stake crypto assets and receive vTokens in exchange instead of waiting for the specified staking period to expire. Stakers can then use the vTokens to access and fund Bifrost-compatible networks like Kusama and Polkadot. Bifrost Finance uses Polkadot’s GRANDPA consensus algorithm for staking and other functions.
Components of the Bifrost Finance Network
The Bifrost Finance network includes the following components:
Cross-chain users, including vToken holders, and BNC miners
Voters, who are BNC holders, capable of voting for the governance and management of the Bifrost platform. Voters receive rewards for their service.
Node validators who vote on valid transactions. Validators also receive a percentage of the total platform’s rewards.
Stake proxy nodes nominated to support PoS chains of other networks associated with Bifrost. These nodes connect with various mining pools, liquidity pools, DApps, and wallets, making it easier for the staking node to interact with other DeFi services and protocols.
A vToken DEX that provides liquidity for vToken. Users can also stake or unstake their tokens on this exchange.
Community Developers who build applications like wallets and DApps, developing new features on the Bifrost platform.
Is the Bifrost Finance Network Safe?
The Bifrost network is a Polkadot parachain project. The network provides security by leveraging Polkadot’s existing infrastructure instead of providing its own. Polkadot also helps provide secure communication between networks with the help of its relay chain, without any additional trust mechanisms through a concept known as “shared security.”
Bifrost Native Coin ($BNC) Utility
The BNC token is essential for the governance and operation of the Bifrost network. Some of its main use cases include:
Trading Fees
Users performing Bifrost network transactions, including transfers and staking, must pay transaction fees. Bifrost has a flexible fee model that supports multiple asset payment fees such as BNC, DOT, vDOT, KSM, and vKSM. The platform converts these fees into BNC before storing them in the treasury to promote network growth and maintenance.
Collateral
Participating nodes have to stake BNC to guarantee good conduct on the Bifrost network. Based on node performance, required collateral may increase or reduce.
Administration
To build and establish community governance, BNC holders can recommend and vote on network enhancements, with each vote corresponding to the amount of BNC tokens held.
Bifrost ($BNC) Unique Features?
Bifrost provides PoS networks with much-need liquidity by letting users convert assets to vTokens with the option to receive passive income from staked tokens.
vTokens can help optimize transaction speed and improve transaction efficiency across various protocols and platforms, including decentralized applications (DApps), decentralized exchanges, and centralized exchanges.
Bifrost Finance guarantees genuine democratic governance by ensuring all processes on its parachain are transparent.
Conclusion
Cross-chain liquidity allows users to use and enjoy various blockchain protocols and maximize the many opportunities in the DeFi space. By providing quick and cost-effective cross-chain liquidity, Bifrost Finance has made a significant leap in DeFi advancement.
NFTs have become one of the most exciting trends in the blockchain and cryptocurrency space. With many existing projects and more in the works, crypto enthusiasts now consider NFTs as potentially rewarding and an attractive asset. These specialized assets have generated a lot of media hype, speculation, and commendable value for the greater crypto and blockchain ecosystem.
However, many people are still unaware of the specifics which make NFTs work such as minting, applications, and their general significance towards the crypto and traditional sectors. People also don’t know what to make of the trend, and whether or not they should participate in the hype. As popular as they are, NFTs suffer from the effects of many widespread myths and misconceptions, making these assets some of the most misunderstood in the finance and blockchain sector.
What are NFTs?
NFTs (non-fungible tokens) are digital assets with uniquely verifiable qualities contained in their metadata. These tokens function as a popular and effective way to represent traditional or blockchain assets because they are non-fungible, meaning they cannot be freely interchanged in a one-to-one manner, duplicated, or forged. Once created, NFTs are permanently etched on the blockchain’s public ledger and are visible by all nodes on the blockchain. The unique nature of NFTs affords them significant utility across various sectors.
While the principle behind NFTs has real-world applications, these assets are still in their infancy. Many people, including crypto enthusiasts, are still only aware of the myths and misconceptions created by mainstream media and do not fully understand these assets which can have huge potential. Here are some of the most widespread myths about NFTs and the truths behind them.
Click here for our in-depth explainer on what are NFTs.
Myth #1 – NFTs Are a Kind of Cryptocurrency
The biggest misconception is that NFTs are a kind of cryptocurrency. Although they are both developed on blockchains, the critical difference is their fungibility. Cryptocurrencies are fungible assets traded only by an asset with the same value. For example, Ethereum’s Ether (ETH) token is only tradable if exchanged for other ETH or another cryptocurrency with the same exact value. On the other hand, each NFT has a unique value and cannot be replaced with another. One Ether is always worth the same as any other Ether, but the same cannot be said about NFTs, making them a digital asset, not a currency.
Myth #2 – NFTs Are Harmful to the Environment
Since creators mint NFTs on energy-intensive blockchains, many people think they are harmful to the environment. However, this is not the case. People are now using the more energy-efficient Proof-of-Stake (PoS) blockchain protocol instead of the Proof-of-Work (PoW) protocol, which is more energy-intensive.
Click here to learn more about Proof of Work vs Proof of Stake.
Myth #3 – NFTs Don’t Have Value
Another common misconception about NFTs is that they do not have any value. On the contrary, am NFT derives true and inherent value from the underlying blockchain technology that enables the ownership, transparency, and security of digital assets.
The utility of NFTs transcends digital artwork, avatars, and collectibles. For example, certain NFTs offer holders various uses and benefits ranging from VIP concert passes to private dinner reservations. Additionally, NFTs are applicable in the real estate sector to transfer land deeds or verify ownership.
Myth #4 – NFTs Are Easily Copied and Forged
A common issue with digital collectibles is validating their authenticity and rarity, mainly to prevent the sale of counterfeit or pirated items. This is a problem that blockchain technology quickly solves.
A blockchain maintains a series of public transactions across different computers or nodes. Each node “witnesses” all transactions to ensure that they are all 100% authentic. With NFTs, the blockchain creates a clear chain of ownership making collectors confident that their NFT is the one-and-only “original,” also ensuring that buyers can verify authenticity before exchanging money.
Myth #5 – NFTs Encourage Scams and Money Laundering
Many still commonly believe that blockchain assets are for criminals and tax defaulters. However, cash is still much more utilized for nefarious purposes and crime-driven than cryptocurrencies and NFTs. All transactions on the blockchain are completely transparent and easily trackable if there is a need to detect fraudulent activity. Furthermore, in some cases, it is also possible to recover stolen funds from scams or money laundering.
Myth #6 – Buying an NFT Means Owning the Intellectual Property
This myth is more of a technical misconception. Owning an NFT does not automatically give ownership of the underlying asset or its intellectual property rights. Unless otherwise stated, ownership of the intellectual property stays with the creator of the NFT. Even after the purchase, buyers or collectors do not have the right to use the NFT outside the scope outlined by the creator. Think of it as a collectable book or movie; just because you purchase it doesn’t mean you have the right to reproduce or monetize the intellectual property.
Myth #7 – NFTs Are Just a Fad
Like the internet, many people thought NFTs would not catch on or only find applications for illicit activity. Some also believe that these tokens are just hype and will suddenly disappear, leaving many people holding worthless assets. However, given the many possible use cases, NFTs are unlikely to disappear.
We can see that NFTs are not dead or just a fad from the launch of video game retailer GameStop’s NFT marketplace. GameStop launched its NFT marketplace on 12th July 2022, ahead of its initial anticipated release after hinting at this for over a year. GameStop has in May 2022 already released its digital asset wallet for users to store, send and receive cryptocurrencies and NFTs in anticipation for this marketplace launch.
The launch of GameStop’s NFT marketplace also appears to be a success, with trade volumes exceeding US$1mil (over 1,028 ETH) in 24 hours. Commentators on Twitter also suggest that GameStop’s launch was even more successful than that of the Coinbase NFT marketplace, since GameStop’s trade volume in 24 hours was equivalent to 60% of Coinbase NFT marketplace’s entire lifetime sales.
Conclusion: NFT Myths?
NFTs are here to stay and are slowly gaining massive traction across the crypto space. Although popularity is on the rise as creators are continuously minting new ones every day, crypto enthusiasts worldwide still need to stay informed about utility to better understand the technology, how it works, and how creators can sustain the NFT market well into the future.
All financial markets experience different cycles and market conditions. Since crypto asset prices also go through prolonged periods of bullish and bearish movements, the crypto market is no exception. The most dreaded market phase for crypto traders and investors is a declining or bearish phase, especially one that sustains itself for a long time.
General sentiments regarding the crypto and other financial markets are bleak during these periods, making many investors and crypto enthusiasts understandably worried. However, many traders still find ways to make money during unfavourable market conditions. To earn when the market is down, it is important to understand the concept of a bear market.
Check out our video comparing the crypto bear market in 2018 vs 2022, and how you can still profit during this period of downward price trends:
Table of Contents
What Is a Crypto Bear Market?
A bear or bearish market is a prolonged period characterized by falling prices of at least 20% across major crypto assets. Individual crypto assets may also be in a bear market if they experience a decline of 20% or more over an extended period. A bear market may occur due to widespread pessimism and negative market sentiment, as well as other internal or external factors. Additionally, a weak or slowing economy, pandemics, wars, and geopolitical crises are also characteristics that may cause a bear market.
7 Ways to Make Money and Profit in a Crypto Bear Market
Even when the market is in an overall downtrend, the blockchain and DeFi sector offers various ways for crypto traders and investors to still emerge profitable and victorious. Here are a few lucrative options that crypto investors and traders can utilize to make money and remain afloat in a bearish market phase.
Yield Farming
Yield Farming is a cryptocurrency investment method that allows investors to earn interest and rewards on their crypto assets. With yield farming, investors lend their crypto assets to DeFi platforms that hold these assets in a liquidity pool for a specified period. These pools provide liquidity to decentralized finance platforms that use the funds and ensure that the depositors earn some interest over time.
For those who are new, check out our video on the top yield farming mistakes all newbies make:
Crypto Staking
Staking is the process of earning rewards by locking up funds on a blockchain. Although similar to yield farming, this process does not use tokens for loans. Instead, Proof-of-Stake (PoS) blockchains use staking to validate transactions on their networks.
Users who stake more tokens get higher priority to validate transactions and earn more funds. Earnings from asset staking vary between platforms and depend on the governance community in each case. Before getting involved in yield farming or staking, always do your own research and make sure the returns are sustainable, as many times, there are ludicrous and unsustainable offerings that result in users losing all of their funds.
Crypto Savings and Crypto Lending
Savings and lending are good ways to make passive income from crypto during a bear market. These methods involve storing assets on a platform to earn simple interest on the deposits. Traders should remember that potential earnings mainly depend on the amount stored. Again, do your own research before allocating any capital to these types of platforms.
Forks and Airdrops
Altcoin forks and airdrops are also effective ways to make money in a bear market. A fork happens when users vote to diverge a blockchain and form another due to a material disagreement. This process leads to an airdrop where holders of the old token get the new tokens to participate in the forked blockchain. Depending on the value of the forked token, users can earn quite a bit by simply holding newly acquired tokens. (Modafinil)
Margin Trading
One of the most common ways to make money in a down-trending market is margin trading. This method is simply the process of trading crypto assets with funds from brokers. Margin trading allows users to trade with more money than they have in their accounts, thereby increasing potential profit. Although margin trading is an effective way to earn in a bear market, this method is only recommended to experienced crypto traders, as you can lose the entirety of your initial capital if the market moves in the opposite direction of your call.
Analyze Smaller DeFi Projects
A new DeFi project may have a low valuation after launch, but show huge promise in the long run. Crypto enthusiasts who take the time to analyze and research these projects can likely find and profit from the right ones. Even in a bear market, crypto investors who get in early enough tend to make gains from the increase in the asset prices of these crypto projects.
Dollar-Cost Averaging
One of the most effective ways to thrive in a bear market is to buy the dip. With dollar-cost averaging, investors buy assets at consistent intervals and properly observe market conditions before reinvesting. Since the cryptocurrency market’s volatility is unpredictable, it is nearly impossible to predict the lowest point before a reversal. Hence, dollar-cost averaging helps investors maximize profits by allowing them to buy at low points before the market becomes bullish. You lower your risk by lowering your potential downside and upside, but also allocating capital in a way where you will not only hit peaks and troughs.
Next Steps
Any crypto market condition has potential for profitability if you know how to play it right. The above strategies can help even novice crypto traders earn when the market is bearish. However, traders should note that their preferred strategy should depend on their risk tolerance and portfolio size. Traders should also learn to study the market to ensure that the chosen method will be effective at a particular time.
Ethereum 2.0 is coming soon and the question everyone wants to know is “will it cause crypto prices to crash?” This is particularly as markets around the globe are not looking great, and that includes the crypto industry. Everything has been bleeding heavily for months without a sign of stopping, as central banks keep hiking rates, global supply chains struggle, and spending and investment dry up. Stagflation is a very real possibility, and there is no telling how long it will take for us to cool down the overheated markets that have been going only up since the last recession more than ten years ago.
The aforementioned notwithstanding, active development in the blockchain space continues to march forward. Although investments might drop significantly, many builders keep on building no matter the state of the markets. As Ethereum is steadily approaching the long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoS), dubbed The Merge, it might be interesting to think about potential impacts of The Merge on the crypto market prices, especially in the context of a potential extended bear market.
In short, The Merge will result in Eth2.0’s Beacon chain (the coordination mechanism of the new network) merging with the current Ethereum mainnet, signifying the move to a fully PoS chain. To secure the network, enormous amounts of ETH will be staked in addition to the ETH already staked in the Beacon chain, making all of this locked ETH illiquid. Combined with the EIP-1559 upgrade, which now burns 70-80% of the fees, The Merge is expected to cause the equivalent of 3 bitcoin halvenings, dropping Ethereum’s inflation rate to 0.43% and locking up a lot of ETH, potentially reducing sell pressure by up to 90%. In addition, the PoS mechanism will reduce Ethereum’s energy consumption by up to 99.95%.
So all is looking great for Ethereum and projects building on top of it, right? Possibly. However, there is still a decent chance that, given the current market conditions, ETH’s price pump might be short-lived, and would continue to drop, bringing down a lot of other projects with it.
The Potential Impacts of The Merge
There are two possible scenarios to look at when discussing the downside impact of The Merge on crypto prices:
The external effect would be caused by Ethereum sucking out liquidity from other PoS alt-L1s and the projects built on top of them (especially if they’re EVM-compatible), as one of the more critical selling points compared to Ethereum is environmental sustainability.
Beacon chain staked ETH unlocks, extended bear market, and poor treasury management of Ethereum-backed projects could see more capitulation events as HODLers and projects sell off their ETH to stay afloat as new investments dry up and stagflation looms.
1. Ethereum Sucks Liquidity From Other PoS alt-L1’s
By offering lower gas fees, fast transactions, and relatively high throughput at the expense of decentralization and economic sustainability, many PoS chains have attracted developers, investors, and NFT ecosystems to their networks away from Ethereum. Ethereum’s high demand (=high fees), poor L1 scalability, and the concerning PoW mechanism have severely limited its growth. (https://rpdrlatino.com) Understandably, regular people simply do not want to pay exorbitant fees when minting and trading NFTs, and developing inaccessible dApps on a network that is supposedly destroying trees and warming up the planet.
The environmental argument will be completely invalid after the merge. Coupled with the enormous innovations in Ethereum’s L2 ecosystem, which have already reduced transaction fees to sub-$1 with no signs of stopping, Ethereum is set to once again become the most sought-after smart contract development platform. As post-Merge buy pressure of ETH increases and scalability improves, alt-L1’s could struggle to offer any significant unique selling points, making new projects opt to build on top of the most secure, established and decentralized smart contract chain out there.
As more and more people flock to Ethereum, established projects might also decide to migrate to the platform with the most demand and upside potential, effectively sucking out liquidity from other chains, and leaving them dry with evaporated treasuries, limited runway, and reduced demand. The strategy of subsidizing transaction fees during a bull market when funds are plentiful will likely not work when no new investments are coming in during a bear market, and an exodus of users is reducing demand and network revenues.
Of course, there is plenty of room for growth in this space, and projects existing on other chains might not find it too beneficial to move to Ethereum even though short-term liquidity issues might prove challenging.
2. Beacon Chain ETH Unlocks in Extended Bear Market Cause Mass Capitulation
The Merge will unlock a lot of ETH, resulting in a potential aggressive selling spree that might have trickle-down effects on a lot of other coins, especially those that have tight correlation with their ETH pair, are ERC-20 tokens, or have been sitting on ETH treasuries to fund their development. A lot more downside risk due to a selloff is also a very real possibility for ETH and other coins simply due to bad timing (i.e. bear market – with recession slowly creeping into our daily lives due to central banks raising interest rates, supply chain issues, energy crises etc.), the unlocked ETH might serve as a critical lifeline for those who had confidently staked their ETH during the bull market.
During the bear market, investments will be scarce, and projects that during the bull market had made the decision to not convert their treasury ETH to stablecoins are now seeing their wallets drop in value significantly, forcing them to capitulate by selling at low prices to cover their expenses.
However, it is important to note that the ETH unlocked from the ETH staked on the Beacon chain will not be immediately available right after The Merge. Rather, this feature – EIP-4895: “Beacon chain push withdrawals as operations”, will be enabled during the Shanghai upgrade. It will probably be deployed much later after The Merge, with estimates ranging from a month to 6 months. This means that any amount of potential sell-off of unlocked ETH would come with a significant delay post-Merge, at which point it’s impossible to predict where the market might be in 6-12 months and how it will behave, with contradicting bullish and bearish narratives clashing against one another in an attempt to drive price in either direction.
This option does seem a bit far-fetched, however, and no one knows how much more pain we will have to suffer before the momentum shifts towards the upside, so it’s best to be prepared for both the upside and downside, and not fall prey to only bullish narratives.
Conclusion
As outlined in the two main points, post-Merge many alt-L1 coins could face a risk of crashing even further due to risks associated with reduced liquidity in a bear market (for non-Ethereum coins), liquidity that might flow towards the Ethereum ecosystem due to its established security, track record, and newly acquired environmental sustainability.
On the other hand, ETH and other ERC-20 tokens living on Ethereum also run a risk of crashing, if the post-Merge ETH unlock from the Beacon chain results in a mass sell-off of ETH, which could crash other coins and project treasuries.
As this will be the first time the crypto industry experiences a recession or a stagflation, there is a lot of uncertainty about how low the market could go and, most importantly, how long it could stay so low. This is uncharted territory, so making comparisons with past cycles might not be particularly useful. Nations and companies will keep tightening their belts, and spending will significantly decrease across the board, leaving risk-on markets such as crypto vulnerable to a continued mass exodus to safer investments.
The crypto market, together with stock markets and the global economy in general, have been experiencing a significant drawdown for the past 6 months, leading to a confluence of factors ranging from high inflation, rate hikes, supply chain issues, energy crisis, to geopolitical instability. This combination packs a powerful punch for any risk-on markets, such as stocks and crypto, forcing retail and institutional investors to exit their capital from markets during these uncertain times.
With Bitcoin currently at $20k, down 70% from its $69k ATH, and the total altcoin marketcap being down 72% from its ATH, it is hard to deny that we’ve entered a bear market. But one question remains – is this anything like the bear market of 2018 and will it last equally as long as the previous one? Let’s dissect the situation and understand if this time is truly different, or if this is just a small bump in the road before an accelerated bull market.
Check out our video comparing the crypto bear market now (2022) and in 2018- and more importantly, how to STILL make money during this downturn:
2018 Bear Market
2017 saw the first true mass influx of retail interest into the crypto space. Bitcoin saw a rapid increase in price, everyone’s friend and grandma were kickstarting their own ICOs to attract funds, and regular companies added the blockchain keyword to their names to increase their share prices. 2017 was the wild west, as there was even less regulation than currently, and the space was rife with opportunists spawning scam projects to extract money from ignorant first-time crypto investors.
But, as with any bubble, it eventually pops. The crypto space was heavily overheated, with investors throwing money at everything that moved, doing minimal to no due diligence, just to get on the crypto hype train. Come 2018, things were starting to cool down and people were beginning to feel the pain. In less than 6 months after the peak ICO craze, over 90% of all the projects were already dead, with many more to go down with them in the rest of the 18-month long bear market.
At the peak of the market, a lot of FUD (fear, uncertainty and doubt) was beginning to circulate. Fear of regulation due to the prevalence of scams, and with China/Korea considering banning cryptocurrencies, things were not looking great for the crypto space. Right around the peak of the market, the Chicago Mercantile Exchange (CME) launched their Bitcoin futures product, which allowed institutional investors to get their hands dirty with Bitcoin. And, naturally, they did just that. With all of the FUD circulating and the market waiting to release a lot of pressure, institutions began shorting the market, creating an enormous sell pressure that brought BTC down to $7k, which kept grinding down to $3k till mid-2019.
2022 Bear Market
After Covid-19 hit, the market experienced a tiny two-month recession. As everyone was locked inside, demand dropped and supply shrunk as well. But once central banks began printing more money to help businesses and people via stimulus checks, many found themselves with a lot of extra cash and no way to spend it, so they turned to investing. After the March crash, the rest of 2020 saw the crypto market boom, calling it the “DeFi summer”, with BTC increasing in price by 400% by the end of the year. After that, it just kept on going. 2021 was the year of the NFTs and Metaverse, i.e. GameFi, with numerous projects sprouting up to capture some of the value amid all the hype.
After reaching its peak in November 2021, the crypto market has kept on steadily grinding down. Those who had called the peak in November aptly understood that the markets were overheated, inflation was starting to get out of hand, and the only way for governments to keep that under control was to begin quantitative tightening through rate hikes. Unfortunately, many were still in denial about the onset of the bear market way into April, which has resulted in a lot of people holding bags that might or might not recover.
Now the path forward seems clear. The US Federal Reserve’s hawkish monetary policy is causing markets a lot of necessary and unavoidable pain. Because the money printing since Covid-19 has been at such an unprecedented level, the Fed is finding it hard to slow down the inflation without causing a lot of damage. The result currently is a looming recession at the same time as inflation is still running rampant and driving up the prices of everything, all the while people’s incomes are stagnating and their expenses increasing.
When is the Next Bull Cycle?
At the moment, there are no clear signs of central banks reeling in their hawkish monetary policies. It might possibly take at least several months if not until the end of the year for the dust to settle, the bottom to come in, and for us to be ready for the next bull cycle once the Fed eases monetary restrictions. Continued geopolitical turbulence aside, the next bull cycle will certainly come, but it’s difficult to say what will be the narratives driving the rapid market expansion this time.
The two most touted bull market catalysts are the long-awaited Bitcoin spot ETF and the Ethereum Merge, which will cause the Ethereum network to transition from its wasteful Proof-of-Work mechanism to Proof-of-Stake. However, as is common in life and in markets, the most obvious things tend not to be the ones to catalyze huge changes. Markets are irrational, and a confluence of new narratives that will be born only in 6 months might very well end up triggering the next bull run.
How to Still Make Money During the Crypto Bear Market?
With great pain come great opportunities, and this bear market is no exception. This is the time for learning, accumulating, and paying attention to the market. In our latest video about the current bear market, we outline a few strategies that you can use as an investor to maximize upside potential come next bull run:
1) Dollar cost averaging (DCA) into your investments – instead of trying to catch the generational bottom and investing your whole capital in one go, better invest 20% of your capital at a time during a longer time period, so that way you are more likely to get a great average entry price and reap the profits in the future.
2) Doing lots of research – fundamental analysis of projects is the best way to ensure you invest in projects that have a real potential, and this is the time to be doing just that. Many projects will die during this bear market, so it’s important to source trustworthy information and be critical of everything in order to position yourself properly during the next stage of growth.
3) Diversify your portfolio – as we’ve seen in the past months, there’s no such thing as too big to fail in the crypto space. Instead of going all-in on one project, spreading risk across several projects will ensure your capital is better protected from a few bad investments.
4) Shorting the market – this should not be practiced by anyone who doesn’t have experience trading, as without proper risk management things can get pretty ugly very fast. During a downtrend, a way to make money is by shorting an asset, which essentially means you’re betting on an asset to go down in value.
Of course, none of this is financial advice, and we implore our readers to do their own research and never invest more than they are willing to lose. It’s a highly volatile market and not for the faint of heart.
STEPN is the most popular move-to-earn blockchain game in the crypto market this year after some significant adoption by the market and big moves with other major exchanges and well-known sneaker brands.
Move-to-earn is a new way to earn money through gaming with the novelty that it rewards not only digital activity within a game or app, but also physical activity. In short, the more you move in the real world, the more you are rewarded in your digital app.
STEPN has been crushing it lately after surpassing 300K daily active users (DAUs), receiving a strategic investment from the venture capital arm of Binance, and launching a unique collection of NFT sneakers on Binance NFT marketplace in partnership with sports brand ASICS.
What is STEPN?
STEPN is a move-to-earn health and fitness app with game elements built on Solana. Users equipped with sneaker NFTs can run and walk outdoors to earn tokens and NFT rewards. The funds earned can either be used to increase earnings in the app or can be withdrawn and sold. The mobile app has a built-in wallet, swap, marketplace, and rental system that allows non-crypto users to onboard.
How does STEPN work?
Anybody can earn tokens and NFTs in STEPN by downloading an app, buying NFT sneakers, and completing various forms of exercise. Similar to how Bitcoin mining works, users in STEPN have to prove they have physically worked out, at the cost of their own time and energy. This is validated by the app’s anti-cheating mechanics using GPS and machine-learning technology.
The tokens and NFTs are then minted to users’ wallets from the people, not from the game developer FindSatoshi Lab, known for its work on cryptocurrency wallet Solwallet. In this way, people can trade their tokens and NFTs 100% peer-to-peer and over time. STEPN has created an ecosystem where the value of tokens and NFTs is based on supply and demand.
STEPN tokens: GMT and GST
There are two types of tokens available to players, GMT (total supply of 6 billion) and GST (unlimited supply). GMT is a management token that allows users to increase their income. GST is an in-game token that users receive for in-game activity.
To create a balanced token ecosystem, the developers have decided not to limit the GMT governance token earning to a small group of people. Instead, they have made GMT and GST broadly accessible to ensure balance in the mining of these two tokens.
Since many GameFi projects with a similar dual-token economy have tended not to thrive, the question is raised about whether GST, with its unlimited supply, will go into a death spiral. STEPN’s model addresses this by making GST earning irrelevant at a higher level. As people approach the higher levels, they are presented with the option to choose which token to earn, and they would naturally want to earn the limited supply of GMT.
This will get amplified over time as more GMT is burned and more GMT use cases are released. This should reduce the GST token supply enough to balance the token value. If too many people are mining GMT, they will earn less than what they can with GST, so they will switch to earning GST. This will reduce the competition for earning GMT, and, in turn, make GMT mining profitable again.
Getting started with STEPN
To get started with STEPN, you must first download the app to your smartphone via Google Play or Apple Store. Then, following the on-screen instructions, you will need to create an account and receive an activation code.
You will be able to use the app fully once you have purchased your NFT sneakers from the in-app STEPN shop. Choose your sneakers based on your abilities. Once you have purchased the sneakers, open the game and start walking or running. You will start earning immediately.
How to join STEPN: Step-by-step guide
1. Download the App
First, you have to install the app on your smartphone. Depending on the model of your phone, you can do this either from the App Store or from Google Play.
2. Create an Account
After launching the app, you will need to enter your email address, to which you will receive a registration confirmation code. Enter your email address and press the ‘Send Code’ button. A code will be sent to your email address, and you will need to enter it in the corresponding field.
3. Obtain Activation Code
You then need to obtain an app activation code. To obtain the activation code, register in the STEPN community on one of the official social networks. Choose the social network that suits you best (Twitter, Telegram, Discord, etc.) and proceed according to the on-screen prompts. An activation code can also be received from a friend via invitation or bought from another user.
Once you have received the activation code, the main app screen will open. Click on the ‘Get activation code’ button. After you have entered your activation code, the app will open and the tutorial will start. Several screens will explain to you how to use the app.
4. Create a Crypto Wallet
You then need to create a crypto wallet in the STEPN app. Click on the wallet image in the top-right corner of the app. This will start the process of creating a crypto wallet, which will take a couple of minutes. While creating the wallet, you will be shown a secret phrase that you need to write down and keep in a safe place. Once the crypto wallet has been created, you will be taken back to the main app screen.
5. Start the Game
In the top-right corner, the token column will show zeros. To start the game, you need to deposit Solana (SOL) tokens into the crypto wallet you just created, in the amount that will allow you to purchase an NFT in the form of a sneaker. SOL can be bought on almost any major CEX or DEX.
6. Buy NFT Sneakers
TIP: Before you buy sneakers in STEPN, open the app and run for 10 minutes in running mode without sneakers. This is so that you can find the right type of sneaker for you. NFT sneakers are purchased in the shop. After buying the sneakers, wait until 25% of the energy has accumulated (approximately 6 hours) and then start the game. You are now ready to move-to-earn!
Playing and Moving to Earn
STEPN currently has solo mode only, in which users receive GST tokens as a reward for moving in the real world. This consumes virtual energy at a rate of 1 unit per 5 minutes of movement. All of these processes are only triggered after the purchase of NFT trainers. If the energy is at zero, no tokens are earned.
GST tokens, and subsequently GMT, are paid out depending on the following factors:
The level and attributes of NFT sneakers – more efficient sneakers cost more. Up until Level 29, users can only earn GST, and from Level 30 onwards, they can switch to earning GMT if they wish.
Sneaker comfort parameter – the higher it is, the more tokens are earned every minute.
Running speed – it is necessary to maintain the recommended speed range for the sneaker. If you deviate too much from it, earnings will be reduced by up to 90%.
Marathon and background modes are set to be added later. Marathon mode will be an entirely new playstyle and is aimed for release towards the end of 2022. Background mode will be added when the STEPN team feels the time is right to approach non-crypto users.
The Importance of Energy
Energy plays an important role in earning tokens in STEPN. As soon as you run out of energy, your earnings will stop. Only when energy is available will your movement be rewarded. The amount of energy determines how many tokens you can earn for walking and running.
To increase the amount of energy you have, you can buy more NFT sneakers or get hold of rarer ones. The more NFT sneakers you own in your inventory, the more energy they will automatically generate. Higher levels and rarity sneakers will give you more energy.
Strengths of STEPN
One of STEPN’s biggest strengths in the current market is the successful combination and implementation of GameFi and sports. This could be seen as a clear advantage over any competition as many crypto-native builders don’t have the connections or knowledge to replicate STEPN’s GPS technology and machine-learning anti-cheating mechanics.
Because the health concept of the game and its everyday practicality is relatively simple compared to other games and apps in crypto, STEPN is a prime candidate for mainstream adoption.
Weaknesses of STEPN
There are still quite large barriers to entry for the average person. The registration process is too complicated, and to start playing, new users need to first learn how to open and fund a crypto wallet and buy an NFT item. For a newbie, this is not as straightforward as it should be.
NFTs also cost between 2.5 and 10 SOL, and way upwards of $100 if you want the best sneakers. This means there is an element of ‘pay-to-earn’ about STEPN. However, at the moment, the return on investment (ROI) is in the region of a few weeks, which is not bad at all.
Conclusion
Making money while keeping healthy is a win-win, and as a sports GameFi product, STEPN has struck a decent balance between game elements that are not too rich and complex to stop non-gamers from entering, and sports elements that are not too difficult to stop non-athletic people from trying it out.
The tokenomics also create value for both users and the platform. As long as the concept remains simple and participating remains profitable for the average user, STEPN should continue its impressive adoption rate.
For more information on STEPN, follow their official channels:
Blockchain and play-to-earn games are rapidly becoming some of the most lucrative aspects of the crypto world. Players of these games get rewarded for partaking in their favorite activities while contributing to the platform’s success story. For instance, Sky Mavis – the team behind Axie Infinity – had generated over $400 million from the game by August 2021. According to Newswagg’s research, the crypto gaming industry’s revenue hit $321 million in 2020.
Notwithstanding the play-to-earn industry’s impressive numbers, there is an ongoing shift from play-to-earn to the new move-to-earn. Sometimes considered an upgrade to the former, move-to-earn also offers rewards to players with more focus on fitness. Move-to-earn games help improve player well-being by introducing physical movement and general fitness into gameplay. The move-to-earn concept is fantastic for people who are more fitness-focused and are not as ardent as the average video gamer.
One such example is dotmoovs ($MOOV), where active participants can easily monetize their time and gameplay. To take part, players only need a smartphone camera to display their sports skills and compete with other players.
What is dotmoovs ($MOOV)?
dotmoovs is a blockchain-based competitive sports platform in the metaverse. It is a state-of-the-art artificial intelligence system that analyzes videos of players performing sporting activities and rewards winners using its proprietary MOOV tokens.
dotmoovs has incorporated blockchain tech, decentralized finance (DeFi), and AI technology into one platform through its peer-to-peer and AI-driven features. In the dotmoovs metaverse, two people can compete regardless of location, receive unbiased judgment, and earn rewards. The platform decides scores using an AI-driven arbitration engine that detects the positions of each player’s body and limbs, along with a scoring algorithm that measures the player’s skill. According to a recent metaverse ranking, dotmoovs is one of 10 metaverse platforms most likely to explode in 2022. The list also features popular names like Decentraland ($MANA) and Axie Infinity ($AXS).
The More You Move, The More You Earn
dotmoovs features a freestyle football section that is already live. Players must use the platform’s mobile application to capture physical body movements. The application uses advanced computer vision algorithms and AI-driven limb tracking to accurately capture and store movements. The player with the highest score wins the round and receives $MOOV tokens and other in-game rewards.
One of the main attractions of dotmoovs is its AI-powered and unbiased scoring system. In many cases, scores and ratings are usually prone to subjective appraisals and human biases. However, each dotmoovs player gets a fair chance to participate and receive objective scores and judgment. The more skilful a player is, the more their earning power.
How Does dotmoovs Scoring Work?
Participants trying out the freestyle football section should note the following factors considered for scoring players:
Number of ball juggles for different body parts according to difficulty
Creativity applied to ball juggles
Speed
Rhythm
Ball height in each juggle
Originality (compared to previous attempts)
Absence of handball or ground touch fouls
dotmoovs Growth and Adoption for Blockchain
The dotmoovs platform contributes to the general growth and development of the blockchain and crypto ecosystem via its AI-based infrastructure. The blockchain industry is currently enjoying increased adoption, especially with decentralized finance and non-fungible tokens (NFT). dotmoovs is pooling all parts of the ecosystem for its unique product, and crowning its creation with artificial intelligence. The platform is now set to partake in the global NFT market that generated $23 billion in trading volume in 2021.
Another major dotmoovs contribution is its attraction to the sports community. Through the platform, sports lovers, players and spectators alike, can join the blockchain ecosystem and earn on dotmoovs by simply participating in their preferred and natural habitat.
Several factors serve as catalysts to increased adoption of move-to-earn platforms. For instance, people now have a stronger need for physical activities as worldwide lockdowns are ending. As winter wraps up and the weather becomes warmer, dotmoovs provides the perfect platform for users to get fit, enjoy the weather, and also earn.
Investors are also recognizing the potential impact of move-to-earn platforms and are buying in. In the past few months, a few projects have raised funds from investors who have identified these trends and want a piece of the action before adoption skyrockets.
Another factor in favor of dotmoovs and move-to-earn is the low entry barrier. Users find move-to-earn platforms easier to navigate than play-to-earn for multiple reasons. Firstly, effective participation on play-to-earn platforms requires knowledge of the game. There is also the financial barrier as many of these games charge an entry or starting fee. On dotmoovs, all you need is to know how to move.
$MOOV Utility Token
The $MOOV token is dotmoovs’ native utility asset. The platform uses this asset to create an environment free from currency value constraints, democratizing access by providing all players with a level playing field. All dotmoovs transactions require $MOOV tokens.
$MOOV Token Use Cases
Players can use $MOOV to:
Buy dotmoovs NFTs
Players who own dotmoovs NFTs can participate in challenges to earn $MOOV and rent the NFTs to other players. Players can also earn $MOOV tokens on challenges won with rented NFTs.
Access-Challenge Mode
Users need $MOOV tokens to play in the platform’s Challenge Mode. Players who win 1 vs. 1 games or tournament challenges will also earn more tokens.
Stake In Sports Mining
Users can multiply their tokens and earn rewardsby staking $MOOV using the dotmoovs Sports Mining staking feature.
dotmoovs is set to capture interested sportsmen and sportswomen by introducing them to the growing blockchain ecosystem. Since people only need a camera to participate, players all over the world can enjoy simple dancing and sporting activities and easily earn while at it.
Dotmoovs exclusive models
Dotmoovs creates exclusive models for their app, and have so far already created models for names such as Snoop Dogg, Floyd Mayweather, and Neymar. Now, Dotmoovs will be partnering with Leandro Lopes, an internationally successful handmade footwear and apparel designer from Portugal, to design an exclusive NFT sneaker for use in the app.
Dance to Earn
dootmoovs has recently launched their Dance to Earn feature on their app. Players can have a maximum of 3 free practices of the dance moves per day to get themselves ready for peer-to-peer and challenge mode! In these modes, you can either challenge your friends or find a random challenger across the globe to see who is the better dancer. To join, you will need to choose how much $MOOV you would like to invest (up to 500 $MOOV per challenge). Win the challenge and you will win more $MOOV.
It is anticipated that more types of dance challenges would be available soon, as well as a tournament mode.
dotmoovs is a sports application with incredible competitions held in the metaverse. Currently, there are football competitions with dance competitions in the works.
Where can I download dotmoovs?
The dotmoovs application is available for download on both the Google Play Store or the Apple App Store
What is the dootmoovs token?
dotmoovs has its own native token- $MOOV. All transactions inside the app happen in $MOOV. For example, you would need $MOOV to participate in peer-to-peer or tournament challenges. Winners of these challenges can earn more $MOOV.
Can you rent NFTs in dotmoovs?
dotmoovs has an NFT rental program so you can try out and participate in dotmoovs with minimal initial cost.
One major question all new cryptocurrency investors ask is how to actually spend their cryptocurrencies. Unfortunately, cryptocurrency is just not as widely accepted as fiat currencies. Cryptocurrencies are also subject to huge price fluctuations and volatility. Therefore, to “lock in” the price of your cryptocurrencies and as a springboard to cashing out crypto to fiat, many have converted their cryptocurrencies to stablecoins instead. This allows one to keep their dollar-pegged coins in exchanges or cold/hot wallets, so when the moment to jump back into the bull run comes, they can do so within minutes without having to deal with fiat on-ramps. Alternatively, to easily convert their stablecoins to fiat currencies for spending.
Most have considered stablecoins to be a safe means of preserving their capital without experiencing volatility and having to leave the crypto ecosystem. After all, they’re… stable, right?
In most cases, they have been, but the most recent collapse of one of the largest and well-respected stablecoins, terraUSD (UST), and other less known ones, like neutrino USD (USDN) and DEI, has led people to question the stability of all stablecoins. But is this warranted? Isn’t there a bit more nuance to the mechanisms by which a coin retains its dollar or other fiat currency peg, each with their own risks and advantages?
Although a seemingly straightforward idea, stablecoins can be quite tricky to unpack and analyze, especially when talking about non-collateralized algorithmic stablecoins, which sound too good to be true, and in some cases, are. With this in mind, let’s take a look at stablecoins, what kinds are out there, how well they are doing, and what makes them tick.
Check out our latest video- Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)
Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)
Stablecoins – What Are They and How Are They Different?
Stablecoins are cryptocurrencies that are pegged 1:1 to the value of a fiat currency, meaning that, for example, every 1 USDT (USD Tether, the biggest market cap stablecoin) is worth 1 US Dollar. There are numerous stablecoins in circulation, with different coins having different mechanisms for collateralizing their stablecoins.
The most commonly used feature to categorize stablecoins is by looking at how each of them backs their tokens, e.g. their collateral/reserves. By doing that, we can focus on using more narrow criteria for evaluating and comparing stablecoins based on the risks and advantages that stem from the chosen collateralization mechanism. Broadly speaking, there are three main types of stablecoins: Fiat-collaterized stablecoins, crypto-collaterized stablecoins and algorithmic stablecoins.
Fiat-collateralized Stablecoins
By far the most popular type, fiat-collateralized stablecoins occupy the top 3 spots (USDT, USDC, BUSD) among stablecoins by market cap, accounting for roughly 94% of the total ~$155 billion stablecoin supply.
Their working principle is the most straightforward to understand. Each of these coins is backed by a combination of real USD cash reserves, US Treasury Bills, and commercial papers (liquid short-term debt issued by companies).
Crypto-collateralized Stablecoins
Similar to fiat-backed stablecoins, crypto-backed stablecoins use cryptocurrencies as collateral, and smart contracts and, typically, governance tokens to monitor price stability. Due to the volatile nature of cryptocurrencies, crypto-backed stablecoins are over-collateralized (150% for DAI, for example) to account for periods in the market when prices of the collateral assets keep going down. Learn more about DAI.
Compared to fiat-backed stablecoins, they’ve witnessed a much slower rate of adoption. However, based on data, it does seem that they are slowly starting to gain momentum and dominance over the past years, as people begin to develop trust in the previously experimental mechanisms, which is to be expected.
There are also hybrid collateral tokens such as Reserve Tokens (RSV) that are backed by both digital and fiat assets.
By far the most technically complex and technologically least mature, algorithmic stablecoins rely on on-chain algorithms to handle changes in supply and demand between the stablecoins and their sister tokens that back them by burning and minting them in both directions through a process called seigniorage, to maintain a dollar peg. This, however, only works while there isn’t a strong downward pressure on the peg that keeps stressing the mechanism, which can lead to a downward death spiral during which both tokens keep losing value as users keep panic selling at the same time as the algorithm tries to stabilize the price. Although not fully collapsed, neutrinoUSD and its Waves protocol have been experiencing extreme turbulence for the better part of two months, making users lose confidence in its stability, especially as its working mechanism is very similar to that of UST.
On the less extreme side of algo-stables lie hybrid stablecoins, or fractional-algorithmic stablecoins, such as FRAX, which is partly backed by collateral, and partly algorithmically by adjusting the collateral based on the deviation of FRAX from the $1 peg.
Learn more with our Ultimate Guide to Algorithmic Stablecoins:
https://www.youtube.com/watch?v=hdmotWPNVdQ
Criteria for Comparing Stablecoins
Decentralization
The impact of regional regulations can be a risk many would not find appealing. It’s completely reasonable to expect that the industry would be capable of creating largely decentralized stablecoins that are collateralized by one or more decentralized cryptocurrencies, and governed by a DAO. Such is the nature of MakerDAO and its DAI stablecoin, which has shown its peg strength throughout this year and especially during the most recent catastrophic UST collapse. There is a small caveat, however.
The largest crypto-asset backed stablecoin with a $6.5 billion market cap, DAI, is still heavily backed by the second largest market cap stablecoin, USDC, which itself is backed by fiat reserves, calling into question whether it truly is as decentralized as it purports itself to be. The reality is not as grim as it might seem. Even though USDC and USDP (another fiat-backed stablecoin) comprise 28.1% of the total DAI collateral, ETH and WBTC (Wrapped BTC) boast an impressive 58.6% collateral, tipping the collateralization balance in favour of decentralized digital currencies instead of centralized stablecoins. In addition, the Maker platform with the MKR and DAI tokens, together with all of its smart contracts, lives on the Ethereum blockchain, making it truly trustless and decentralized, even if a good portion of the collateral is not.
On the other hand, the decentralization of all stablecoins might not be necessary, or even desirable, as properly regulated stablecoins almost by definition require a legal entity or a consortium of entities with exposure to major governmental bodies (especially in the US) to be behind the stablecoins, so that there is little doubt about who is responsible for ensuring a full fiat backing of their stablecoins. However, this would imply heavy centralization of control over the stablecoin supply and the general mechanisms for issuance, governance, and, crucially, potential censorship.
A centralized stablecoin is a double-edged sword. On one hand, it gives unprecedented power over a vast supply of stablecoins that a decentralization-focused industry heavily relies on to do daily business. On the other hand, it allows for companies like Binance, who are behind the popular BUSD stablecoin, to prioritize user safety and regulatory compliance, giving users peace of mind about the safety of their assets.
Thus, a strong argument can be made to safely onboard millions of new users through reasonably regulated stablecoins. It’s important for this industry to appreciate the need to offer a wide range of stablecoin alternatives, from centralized to decentralized, for users with different risk appetites and technical competencies in order to accelerate crypto adoption worldwide.
Compliance & Transparency
Closely tied with the level of decentralization of a stablecoin, regulatory compliance and transparency are absolutely crucial for companies who are backing their coins with cash reserves, and who desire to find strong and growing support by institutions, companies, and investors looking to enter the space, but who have been apprehensive to do so due to concerns about a potential inability to redeem their tokens for dollars.
It’s important to note that regulatory compliance is largely a concern for stablecoins operated by corporations, as they are the ones operating mostly behind closed doors, with most of the details about their inner workings, decisions, and collateralization mechanisms being hidden from the end-users and legislators. In such situations, it is more than reasonable to expect a regulatory body to force at least some oversight over how exactly these companies are operating their stablecoins and whether they do possess the collateral they claim to have.
The same can’t be said about open-source, decentralized governance-powered, blockchain-native, crypto asset-backed, and over-collateralized stablecoins that are being operated completely out in the open, with every decision, piece of code, and capital relocation in smart contract escrow accounts being registered on-chain. For coins such as DAI, compliance and transparency are baked into the protocol, and it can be reasonably argued that the necessity for any kind of regulatory oversight is moot, as the community and the free market cryptoeconomic pressures have organically grown a robust and freely auditable stablecoin that’s fully backed by digital currencies.
For fiat-backed currencies, the two large-cap extremes in the range of transparency and compliance are BUSD and USDT. While BUSD has been extensively cooperating with the New York State Department of Financial Services (NYFDS), and showing that every BUSD is backed by an equivalent amount of cash, USDT has been under significant scrutiny over the past years regarding its executives and the USDT backing. These allegations, combined with the lack of transparency by Tether, have made many worry whether USDT is a house of cards about to crumble as the Chinese real estate bubble begins to pop.
Financial Sustainability
In addition to the existential risks posed by the type of collateral chosen for stablecoin reserves, another source of risk that can be analyzed for a project is its cashflow. Changes in the cashflow of a protocol can offer clues about the health of the ecosystem and its ability to withstand market shocks.
Understanding how a stablecoin protocol spends and, most importantly, earns its money, is key to making predictions about the long term sustainability of such projects. Without proper long term revenue models, protocols are left to come up with highly appealing but unsustainable practices such as incredibly high yields on stablecoin deposits (such as UST had) or very low to non-existent trading fees to make it appealing for users to use that stablecoin as their dominant medium of exchange. These kinds of practices sooner or later come back to bite them in the ass, as there is a very high probability that the high yields and low fees are paid for not from organic revenues, but rather from alternative revenue sources (as is the case for Binance), or from project’s treasury/VC investment money, in hopes that they would be able to subsidize the attractive rates for long enough to reach a critical mass of users to then eventually either lower the yields and increase the fees, or simply keep running a ponzi-like operation for as long as possible.
Risks are High, always DYOR (Do Your Own Research)
If something in crypto sounds too good to be true, it very likely is. The most recent example of this was the Anchor Protocol’s 19.5% yield for UST deposits, which should’ve been a huge red flag, and yet many, many individuals chose to deposit their life savings into a supposedly stable UST in hopes of an unsustainably high APY.
For a $50 billion project to go down to virtually nothing in a matter of weeks is nothing short of astonishing, and should serve us all as a warning to do our due diligence thoroughly, and ask uncomfortable questions, even if the whole market seems to be fully on-board with a project.
As the saying goes, “Follow the money.” If a protocol is promising unbelievable returns, if the company behind a stablecoin year after year refuses to prove their fiat reserves, and if a algorithmic stablecoin seems to have a fishy peg stabilizing mechanism that can only work in an up-only environment, then you should exercise caution. And as with everything, whether it be cryptocurrencies or stocks etc, ask yourself if you have really fully done your research and never put in more money than you can afford to lose.
