DeFi Outlook: Are LUNA and DeFi Coin the Best Buys in Crypto?

By May 14, 2022DeFi
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Crypto – and DeFi coins in particular – are struggling to stabilise, as the fallout from the Terra LUNA and UST failures calms.

Initially helped by the resumption of Terra block production and Friday’s rally in tech stocks, DeFi coins looks like they were stabilising, but the weekend trading may be difficult going.

However, there are often exceptions to the rule, and we have two: LUNA and DEFC.

Sentiment was shored up by a near 4% retrace by the Nasdaq Composite. With investors in crypto likely to also be invested in Nasdaq stocks, especially at the riskier end of the exchange listings, there has been a tightening correlation between the movement of crypto and tech stocks.

But with Nasdaq rallying in the Friday session, it provides DeFi coins with firmer ground for the weekend when trading volumes tend to shrink.

Add to that the restarting of the Terra blockchain and plans for a V2 in which the chain will be “reconstituted” in a rest that would see 1 billion new tokens issued, according to a blog post by Do Kwon.

Validators should reset the network ownership to 1B tokens, distributed among:

  • 400M (40%) to Luna holders before the depegging event (last $1 tick before the depeg on Binance should be reasonable), bLuna, LunaX and Luna held in contracts should also be recipients, minus the Terraform Labs account at terra1dp0taj85ruc299rkdvzp4z5pfg6z6swaed74e6. The new chain should be community owned. Preserving decent ownership of the network in its strongest believers and builders is important.

  • 400M (40%) to UST holders pro-rata at the time of the new network upgrade. UST holders need to be made whole as much as possible

  • 100M (10%) to Luna holders at the final moment of the chain halt – last minute marginal luna buyers should be compensated for their role in attempting to provide stability for the network

  • 100M (10%) to the Community Pool to fund future development.

  • All Luna besides the third tranche should be staked at the network genesis state.

  • The network should incentivize its security with a reasonable inflation rate, say 7%, as fees will no longer be enough to pay for security without the swap fees.

Having been stopped at block 7,607,789, more than 13,000 blocks have been produced. There are many critics of the recovery plan, with some saying it rewards speculators and doesn’t do enough for those who held until the end.

DeFi Coin and Terra LUNA – complementary trades for stellar returns?

Still, the production of blocks was enough for Binance to reinstate LUNA and for brave traders who were able to get in at the bottom to make 1,000% returns.

LUNA is currently the no.1 trading asset on the popular Stocktwits platform, as traders look to make (or lose) a fast buck.

But with lower trading volumes can come even greater liquidity. Nevertheless, the restart of the terra blockchain and the re-listing by Binance of LUNA and BST spot markets, is calming nerves after a fraught week.

For DeFi Coin (DEFC), an ultra small cap that we have been keeping an eye on after it jumped 200% last week when all around was plummeting, the weekend’s opening action has appeared bearish but could be viewed by more bullish market participants an opportunity to exploit a comfortable entry price. DEFC is currently trading at $0.33.

With LUNA offering the potential of huge near-term gains but with a risk to a wipeout of your capital, only small amounts should be allocated, while DeFi Coin, which is very much at the start of its journey following the recent launch of its DEX, DeFiSwap, a larger allocation may be warranted for a longer-term investment.

Admittedly day trading in such a hyper-volatile environment even by crypto standard is not for the faint hearted, which is why dollar cost averaging into the market at times like this can pay off.

Taking such an approach would be predicated on having come to a definite decision about a coins prospects, and in the case of DeFi Coin, which even after its recent price appreciation remains around 90% off its highs, the risk-reward potential is high.

DeFi coins try to stabilise, but sellers returning in top ranks

All the top 15 DeFi protocol are trading in the red, with DeFiChain and 1Inch the best performers, only down 2% compared to -15% for Curve, -12% for Pancakeswap and -7% for Uniswap and -10% for Compound.

DeFi Coin is off by 12%, with a revisit of support around $0.2819 printed yesterday possible before the next leg higher.

Looking at the state of play from a technical perspective, firm near-term support coming into view should provide comfort to prospective DeFi Coin buyers.

Taking a buying position now (at 0.3263) to target 0.39 would provide a close to 20% return with a risk-reward ratio of 1.48, as shown in the chart below:

On the other hand you could wait for a reversal of direction and buy at a slightly higher price and reduce the risk-reward ration to less than 1, which means the chances of making a profit out weigh the risk of a loss.

Investing $1,000 at 0.3412 would return 14.3% ($1,212) when the price hits 0.3903. But we would advise to hold for the greater returns to come, although taking some profits at 0.3903 may be prudent.

Still, all eyes will remain on bitcoin, and whether it can hold onto the $28-30k trading range. BTCUSD is currently holding firm as the chart below indicates, which is a good sign for those looking to open a position in defi coins such as DEFC.

However, bulls cannot to discount the possibility of another test of $25k occurring before the weekend is out, albeit a brief one.

As the ever-insightful Jonathan Levin points out over on Bloomberg, times of crisis in markets can sort the good from the bad, or as he puts it the Amazon’s of crypto from the pet.coms.

DeFi Coin and DeFi Swap provide an ecosystem that delivers a combination of solid farming returns (75% for a 360 day stake to 30% for a 30-day stake), tokenomics that incentivises long-term holding, low fees and a manual burn policy that protects holders.

As a relative late comer to DeFi the team has learnt from the past mistakes and successes of other projects and protocols.

As always, do your own research and don’t invest what you can’t afford to lose.

Cryptoassets are a highly volatile unregulated investment product. No UK or EU investor protection.

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