A fascinating theory proposes the potential and scope of decentralized finance (DeFi) particularly through the lens of ETH. The theory by Lucas Campbell posits that despite the fluctuations and the volatility, cryptocurrency is inevitably set to position itself under a $100T asset class in the near future. the foundation of this hypothesis rests on two primary factors: -

1. Firstly, we are about to witness the greatest wealth transfers in modern history

2. Secondly, market movement is determined by capital flow

Campbell sites the [“Great Wealth Transfer”](https://www.cnbc.com/2019/10/21/what-the-68-trillion-great-wealth-transfer-means-for-advisors.html) study proclaiming the handover of more than $68T from baby boomers to millennials and gen x over the following two decades with the former being the primary beneficiaries. He pairs this knowledge with the “inelastic market hypothesis” which states that an asset’s market valuation is determined by the type of asset and its subsequent liquidity. using the hypothesis, he calculates the tentative elasticity for Bitcoin to be around 20.

Putting two and two together, the $100T case for crypto proposes an important question: with the greatest wealth transfer in modern history to the generation that holds more liberal investment ideas towards “internet money,” how much of the wealth will trickle into DeFi investments?

To understand the theory in greater detail, you can access the full article [here](https://newsletter.banklesshq.com/p/100t-case-for-crypto-lite).

The following article is written in reference to the thought experiment on the surge of DeFi proposed by Lucas Campbell in his $100T Case for Crypto article. It predicts the growth of DeFi by combining the theories of the great wealth transfer and the inelastic market hypothesis.

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$100T Case for Crypto 

When Elon Musk declared that Tesla would stop taking Bitcoin payments owing to the environmental impact of mining, green cryptocurrencies surged into the news at the end of 2021. According to the Cambridge Bitcoin Electricity Consumption Index, the amount of electricity consumed by bitcoin mining in a year could boil enough water for all cups of tea drank in the UK for 30 years.

But it is only fair to do that, isn’t it? As nature is in alarm mode, we need to take more environmentally friendly steps.

# **But what are Sustainable Cryptocurrencies?**

Due to the abundance of computing required, cryptocurrency mining is a process requiring a lot of energy. Alternative models with a low environmental impact have been introduced to cut emissions connected with the first digital currencies: the so-called green cryptocurrencies.

Green cryptocurrencies are built on breakthrough processes that decrease blockchain technology’s carbon footprint. So many of these aspects can also be applied to existing, more damaging cryptocurrencies in the search for more sustainable approaches. The same is the case with Ethereum, the technology that powers most non-fungible tokens (NFT), which promises to use a Proof-of-Stake (PoS) consensus method to cut its energy consumption by 99.5 per cent.

# **What are some emerging Green Cryptocurrencies?**

Bitcoin mining consumes a frightening amount of fossil fuels, as per environmentalists. There are, however, alternative, ecologically responsible cryptocurrencies that inflict less harm to the ecosystem. These could help alleviate some of the concerns about cryptocurrencies and the environment.

Smaller currencies may have a lesser carbon footprint than more famous ones, but this could simply be due to fewer transactions. However, some digital assets are more energy-efficient, which means they have a minimal environmental impact.

So, let’s have a look at some of those energy-efficient cryptocurrencies that are gaining traction these days:

**1.Chia (XCH)**

Rather than the mining, proof-of-work approach used by bitcoin, which relies heavily on computer processors, chia’s “farming” operation uses hard drives — a phenomenon known as proof of space. Chia, according to TRG Datacenters, is a stellar example of sustainable coin crypto designed to be much less energy-intensive.

The Chia Network is a blockchain and smart transaction framework that helps everyone run a decentralized network utilizing available hard drive space. The Chia Network uses proof-of-space-time rather than proof-of-work. XCH, Chia’s token, can be obtained by storing a particular quantity of data for a certain duration of time. XCH was established in 2017 in response to the increased energy consumption of cryptocurrency mining.

Unlike all the other cryptocurrencies, Chia was created by the pioneer of BitTorrent, Bram Cohen. People sought to purchase more storage space on which to farm XCH when the platform was introduced, limiting the availability of hard drives in China.

**2. IOTA**

IOTA, as a cryptocurrency, has not been as price erratic as many other tokens. But it has been frustrating for investors looking for the same returns as early Bitcoin, Ethereum, or other altcoin purchases. Because IOTA leverages Fast Probabilistic Consensus for consensus and only requires Proof of Work in part, the network’s overall energy consumption is significantly small.

**3. Signum (Signa)**

Burstcoin was rebranded as Signum in June 2021, and its symbol was changed to SIGNA. Following a substantial decline in the value after the currency was taken off the market from Poloniex in May 2019, a hard fork has declared the original Burstcoin useless.

Burstcoin was perhaps the first blockchain to leverage Turing-complete smart contracts, which allow non-fungible tokens (NFTs) to be formed and used in on-chain games. Since it has been utilizing Proof of Capacity rather than Proof of Work since 2014 and recently upgraded to Proof of Commitment with the launch of Smart Tokens, Signum is likely to remain one of the most environmentally friendly, sustainable cryptocurrencies.

The world of blockchain and DeFi is growing each day and creating milestones with each step. The fact that we have the option to explore green and sustainable cryptocurrencies is mindblowing in itself. So our suggestion to you would be to go green!

When Elon Musk declared that Tesla would stop taking Bitcoin payments owing to the environmental impact of mining, green cryptocurrencies surged into the news at the end of 2021.

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Green and Sustainable Cryptocurrencies

Starting with basics, DeFi stands for Decentralized Finance. It is a blanket term for a collection of blockchain-based financial solutions. The concept is to allow anyone with access to the internet to lend, borrow, and bank without the use of middlemen. One of the most rapidly emerging sections of the blockchain and decentralized web ecosystem is DeFi.

DeFi is driven by blockchain, the technology that powers Bitcoin, Ethereum, and other cryptocurrencies, in which a set of entities, rather than a single one, keeps track of transactions. DeFi, on the other hand, expands the definition of these activities beyond simple transfers to provide more complex financial processes.

The Ethereum framework, the world’s second-largest cryptocurrency and blockchain technology, is being used to build DeFi applications. The applications are utilized to produce sophisticated financial transactions. Ethereum’s propensity for smart contracts, executing transactions automatically, allows this to happen.

# Investing in DeFi

You can earn more crypto by investing in DeFi in multiple ways. The three most popular investment choices are:

1. Buy And Sell Tokens, which enables you to obtain DeFi currency at a cheaper price and sell it when the price rises, as it does with most cryptocurrencies.

2. The second alternative is Interest-Earning, in which you join a lending platform and lend your money to borrowers instead of interest. Always double-check the platform before releasing your money.

3. Yield Farming is another approach for investment, enabling you to transfer your crypto assets between multiple projects to equip the network with the needed liquidity to facilitate transactions while earning interest.

The diversity of investment opportunities and growth in the market makes DeFi an attractive and potentially very lucrative investment.

However, if you know which measures to take and which tools to use, this process may be relatively simple.

So be ready to get started because we’ll tell you three basic steps that are everything you need to know before you dive into the DeFi world.

**1. Creating a Wallet**

Your crypto wallet is a digital storage location for the cryptocurrencies you’ll need to partake in DeFi protocols.

**2. Buy Crypto Coins**

To engage in DeFi protocols, you’ll need crypto coins. Ether coins or ERC-20 tokens are considered a good option since most protocols are built on Ethereum.

**3. Get into Protocols**

When working with a protocol, the basic workflow is to go to their website or app, connect your wallet so that their platform can view your cryptocurrency, and follow their instructions to initiate trading, yield farming, or whatever else the protocol was created for.

Some protocols allow investors to lend crypto, trade crypto, stake (or lock up) crypto for a return, participate in liquidity pools and generate income when trades are completed in their pools and engage in yield farming, among other things.

**There are currently over 100 DeFi projects in the crypto space. As a result, identifying the appropriate project, particularly for new investors, can be difficult. Take the first step and then read up on crypto ownership, storage, and investing for beginners. Once you take this step, you’ll be good to go!**

Starting with basics, DeFi stands for Decentralized Finance. It is a blanket term for a collection of blockchain-based financial solutions. The concept is to allow anyone with access to the internet to lend, borrow, and bank without the use of middlemen. One of the most rapidly emerging sections of the blockchain and decentralized web ecosystem is DeFi.

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How to Invest in DeFi

Decentralized finance (DeFi) has completely transformed the cryptocurrency market. Traders are interested in this domain, both as a promising infrastructure project within the crypto industry and as an opportunity to profit off turbulent token fluctuations.

At the same time, this turbulence has a flip side: a rather high risk. Let’s go through a few strategies for the DeFi market that can minimize these risks on a DeFi protocol.

From the beginner phase, investors adored the DeFi investing domain, since decentralized finance gives them more control over their money. And while early on decentralized finance floated toward loans and credit, DeFi is now at least 5 full-fledged, interconnected fragments: blockchain, decentralized exchanges (DEX), decentralized derivative platforms, loans and credit, & insurance.

Despite its relative firmness, the DeFi segment is still prone to risks, as an investment. The volatility in the tokens of various projects undeniably pulls new investors. However, high yield also means high risk. There are several efficient ways or strategies for managing risks in DeFi.

# **Strategy #1: Position Sizing**

Position sizing formulates how many crypto coins or tokens a trader is willing to buy. The probability of realizing huge profits in crypto trading tempts traders to invest 30%, 50%, or even 100% of their trading capital. However, this is a disordered action that puts you at serious financial risks. The golden rule is: never put all your eggs in one basket. Here are three approaches to achieving position sizing.

-   **Enter Amount vs Risk Amount:**  This approach considers two different capitals. The first involves money you are willing to put in every single deal. Traders are advised to analyze this amount as the size of each new order they take, regardless of its type. The second is the money at risk, i.e. the money that you afford to lose if the trading fails.
-   **Elder’s Sharks & Piranhas:**  This approach relates to diversifying your investments which brings forth two basic methods:

Limiting every position to 2% risk. Dr. Alexander Elder, who is credited with the concept, correlated risk to a shark bite. At times, you would wish to risk a huge capital, but the risk would be huge and disastrous as a shark bite.

Limiting trading sessions to 6% per session. In a losing streak, you may end up disposing of everything you own little by little. Elder correlates this risk to a piranha attack, which takes small bites of its victim until it devours it all.

-   **The Kelly criterion:**  It is a formula developed by John Larry Kelly in 1956. It is a position sizing approach that defines the percentage of the amount to risk. It enhances long-term trading.

![](https://miro.medium.com/max/984/0*TqvydEzNuAVl0p7d)

# **Strategy #2: Diversified Portfolio**

In this strategy, investors fill their portfolios with the most assuring, underrated, and non-overlapping DeFi projects. This compresses the risk of the portfolio losing significant value because of a single asset. You can identify assuring tokens by their market cap to total value locked (TVL) ratio. Tokens with the minimal correlation of these values can be considered underrated, which means there is logic to expect these assets to “catch up” with others in their valuation and growth. Therefore, by buying these cryptocurrencies, traders stabilize their portfolios for the medium & long duration.

For additional diversification of your risks, you can choose projects on different blockchains, such as Ethereum or Binance Smart Chain. Another way is to select negatively correlated tokens, meaning that when one token is highly turbulent in day trading, you should choose a more stable asset for balance.

Diversifying your portfolio by including an insurance project is even better since the demand for safeguarding capital within the decentralized finance ecosystem is only going to increase. Having such tokens in your investment portfolio will help you to significantly counteract an adverse situation if one were to suddenly occur.

# Strategy #3: Staking

You can also minimize your risks of value loss with stake-able tokens. The cryptocurrencies of certain DeFi projects offer the feature to profit just by storing them. For example, users of the international cryptocurrency exchange CEX.IO can earn up to 16% annual interest for storing their tokens. And the gain from staking rises when the coin’s price rises. For example, if a trader invests $100 in XYZ token at $0.20 per coin, with 16% interest for staking they would get approximately 580 XYZ at the end of the year as their reward. If in that period the price has increased from $0.20 to $0.40, the trader would get $232 when they cash out. Considering the coin’s price surge, the profit increases to 132% instead of 20%.

To safeguard your portfolio against major fluctuations, you can invest in stablecoins that provide staking, such as Dai. On one hand, the passive yield from your tokens can increase your total profit from investing in the DeFi sector, and on the other hand, it can cushion potential losses if the market ramps down. Additionally, traders can restrict their losses to the amount of their prospective staking reward. As soon as the losses on their positions get near to the profit they would get from staking, traders can simply close them.

# Strategy #4: Hedging

In the fundamental hedging process, while buying an asset on an exchange, traders open an opposing position in the associated derivative at once. These derivatives could be futures, alternatives, or contracts for difference. So if a trader buys XYZ on the exchange, to hedge the risk of the asset losing value they would immediately sell a contract for a difference for the same amount. In the end, if XYZ gains in price, the losses on the contract for difference would be cushioned by the rise in the cryptocurrency’s value. However, if the price for XYZ decreases, this difference would be covered by the contrasting position on the contract for difference.

Derivative trading is offered by specialized platforms where you can use them to gain from turbulence in the prices of cryptocurrencies without having to physically buy them and hedge assets you’re holding. A contract for difference permits traders not to participate directly in DeFi and escape the technical risks, uncertainty, and complexity linked with it. To manage risks, most of the platforms use automatic safeguard orders, such as stop-loss and take-profit.

Many platforms allow users to draw out maximum profit from fluctuations in the DeFi market and, if necessary, apply strategies to efficiently protect their capital.

Decentralized finance (DeFi) has completely transformed the cryptocurrency market. Traders are interested in this domain, both as a promising infrastructure project within the crypto industry and as an opportunity to profit off turbulent token fluctuations.

19 January 2022

1 min read

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