DeFi is getting hit hard right now, even without the crypto crash setting asset prices back earlier this year. Hacks continue to ramp up in the crypto world, exposing projects that have been slow to shore up their defenses. But even more damaging to the market this week are crackdowns by the U.S. government. Sanctions, arrests and the prospect of some constrictive policy are all leading investors to wonder which DeFi cryptos to sell.
Currently, the U.S. is clamping down on crypto projects in a big way. Nearly all corners of the government are diving into DeFi; the U.S. Securities and Exchange Commission (SEC) is launching probes, the Department of Justice (DOJ) is making arrests and the Treasury is implementing sanctions. Meanwhile, investors continue to see projects get hacked or scam users. Just today, Curve Finance (CRV-USD) was hacked for more than $570,000 in assets. Blur Finance (BLR-USD) also hurt investors today, turning out to be a rug-pull scam.
That said, the best DeFi cryptos to sell are those caught up in the worst of recent government scrutiny. Investors should consider these three cryptos if they’re thinking about lightening their portfolios:
DeFi Cryptos to Sell: MakerDAO
The MakerDAO crypto, MKR, could be worth shedding from your portfolio as the project’s developers fret over a troubling future. Right now, concern is breaking out about recent U.S. Treasury sanctions; developers worry the sanctions could bring down the entire network.
Specifically, the Treasury’s recent sanction against Tornado Cash is sparking this concern. The government is slamming the crypto mixing service for its use in crypto money laundering. As a result of the sanction, U.S. residents are now barred from using the service. Dozens upon dozens of crypto wallet addresses are also being blacklisted.
Why are developers worried? Well, the sanctions have also inflicted unanticipated blows against Circle and its USD Coin (USDC-USD) stablecoin. That has frozen some $81,000 in USDC in these blacklisted address, essentially rendering it useless. MakerDAO could face similar consequences as a stablecoin protocol itself.
If push comes to shove, the Treasury may continue laying sanctions down against stablecoins associated with crypto mixing and anonymity. This would directly affect MakerDAO. Founder Rune Christensen says sanctions could kill the project entirely. As a result, developers are putting together an emergency shutdown plan in case sanctions reach the project.
DeFi lender Aave isn’t worried about sanctions. But the project has been caught up in the crypto crash, thanks largely to its lending practices. Aave may be disproportionately affected as legislators draft up crypto policy and take the crash into account.
When the crypto crash began in mid-May, things unfolded much like the 2008 housing crisis. Akin to mortgage borrowers back then, crypto hedge funds and other investment companies had taken out massively over-leveraged loans from platforms like Aave. When the market bubble popped and prices started dropping, the crash catapulted these companies into huge amounts of debt. At least three major investing companies declared bankruptcy as a result of these loans. Two were indebted to Aave specifically.
In the aftermath of the 2008 crisis, mortgage lenders’ gravy train had come to an end. One can expect the same of Aave and other DeFi platforms. But more scarily for it, Congress and other arms of the government are hungry for crypto market regulations.
One can say with relative confidence that legislators will heavily rely on their understanding of the crypto crash to craft these policies. This could lead to some constrictions on the way Aave and other platforms operate. Being one of the biggest platforms, Aave could even bear the brunt of the damage.
DeFi Cryptos to Sell: Amp
Amp is one of the top DeFi cryptos to sell right now, simply because it has been dealt a bad hand. Sanctions won’t significantly impact the token. Amp will not likely inspire notable crypto policy, either. Instead, Amp is caught in the middle of another regulatory battle.
Amp’s woes started just a few weeks ago as the SEC and DOJ teamed up to arrest a trio accused of the first-ever crypto insider trading scheme. The scheme involved a former Coinbase (NASDAQ:COIN) employee and two others. In its complaint, the SEC referred to nine cryptos involved in the scheme as securities rather than currencies. AMP is one of these cryptos.
The blowback from this small comment could have devastating effects on the project, leading the SEC to pursue some kind of legal action against Amp for selling an “unregistered security.” This is even leading other exchanges to take action; Binance (BNB-USD) promptly de-listed AMP in the wake of the news, citing extreme caution. Other exchanges may de-list it in the future, too, prompting bearish attitudes around the token.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.