The term HODL was born in 2013 as the price of Bitcoin increased from under $15 in January 2013 to a high of over $1,100 at the start of December 2013. HODL soon became the term for a cryptocurrency investment strategy that disregarded trading based on short-term price fluctuations.
Hodlers simply steer clear of all this volatility and hold. This helps them to counteract two common and quite destructive actions: FOMO (fear of missing out), which can lead to buying high, and FUD (fear, uncertainty, and doubt), which can lead to selling low.
What if you could be utilizing your cryptocurrency in a passive or low-risk manner? There are numerous options available to HODLERS, each having its own factor of risk attached. Let’s look at some alternatives to HODLING in 2020.
Over the years, how much money have you spent in Diablo? World of Warcraft? Call of Duty? Fortnite? Wouldn’t it be great if you could sell some or all of the digital items you’ve accumulated in those days for cash - legally and with full transparency?
That’s just one of the distinct advantages offered by adding blockchain technology into games.
Decentralization brings plenty of other benefits, but the ability to truly own the items you buy and find in the games you play is massive, and it’s win-win.
For the developers, there’s the opportunity to sell a lot more items, especially expensive items, if players have the potential to resell them, maybe even at a profit. Already we see blockchain-based items regularly selling for tens of thousands of dollars, some even breaking the hundred thousand dollar mark.
For players, this is the opportunity to make some extra money doing something they love and already spend hours doing every day.
Labeled Play-to-Earn by the increasing number of blockchain games offering this functionality, it’s also something they hope will provide them with a competitive advantage. Why would people waste their time playing a game that doesn’t enable them to own and sell the items they have in-game?
Cryptocurrencies’ ability to be quickly transferred between people in small amounts also unlocks another advantage for games using blockchains. Bitcoin’s Lightning Network hasn’t yet taken off as many people expected. Still, games such as mobile platformer Bitcoin Bounce are already using it to reward players for their leaderboard positions in amounts as tiny as 10 Satoshi (around $0.001).
Interestingly, this revenue is generated by the in-game advertising players watch, creating a virtuous cycle. The more players, the more sessions, the more ad revenue, and the more Satoshi’s available for rewards.
This sort of economics is impossible to do with fiat currencies, where $1 is the smallest unit of value similar systems can use. And while it currently would take a lot of gaming to earn $1 in Bitcoin Bounce, this sort of micropayment system is already gaining popularity, especially in countries such as Venezuela and Iran, which are suffering economically.
A sprinkle of blockchain
But the real opportunity for blockchain games is the release of high-quality games from highly experienced, well-funded game teams that will appeal and be accessible to millions of players.
A key example is US startup Mythical Games, which founded by Activision Blizzard execs, has raised $35 million for its blockchain games platform and will be launching its F2P user-generated content title Blankos Block Party later in 2020, both for PC and consoles.
Built around a collectibles ownership model in which players buy, own, and trade their own playable vinyl toys, it doesn’t mention blockchain at all. Instead, it merely highlights the fact it’s a game with a player-led economy, without getting into the details of how this happens.
And this is how the promise - the advantages - of blockchain will eventually be adopted throughout the gaming market which is currently generating $150 billion of annual revenue.
As always happens in games, the technological magic will happen in the background without the vast majority of players having any idea of how the ability to trade their in-game items works.
As the past couple of years has shown us, blockchain is great, but the technology itself is never going to drive mass-market adoption.
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For this example, we will focus on the DeFi dapp and liquidity provider Uniswap. The beauty of Uniswap is you can exchange ETH for any other ERC-20 token.
Liquidity pools are pools of tokens that sit in smart contracts, and there are enough tokens for you to be able to exchange any of them with one another using Ethereum as a conduit. Also, creating a new exchange pair in a new liquidity pool is open to anybody, at any time, and for any token.
Liquidity providers receive a fee from people that are conducting swaps. There’s a 0.3% transfer fee that Uniswap charges to the swapper that is then split among all the liquidity providers in that specific pool based on how much of the pool they’re offering.
If it’s a large amount that you’re offering in a liquidity pool, a large percentage of the pool, you’re going to get a bigger chunk of that 0.3%.
Uniswap provides in-depth information and user guides on their website and it’s recommended that you check them out in full before attempting to use any liquidity pools on Uniswap.
Staking is a system whereby owners of certain cryptocurrencies receive rewards for their contribution to a network. Incentives are given to cryptocurrency owners depending on the number of tokens they have in their wallets. This method over time has also proved to be more democratic and popular than proof of work (PoW) mechanisms (mining).
PoS blockchains simply allow users to validate transactions by depositing and also HODLing a certain amount of cryptocurrency. Therefore eliminating the need for mining hardware to confirm transactions.
The PoS method of confirming transactions involves owners of certain cryptocurrencies being compensated with rewards for their contribution to the smooth running of the network. The reward amount is dependent on the number of tokens held in their wallets.
In the long-term, this has proved a far more popular method because there is a higher chance of everyone getting compensated with a passive income (mining requires more technical expertise and setup).
This is unlike PoW, where only large scale miners earn good incentives. Staking has also encouraged crypto enthusiasts to hold on to tokens for a longer amount of time, adding more buoyancy to the ecosystem.
Staking is an excellent way to put your crypto to work and make a passive income. Knowing the right cryptocurrencies as well as the most profitable staking systems is the key. This will ensure you earn the highest amount of dividends possible for your work.
Yield farming is a hot topic right now. But in essence, is nothing more than putting cryptocurrency assets into use by earning a return on the capital invested.
There are numerous money markets, such as Compound, Curve, and Aave, and these provide the most straightforward road to earning a yield. For those looking to earn more, liquidity pools, such as those available on Uniswap, can provide more flexibility as they provide better yields but come with increased risk.
Borrowing capital from a money market is the simplest way to earn a return on your cryptocurrency and is proving to be a popular method in 2020. In order to participate, users need to deposit a stablecoin in their chosen platform and then they can start earning returns immediately.
Money market platform Aave offers borrowers the ability to choose a stable rate of interest rather than a variable rate, so it’s generally able to offer better rates than Compound. The stable rate tends to be higher for borrowers than the variable rate, thus increasing the marginal return to lenders.
DeFi money markets function by offering over-collateralization. Meaning that the assets deposited by a borrower must have more value than their loan. To calculate the collateralization ratio an equation of – the value of collateral/value of the loan - can be used.
When the collateralization ratio falls below a certain level, the collateral is sold (liquidated) and sale proceeds paid to lenders. One other factor to consider is smart contract hacks, but Aave and Compound have avoided this risk to date.
In 2020, there are a few examples of crypto-collectibles (non-fungible tokens, or NFTs) that have gained traction and are starting to be considered as serious investment opportunities.
As touched upon in the Games section of this article, NFTs and real digital ownership of items have become a genuine part of the blockchain.
The creation of (NFTs) allows developers to deploy unique, desirable and rare digital items and for users, the chance to own and trade unique digital items through marketplaces and other buy and sell platforms.
CryptoPunks is one such collectible dapp showing serious movements in 2020. CryptoPunks has been around for a long time, even before the big crypto bubble of 2017/18, and before Cryptokitties became the most well-known dapp and congested the Ethereum blockchain with thousands of transactions.
CryptoPunks was created in 2017 by Matt and John from Larva Labs, two early crypto pioneers from New York. The project is perhaps best described by the website:
“CryptoPunks are 10,000 uniquely generated characters. No two are exactly alike, and each one of them can be officially owned by a single person on the Ethereum blockchain. Originally, they could be claimed for free by anybody with an Ethereum wallet, but all 10,000 were quickly claimed. Now they must be purchased from someone via the marketplace that’s also embedded in the blockchain. Via this market, you can buy, bid on, and offer punks for sale.”
DappRadar started tracking CryptoPunks in mid-2018 and for most of the time activity has been hovering around the 5 daily active users mark. Obviously, that does not constitute a huge amount of interest. Still, lots of single transactions valued above the $1,000 mark for single Punks could be observed.
Meaning, it always looked like there was a small but very dedicated group of hardcore CryptoPunks supporters. Large Publications like the New York Times and the Financial Times certainly took notice and dedicated some serious coverage.
In early 2020 an increase in activity could be observed. Daily user activity and transaction volumes shot up for a few weeks.
This time though, the amount of whale activity seemed considerably higher than during spikes observed in the past. Reaching new highs not seen previously, resulting in nearly 450 ETH transaction volume in one day. That’s over $100,000 USD at the time of writing.
There are a few more indicators pointing to a sustained interest as the number of CryptoPunks on offer has decreased steadily from nearly 900 on average per day at the end of April down to slightly above 700 by today.
So, simple economic rules dictate that when supply is restricted, demand increases, and therefore price. The minimum price for a CryptoPunk on the open market has increased from an average of $20 in 2018, $50 in 2019, $100 in Q1 2020 and now to around $160 as of today.
Would you be willing to shell out $100k for a unique Punk? Perhaps not today, but what if a world described in Ernest Cline’s “Ready Player One” does become reality sooner than later and a change in habits and circumstances does confine us to a world in the digital space? Do digital assets all of a sudden deserve such valuations? Only time will tell.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.