The Factory - DeFi Has Never Looked Stronger: Why Quality DeFi Altcoins Are Crypto’s Biggest Asymmetric Bet
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Byline: Ian Dyer, Machines and Money
TL;DR
Despite negative attention from the press, there is real progress being made in the world of crypto
The world’s largest financial institutions are recognizing and adopting blockchain technology due to its clear advantages over legacy technology
But the market hasn’t priced any of this in – the broader altcoin market remains close to its post-FTX-crash valuations
The DeFi20 Index was created as the ultimate asymmetric bet – to benefit from the enormous gap between accelerating progress and low prices
The current era for crypto is a tricky one.
While the industry has grown large enough to garner mainstream attention, its public image has largely been portrayed as negative, as headlines tend to focus on exploits, scams, and falling prices.
But looking past all the drama and clickbait, the very qualities that make blockchains unstoppable still exist – and they’re being noticed now more than ever.
In fact, this negative framing is directly at odds with the accelerating attention and adoption of blockchains by some of the world’s largest financial companies.
Specifically, there are 3 reasons that blockchains (and DeFi) will win: permissionlessness, composability, and programmability.
These inherent qualities paint a clear picture for how the world of money is destined for an onchain future.
Institutional Adoption
Tokenization
As institutions continue to discover the advantages of blockchains’ programmability, the first generation of tokenized institutional assets is emerging. Here are some examples of the most prominent asset classes currently being onboarded:
Onchain Payments
Additionally, the world’s largest payment processors are increasingly integrating stablecoin transactions.
Stripe is already offering stablecoin payouts to 160 countries (compared to fiat payouts in 100+ countries). Their payments-focused blockchain, Tempo, aims to serve as the plumbing for AI agent-initiated payments by using its native machine payment protocol (MPP) infrastructure.
Circle Payments Network aims to serve as the 24/7 “SWIFT for stablecoins,” with built-in compliance, instant settlement for fiat-backed stablecoins, and convenient on/off-ramps to convert between stablecoins and local fiat currencies.
Visa launched a stablecoin settlement program last December in the United States, partnering with Cross River Bank and Lead Bank to facilitate:
7-day settlement windows:
Improving speed and liquidity for banks and fintechs to settle seven days a week instead of the traditional five-business day window
Modernized liquidity and treasury management:
Enabling automated, next‑generation treasury operations for bank participants
Interoperability:
Bridging traditional payment rails with blockchain‑based infrastructure
Additionally, Visa is the leading processor of crypto card payments, generating over $3.5B in stablecoin card volume over the past year.
MasterCard acquired stablecoin payments infrastructure company BVNK earlier this year for $1.8B. At the time of acquisition, BVNK was processing over $30 billion in stablecoin payments annually.
Progress Remains Priced Out
In the face of this bullish fundamental backdrop, the overall altcoin market is in historically bearish territory.
If you believe that DeFi will survive and continue to gain market share of the global financial industry (which we wholeheartedly do), it’s reasonable to assume that altcoins will continue to see increased demand over the coming months and years as well. If that’s the case, the low prices in today’s market should offer some excellent opportunities.
In fact, we saw a similar situation play out with the early internet/infrastructure stocks during the dotcom crash from 2000-2002; the playbook here is the same.
While the above graphic shows that the market cap is currently 60% lower than its 2021 peak, a deeper look reveals that much more damage has been done.
Since May 9, 2021, the median market cap of the top-200 tokens is still down by roughly 75%, and sits just 20% higher than its post-FTX lows.
In other words, the recovery shown in the chart above only happened for the largest tokens. However, buried beneath the Ethereums, Solanas, and BNBs of the world, are digital assets that benefit from the growth of their underlying, fundamentally-strong businesses.
The DeFi20 Index
Ultimately, the market is still writing many of these assets off as essentially worthless, despite the massive progress that DeFi has made over the years in terms of fundamental growth, institutional adoption, improved tokenomics structures, increased regulatory clarity, and more.
While there’s still a long way to go from an adoption standpoint, the discrepancy between market value and industry success has never been larger – and I believe that this presents a window of opportunity for quality altcoins.
Just as successful internet companies saw their stocks crash 80%+ from 2000-2002 despite revenue growth and proven business models, the tokens of leading DeFi projects have fallen significantly from their peak, and they’ve remained at low levels for years.
And just as the internet continued to evolve and validate the business models of beaten-down dotcom stocks throughout the 2000s, I expect DeFi activity to grow substantially from here – new use cases will be revealed, and projects that have built sustainable businesses during this crash-ridden period will be rewarded.
That’s why I created the DeFi20 Index, and it’s why I continue to hold all 20 tokens within it. The current market cap of the Index is just under $30B, with a median value of ~$400M.
I see this as a massive asymmetric bet – even if some of these tokens go to 0, a legitimate bull market environment could bring multi-billion-dollar valuations to the winners. After all, the median market cap of the top-100 tokens during the 2021 bull market was nearly $4B.
If fundamentally-sound tokens receive a proportionally large slice of the demand, which would be consistent with the maturing DeFi landscape, I expect the big winners within the Index to see 10x gains from here when the next bull market comes around.
About Machines & Money:
Machines & Money is a crypto/DeFi research newsletter built around a live, publicly-tracked portfolio. Its thesis: institutional money is now flowing into DeFi at scale, which is expanding the quality and quantity of yield opportunities and because DeFi is permissionless, retail investors can access the same opportunities as large asset managers. The publication runs three weekly series (Yield Spotlight on income strategies, Mid-Week Market Check on market conditions, Friday Features on notable projects) and centers on the DeFi20 Index, a tracked basket of 20 projects the authors consider foundational to DeFi’s next growth phase. Check it out → Website |