In last week’s Crypto Moves #40, we highlighted that we are on the verge of a significant surge in interest toward decentralized finance, or DeFi. We believe that only a select few DeFi-focused cryptocurrencies truly have the potential to benefit from this anticipated increase in DeFi interest, as this interest is likely to translate into greater monetary rewards for their token holders.

As we have consistently emphasized, apart from Bitcoin, we only invest in productive cryptocurrencies – those that offer monetary rewards to their token holders, much like dividends from equities. In some cases, we may consider investing if we are confident that the cryptocurrency in question will soon become productive.

For an asset to be considered productive, it must meet two key criteria. First, the cryptocurrency must have substantial adoption, generating significant revenue. Second, there must be a clear connection between this revenue and the token holders, ensuring that they receive a share of the revenue.

When it comes to DeFi, Uniswap serves as a cautionary tale of how not to structure the tokenomics of a cryptocurrency, despite its widespread adoption that most other cryptocurrencies can only envy. Uniswap is the most famous and historically significant decentralized exchange in crypto. It has generated billions of dollars in trading fees, making it the leading decentralized exchange by revenue.

However, none of these trading fees go to Uniswap token holders. Instead, they are paid out directly to the liquidity providers on the protocol. On October 18, 2023, the Uniswap Foundation also introduced a 0.15% trading fee on certain swaps made through its primary web interface. Yet again, these fees go to the foundation, not the token holders. This leaves Uniswap token holders with little more than a role in governance, without any monetary compensation.

Even though Uniswap is the most successful decentralized exchange in crypto, boasting billions in cumulative trading fee revenue, the token’s price reflects the absence of direct financial rewards for its holders. This is the textbook example of what not to do in DeFi.

Chart 1: Uniswap Price

In today’s Crypto Moves, we will delve into our top DeFi picks, in addition to our allocation to Maker (MKR) in our Crypto Portfolio. These picks not only have substantial adoption but also offer significant rewards to their token holders. We expect both to benefit greatly from the anticipated surge in DeFi interest, as it will likely drive increased usage of their respective protocols, fueling even greater monetary rewards to holders.

Let us dive in.