For years, cryptocurrency advocates have touted the world-changing capability of digital currency and blockchain technology. Yet with the passing of each market cycle, new projects come and go, and the promised utility of these “real-world use case” projects fails to satisfy.
While a majority of tokens promise to solve real-world problems, only a few achieve this, and the others are mere speculative investments.
Here’s a look at the three things cryptocurrency investors can actually “do” with their coins.
Perhaps the simplest use case offered to cryptocurrency holders is also one of the oldest monetary applications in finance: lending.
Ever since the decentralized finance (DeFi) sector took off in 2020, the opportunities available for crypto holders to lend out their tokens in exchange for rewards have multiplied.
Blue-chip DeFi protocols like Aave, Maker and Compound offer reasonable yield on stablecoins, and lesser-known protocols often offer higher rewards in an effort to attract liquidity.
Recently, the crypto lending field has expanded into realms that are typically dominated by traditional finance. This is especially true for real estate, where a number of experimental cryptocurrency-based mortgage and listing platforms are making headway.
Platforms like Vesta Equity and the newly launched USDC.homes offer crypto holders the opportunity to collateralize their assets to obtain a mortgage or lend them out to aspiring home buyers in exchange for long-term yield.
Another way to put the hodl bag to use is by farming stablecoins. The cryptocurrency market is well known for its high volatility and high-risk trades, but earning a yield on stablecoins is a safer way to grow a portfolio without the downside risk of investing in Bitcoin (BTC) and altcoins.
In bull and bear markets, liquidity is required for DeFi protocols to function properly, and the integration of stablecoins on centralized and decentralized exchanges has helped the market mature and stay sufficiently liquid.
Platforms like Curve Finance, Beefy Finance and Trader Joe offer yield on stablecoin liquidity pools, and rates can reach as high as 20% APY.
Related: Bipartisan bill to give CFTC authority over exchanges and stablecoins
No-loss token offerings
Another way to “use” cryptocurrency is by participating in the no-loss token offerings launching across the ecosystem.
An example of a no-loss token offering is the parachain auctions that occur on the Polkadot and Kusama networks. In this type of protocol launch, investors interested in supporting a project can lock up DOT or KSM for a specified period of time as a form of collateral backing for the project.
Contributors receive the native token of the newly launched protocol In exchange for locking their investment in the project’s smart contract. After the designated lock-up period is complete, the total balance of tokens is returned to the contributor, meaning they retain their original holdings while also adding new assets to their portfolio.
Lockdrops are another example of this type of no-loss token offering. One was recently employed during the launches of Astroport and Mars Protocol.
Lockdrops have also been referred to as airdrops because they technically don’t help projects raise funds, rather they require some level of commitment for future use from token recipients. While airdrops just distribute tokens to users who opt-in, lockdrops require interested parties to commit to locking up some liquidity that can be utilized by the project during its initial launch.
The Astroport launch involved a novel liquidity bootstrapping phase where contributors could provide liquidity pool pairs in exchange for a higher reward level. Upon lockup, a one-time lockdrop reward is distributed to participants to hold, trade or use to provide liquidity.
Liquidity providers also receive trading fees and other incentives depending on the liquidity pool they are in as a way to improve the opportunity cost of providing that liquidity.
Once the agreed-upon lockup period is complete, users are free to remove the liquidity.
No loss token offerings give long-term crypto holders a chance to earn tokens for newly launched protocols in exchange for yield and a choice of what token they would like to accumulate as a reward.
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The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Cryptocurrency hodlers may have experienced a rollercoaster of unprecedented highs and lows throughout 2020, but that doesn’t mean they can’t profit from both bull and bear markets. Below are three strategies to help hodlers capitalize on the bear and bull market cycles.
The first strategy is setting buying thresholds. Hodlers should aim to set a “buy-in” point for their asset of choice. This could be as specific as a certain percentage decrease from the all-time high or as simple as a certain day of the week. Once the threshold is reached, hodlers can buy in for a longer-term hold or for a short-term trade.
The second strategy is to diversify. Experienced crypto participants may be tempted to put all their eggs in one basket, but diversifying among a variety of cryptocurrencies will improve their chances of capitalizing on the market cycles. Investing in alt coins in addition to well-known tokens is especially beneficial during bear markets, which tend to provide ample buying opportunities.
The third strategy is to take advantage of DeFi protocols. Harnessing the potential of Decentralized Finance (DeFi) via Ethereum can help hodlers capitalize on bull and bear markets. By taking out a DeFi loan on a specific asset, hodlers can maintain their long positions while collecting interest and fees from the loan. Alternatively, DeFi protocols can be used to short sell in bear markets, allowing hodlers to hedge their portfolios against market downturns.
Cryptocurrency hodlers can make the most of the bull and bear markets by setting buying thresholds, diversifying their portfolios and utilizing DeFi protocols. By following these strategies, hodlers can maximize their chances of profiting from the volatile crypto market.