The growth of decentralized finance (DeFi) crypto has been stellar in the last 24 months. To put things into perspective, the market capitalization of top-100 DeFi crypto was $1.7 billion as of January 2020. Currently, the market capitalization stands at $112 billion.
Furthermore, the total value locked (TVL) in decentralized finance has also surged. Currently, the TVL stands at $166 billion. An important point to note here is that the rise of DeFi crypto is backed by technology and fundamentals. It’s very different from the rise of meme coins or speculative tokens.
I believe that the recent meltdown in the cryptocurrency space is a good opportunity to consider some exposure to coins/tokens in the decentralized finance segment. The best time to buy is not when there is euphoria. Currently, fear seems to be the dominant sentiment and this has translated into attractive valuation for some projects.
Coming back to the outlook for decentralized finance, Goldman Sachs believes that “DeFi show potential for adoption and disruption in existing financial systems.” This underscores my view and it also backs the point that growth in decentralized finance is likely to sustain in the coming years.
A potential headwind is government regulations. However, that’s largely factored in the cryptocurrency markets. Sooner or later, the crypto space will be regulated. The co-founder and CEO of DeversiFi believes that decentralized finance and central bank digital currencies will co-exits in the coming years with mutual benefits.
Overall, the outlook seems positive for the world of decentralized finance. Importantly, it’s still at an early growth stage. Therefore, I would look at exposure to some DeFi crypto for the medium to long-term.
Let’s discuss three DeFi crypto that can deliver healthy returns in the medium-term.
- PancakeSwap (CCC:CAKE-USD)
- Tulip Protocol (CCC:TULIP-USD)
- Bogged Finance (CCC:BOG-USD)
DeFi Cryptos to Buy: PancakeSwap (CAKE)
In November 2020, CAKE token had touched lows of 19 cents. The token currently trades at $7.7 and the project commands a market capitalization of 2.0 billion. This does not come as a surprise considering the big growth of decentralized finance in the last 12-months.
As an overview, PancakeSwap is a decentralized exchange that’s built on the top of Binance Smart Chain. The exchange already has a total value locked of $12.0 billion.
Further, over the last 30-days, the exchange has been used by 2.8 million users for 31 million trades. Given these numbers, the market capitalization seems attractive.
One reason to be bullish on PancakeSwap is the fact that gas fees on the Ethereum (CCC:ETH-USD) network has been very high.
Increasingly, projects are listed on the Binance Smart Chain. This enables investors to trade and invest at a reasonable fee. With PancakeSwap being the biggest automated market maker on the BSC, the project outlook is bullish.
In addition to trading, PancakeSwap also allows investors to earn passive income. Investors can stake LP to earn with projects having an attractive APR. The decentralized exchange has also ventured into the non-fungible token (NFT) space, which is another catalyst for long-term growth and valuation upside.
Tulip Protocol (TULIP)
Another interesting area in the decentralized finance space is the growth of yield aggregators. According to CoinGecko, yield aggregators have a current market capitalization of $4.8 billion. As investors seek returns that can beat rising inflation, this segment is likely to witness growth.
One yield aggregator that I have talked about in the past is Rari Governance Token (CCC:RGT-USD). Tulip Protocol seems like an equally attractive investment to consider.
The protocol currently has a total value locked of $449 million. This implies a fully diluted valuation to total value locked ratio of 0.25. For RGT token, the ratio is currently 0.44. Therefore, on a relative basis, TULIP token seems undervalued.
To elaborate further on the project, Tulip Protocol is the first yield aggregator on the Solana (CCC:SOL-USD) platform. Currently, the project has 40 active vaults with a highest APY of 350%. Further, the project also provides lending and leverage farming.
It’s worth noting that Tulip token had surged to a high of $50.2 in November 2021. At current levels of $10.6, the downside seems capped and the valuation is attractive.
It’s also worth noting that in October 2021, the company raised $5 million from various investors. The funding will help in further development of the protocol and team expansion. The project therefore has ample financial resources to build further.
DeFi Cryptos to Buy: Bogged Finance (BOG)
Among the decentralized finance cryptocurrencies with a lower market capitalization, BOG token looks attractive. As an overview, the project is an DeFi aggregator that started with the Binance Smart Chain.
However, Bogged Finance has witnessed aggressive growth in the recent past. In December 2021, the project expanded to 10 chains with Bog swap currently supporting 53 DEXs. The projects monthly transaction volume increased to $250 million in December 2021. With cross-chain offering expansion, it seems likely that transaction volumes will witness strong growth through 2022.
Bogged Finance has also provided investors with an updated road-map for the current year. One focus is on the creation of Bog Bridge, which will allow investors to swap assets between chains.
Additionally, the project looks at further cross-chain expansion. The stop loss and trailing stop loss feature will also be available across chains. The project is also looking at new products that include LP Aggregator and DCA Tools.
The token economics for Bogged Finance is also attractive. The total BOG token supply is just 15 million with a 1% burn in every transaction. Currently, just 14.2 million tokens are in circulation.
Overall, If the decentralized finance world is likely to grow, DeFi aggregators will perform well. Bogged Finance has ambitious plans and I would not be surprised with multi-fold returns over the next 6-12 months.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.