As the Ethereum Merge grows closer it would be irresponsible not to start thinking about DeFi again.
If you aren't too familiar with the DeFi landscape, this will be a massive head start when it comes to finding the right bets to take when the next bull market begins. My goal with this article is to give you a basket of coins that I think will outperform the market average.
Nothing in this article is financial advice, always invest using your own discretion. These are the coins that I plan on jumping in and out of, rotating between, and actively trading. Inevitably some tokens will outperform others, some may fall completely off the list, and new projects will appear that deserve to make the list.
A short overview of each token will be included in this article.
After this article is released, I plan on releasing supplementary in-depth articles on each individual token included in this list to provide a more detailed look at what makes each one interesting.
Before giving away my picks for the upcoming cycle, these are the general guidelines I follow when selecting tokens:
Only buy tokens you are an active user of (useful product)
Bet on coins that fall into multiple different niches (DeFi + NFTs, DeFi + Privacy, DeFi + Interoperability, etc.)
Paper Ape's watchlist:
Apecoin | $APE
Forget about Yuga Labs - if you're bullish on GameFi, you should be bullish on Apecoin. Apecoin will be used as the only payment currency inside the Otherside. I believe the Otherside will be a massive success and nothing from its tech demos has made me think otherwise.
There will be an entire economy housed within the Otherside, from games to concerts to other user-generated experiences. I expect the in-game economy to thrive off people trading goods and services on the platform. Ultimately, attention is key.
Creating the next great MMO is not an easy task but if anyone is going to pull this off, I think Yuga Labs has the best shot.
To put this in baseball terms, Yuga Labs has the best batting average and has consistently shown an ability to hit home runs. I will be placing my bets accordingly.
My full day 1 analysis of Apecoin can be found here.
LooksRare | $LOOKS
I feel like including LooksRare in this list may be a controversial decision because it's not the #1 NFT marketplace and likely never will be. Regardless, it's actually one of the tokens I'm most bullish on in all of DeFi.
LOOKS is towards the higher end of the risk scale but the asymmetry of this bet is what intrigues me the most.
Here are the things I like about LooksRare:
• Platform fees are shared between people who stake LOOKS
-- Long-term believers are incentivized to use/promote LooksRare as primary marketplace
-- Stakers are paid in ETH rather than LOOKS only
• LOOKS sell pressure will decrease as vested token emissions taper off
-- All vested tokens will be unlocked by January 2024
• Increased usage of NFT aggregators will ensure LooksRare receives trading volume, even if it's not everybody's primary marketplace
• It's the only community-owned NFT marketplace that doesn't flag suspicious items (how web3 should be)
My day 1 analysis of LOOKS can be found here.
GMX | $GMX and $GLP
GMX is a decentralized perpetual exchange that lets users trade with up to 30x leverage on a variety of cryptocurrencies. The exchange is available on Arbitrum and Avalanche.
All platform fees on GMX get directed back to their token holders - as web3 should be.
Similar to LooksRare, people who stake GMX tokens receive payouts in ETH/AVAX rewards.
-- Utility and Governance token
-- Accrues 30% of platform fees (via staking)
-- Liquidity Provider token
-- Accrues 70% of platform fees
I don't trade perpetuals often but the next time I do, GMX is the first exchange I plan on using. If anyone reading this has experience using GMX I'd love to hear your thoughts on it.
JPEG'd | $JPEG
Decentralized loans are one of the most important tools in DeFi. Historically, users have been required to deposit coins (BTC, ETH, etc.) as collateral in order to take a loan from platforms like AAVE.
JPEG'd is a pioneer in the decentralized NFT lending platform space. It lets users deposit BAYC, MAYC, CryptoPunks, and other blue chip NFTs as collateral in exchange for a loan.
You can read my full breakdown and analysis of JPEG'd here.
Cosmos | $ATOM
Cosmos is one of those coins that has been around for a while and gets overlooked more often than it deserves. Cosmos has a compelling narrative, calling itself "the internet of blockchains."
Cosmos is considered a "layer 0" blockchain which basically means it connects layer 1 blockchains together. The key selling point of Cosmos is interoperability.
As more blockchain ecosystems grow, so will the need for convenient ways to swap assets between them.
A key benefit of using Cosmos is the ability to swap native assets from completely different chains without having to wrap any tokens.
For example, here's what it looks like swapping BTC for ETH using a Cosmos DEX:
• Send Bitcoin-native BTC to a Cosmos wallet
• Connect the wallet to a Cosmos DEX
• Swap the BTC for Ethereum-native ETH
• Now you have Ethereum-native ETH in your Cosmos wallet
This bypasses the process of having to wrap tokens and use bridges.
Cosmos DEXs provide a much more convenient way to trade native tokens from multiple chains. For this reason, DEX tokens within the Cosmos ecosystem are also something to keep an eye on.
Stargate | $STG
Stargate is an interesting project that's been on my radar ever since it launched in March of this year.
It is a cross-chain liquidity protocol that lets users conveniently transfer native assets between chains. Stargate creates a seamless experience for users by automating the bridging process.
Stargate aims to be the go-to place to bridge assets, AKA the "Bridge Killer".
The emergence of DeFi ecosystems on chains other than Ethereum will create the perfect setup for STG. It's one of the riskier plays in this list but has very high potential if it becomes the bridge everyone decides to use.
Chainlink | $LINK
Chainlink is one of those projects with amazing fundamentals but is pretty boring to talk about.
Chainlink's token, LINK, is the only exception to my guidelines at the beginning of this article saying to only buy tokens you regularly use.
The reason LINK gets an exception is because it's used by protocols rather than the average crypto user.
LINK serves an important role for protocols that rely on price oracles. Luckily for Chainlink, basically every DeFi protocol falls into this category.
Oracles are data feeds that share information between blockchains and the physical world.
Oracles are extremely important for ensuring that blockchains receive accurate data on real-life events like asset prices, sports outcomes, weather and much more.
Long story short, Chainlink has the safest oracles on the market. The risk of not using Chainlink means a protocol is at a much higher risk of being exploited.
The chart below shows the top 10 oracles, how many protocols use them, and how much value is being secured by each.
Chainlink is miles ahead of their competition when it comes to adoption because of its reliability/security. The numbers speak for themselves.
Solana | $SOL
I'm not the biggest Solana fan which is why I'm putting it at the end of the list but I think it would be a mistake to not include it. Personally, there aren't many Ethereum competitors I feel comfortable betting on.
If it wasn't for Solana's ties to Sam Bankman-Fried, FTX, and network of other large corporations, Solana would be an instant fade for me.
Solana also seems to have a thriving community of developers - one of the most important signals I look for when putting a long-term bet on a smart contract protocol.
Protocols need infrastructure and apps to attract an ecosystem.
Devs build these.
Users come next.
Development activity is the main statistic I looked for during the previous cycle's bear market. At the time, Ethereum had the highest number of active developers which meant I began accumulating ETH. As you all can probably guess, the trade worked beautifully.
I'll likely try replicating this trade with SOL despite my severe disdain for how centralized it is.
Other good news for Solana is the DeGods NFT collection breaking into the top 5 market cap of ALL NFT collections.
1. Bored Ape Yacht Club
Solana is the first of its competitors to reach this status.
This shows the clear existence of a genuine NFT community on Solana - possibly the first of many.
I'm not sure when exactly the next DeFi wave will begin but I plan on dollar-cost averaging into these over the next few months as 2022 closes out. The Merge will give ETH a predictable staking APY which I believe is an important metric that developers will start building DeFi products around.
Here's a bonus tool you can use while doing market research: https://defillama.com/
Happy hunting! 💎