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Actively investing in top DeFi tokens based on the TVL may have become obsolete in several cases, with returns falling by 15% or more within a week. Among the top DeFi tokens, returns on UNI have fallen by nearly 15% in the last week, while SUSHI’s price has dropped by nearly 11%.
On the opposite, at press time, tokens such as Compound and Vesper were posting strong daily returns of 10% and 12%, respectively.
With such a wide variety of returns, it makes sense to test out new investing strategies. Investing in these tokens or via Grayscale’s DeFi token offerings, for example, is one alternative, although a very direct one. This aggressive investment format has caught on with institutional investors and whales, as shown by the concentration of major HODLers in UNI (91%) and AAVE (88%).
Returns in active investment are based on the success of a particular token, and can be extremely unpredictable since DeFi tokens are noted for their instability due to their low market capitalisation and high liquidity. The concentration has no direct effect on liquidity on major exchanges like Binance, OKEx, and Huobi Global.
Passive investing, on the other hand, is a recent and commonly used approach. Putting together a portfolio of DeFi tokens on exchanges, but with a short and long-term perspective, and with the goal of booking unrealised gains every week or every few weeks. Because of easier-to-understand yields, this current passive DeFi approach has vastly outgrown active ones.
The knowledge asymmetry in DeFi results in a significant alpha. The impact of this knowledge asymmetry can be mitigated by a well-balanced DeFi portfolio. As a consequence, without even contemplating token benefits, it is assumed that the portfolio will expand.
Consider this: despite remarkable inconsistency in movement over the last 30 days, DeFi’s TVL was up about $10 billion over the same time span at press time. Furthermore, DeFi’s supremacy was greater than 16 percent, with a rise in the same suggesting the need for a change in investment policy.
Every year, Bitcoin and Ethereum maximalists booked the largest unrealised gains for many quarters; however, this has now changed with broader and more numerous prospects for profit booking in DeFi tokens. Furthermore, the value of Bitcoin locked in DeFi tokens has fallen over the last 90 days, most notably since 11 February 2021. Based on the current market activity, top DeFi tokens such as UNI, SUSHI, YFI, and AAVE are expected to reach local highs within the next two weeks.