What’s pumping? The hottest updates from DeFi and Arbitrum ecosystem.
Author: Max Yampolsky
Use This DefiLlama Hack To Find The Next DeFi Gems
A 3-step guide in finding the next 50x crypto gem using DefiLlama and other free tools.
Missed some of the recent +100–200% price pumps?
That’s fine.
In crypto, trends usually follow a common pattern. DeFi natives know this and use it to profit throughout whole hype cycles. Even if they miss the perfect entry point, they use the following method to ride the wave.
Mastering this strategy is beneficial to all Web3 investors.
Get ready for some alpha as we enter:
Web3 Clones
Narratives drive crypto.
Whenever a novel project explodes, the market gets flooded with copycats. Soon enough, a completely new crypto sector is formed, and everyone starts talking about it, driving all hype-related products upward.
Uniswap is the protocol with the most forks (378 as of Feb 9, 2023), with its most successful clones — PancakeSwap and SushiSwap having 15 forked projects made from them in total.
That’s the magic of Web3.
Protocols are open-source, and innovation is encouraged rather than copyrighted. It is great for entrepreneurs who find opportunities to build upon existing projects and investors in “predicting” what the next moonshots might be.
The question is — how can you find these projects?
What Are DeFi Forked Protocols, You Ask?
Web3 clones are usually created through a DeFi fork.
An example of successful DeFi forked protocols include:
- PancakeSwap and SushiSwap (forked from Uniswap)
- BSC’s top lending protocol, Venus (forked from Compound)
- Optimism’s top DEX, Velodrome (forked from Fantom’s Solidly)
Currently, the TVL of forks is $8.14B or 16.61% of the whole DeFi market, with some forked protocols even surpassing their origin protocols, like Velodrome, which has over 100x more value locked than Solidly.
The expansion of Web3 will bring innovative protocols that tackle current challenges and pave the way for even more creativity through the forked protocols that will be built upon them.
How To Find The Next Crypto Gems Using DefiLlama?
Time for some practical tips.
Remember that the following method should be used as another tool for your toolbox when DYOR and not as a complete investing guideline.
Step 1: Finding the trend
We are going to use GMX as an example.
GMX is the top derivatives protocol on Arbitrum and Avalanche. The price of its native token, $GMX, grew by +70% in the last month (as of Feb 8, 2023).
But buying and selling $GMX is not the only way investors profit.
The protocol itself is used by 219k users, with a good bulk of them being day traders using high-risk leverage. The old saying that “the house always wins” is also valid for exchanges.
What makes this lucrative for investors is that GMX also has an Earn section in their app, where people can stake $GMX or $GLP to earn DeFi yield, a portion of which comes from the platform’s earnings.
Some analysts have even called on the ethicality of profiting from such yield pools, like Lady of Crypto on Twitter:
The GMX hype has been around for quite some time, as it was all over Crypto Twitter, Reddit, and YouTube.
The $GMX token rally is probably cooling down (unless we get a macro crypto bull run to send everything up).
The staking rewards have also gradually decreased, which is normal for DeFi yield protocols as they mature over time.
Some degens caught up to the GMX hype early and probably made profitable bets. But those who used the strategy from phase II multiplied their exposure to the trend even if they missed GMX.
Step 2: Using DefiLlama to find a forked protocol
Never be late to the party.
Continuing with the GMX example, some analysts have caught up to the Web3 clones principle and forecasted that other similar platforms should also reap the same benefits.
An older competitor to GMX is dYdX. Despite having one of the best-performing tokens since the start of 2023, the past 1 year data is not even near GMX growth. Both TVL and price are down for dYdX and its token.
While existing competition didn’t take off, there is one group of projects that did — GMX forked protocols. DefiLlama offers a tremendous free dashboard for research.
Currently, there are 16 GMX forked protocols, with a TVL at just 6.12% of that of GMX. If we take a further look, we can see that the growth of the top ones:
What does it mean?
On the very top level, it shows that GMX clones appreciated in locked value. If the listed platforms have native tokens like $GMX, they probably grew alongside the original protocol.
The case for GMX is very specific as it also reaped additional yield opportunities, so a further examination of these platforms shows that they also offer to Earn programs for staking their tokens.
The current APR/APY returns seem extraordinary, and they will most likely decrease over time, similarly to GMX.
But the main takeaway is this:
- Being early on a new narrative can be profitable, but…
- It’s not the only way to benefit from the hype.
- Scalping DeFi forks can reap even bigger gains and, most importantly —
- Web3 gives various yield opportunities beyond buying and selling assets.
Moving onto the final phase of your DYOR journey.
Step 3: Additional research
Research never ends.
Crypto narratives are awesome. They attract new liquidity, stimulate innovation, and reward those who stay ahead of the curve.
But, just because one project performed great, it does not guarantee that its copycats will do the same. Always go the extra mile and research before participating in any crypto-related activities.
Recap of the steps
Here is a summary of the 3-step guide to finding the next crypto gem
- Find the trend
- Use DefiLlama to find a forked protocol
- Do additional research
For (2), you got a detailed example above with screenshots from DefiLlama.
Now, let’s see what you can use for steps 1 and 3.
BONUS: 15 Tools and methods for DYOR on DeFi forks
Here is your reward for reading to this point.
The best place to spot new crypto narratives are these:
Platforms
Everything community-driven is first initiated on Crypto Twitter. For that reason, you can follow specific accounts or have a separate account dedicated to trend scalping. Here is a list of 50 accounts (by DEFIYIELD).
Other platforms in which you may further verify if a narrative is indeed growing strong are Reddit and YouTube.
Once a trend reaches there, it is just a matter of time to get discussed on most crypto-related Telegram and Discord channels. Once a specific hype-starting protocol reaches all social media, it is probably too late to hop on it.
This is where you begin scalping for an upcoming forks on DefiLlama and Crypto Twitter. Once you spot something promising, you move into step 3, which is doing your additional reserach. Here are some tools and methods you can use:
Analyst tools
Messari — additional analytics and well-synthesized data
LunarCrush — track social metrics to see if a narrative is still active
CoinMarketCal — get the latest news for a token you are interested in
ICODrops — find new projects fast (maybe before the DefiLlama listing too)
Exponential — learn the risk profile of a specific liquidity pool
Once you’ve done your top-level data analysis, it is time to dig even deeper.
Resources
Now, you are inside the project, and your duty as an investor is to learn as much as possible about it. That includes:
1) Reading the project’s whitepaper.
2) Listening to team members’ podcasts
3) Browsing through the personal Twitter accounts of the founders
Everything that can give you a better understanding of how the product works and is managed is essential.
Tactics
Finally, try to get an objective opinion by looking at what the critics got to say and figure out if their stance is valid. Use creative search terms on google like “why project X is a scam,” or look at Reddit groups where people discuss a variety of protocols (be careful of shilling posts).
Furthermore, verify for audits (usually included on the project’s website or whitepaper) and research the firm that conducted the audit.
Conclusion
For many, Crypto is just a speculative market.
But those who look beneath the surface can see that DeFi is built upon disruptive technology, providing innovative yield-generating systems that only a tiny percentage of people understand and prosper from.
The outlined method in this article is just one of the many alpha strategies that investors use in increasing their Web3 profit odds. Every strategy has risks, so using various tools is always recommended by experts.
Want to take advantage of DeFi without becoming a full-time degen? Learn more about AI robo-advisors and how they benefit retail investors.
Disclaimer: This article’s content is not intended as investment, financial, trading, or any other type of advice. One Click Crypto does not endorse buying, selling, or holding any cryptocurrency. It’s important to thoroughly research and consult with a financial advisor before making any investment decisions.
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Use This DefiLlama Hack To Find The Next DeFi Gems was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.