For years, cryptocurrency advocates have touted the world-changing ability of digital currency and blockchain technology. Yet, with each market cycle, new projects come and go, and the promised usefulness of these “real-world use case” projects fails to meet.
While a majority of tokens promise to solve real-world problems, only a few succeed, and the rest are mere speculative investments.
Here’s a look at three things cryptocurrency investors can actually “do” with their coins.
Perhaps the simplest use case available to cryptocurrency holders is also one of the oldest monetary applications in finance: lending.
Since the decentralized finance (DeFi) sector took off in 2020, the opportunities for crypto holders to lend their tokens in exchange for rewards have multiplied.
Blue-chip DeFi protocols like Aave, Maker, and Compound offer a reasonable return on stablecoins, and lesser-known protocols often offer higher rewards in an effort to attract liquidity.
Recently, the field of crypto lending has expanded into areas typically dominated by traditional finance. This is especially true for real estate, where a number of experimental cryptocurrency-based mortgage and ad platforms are making progress.
Platforms like Vesta Equity and the new USDC.homes offer crypto holders the option to collateralize their assets to secure a mortgage or lend them to potential buyers in exchange for a long-term return.
Another way to use the hodl bag is to farm stablecoins. The cryptocurrency market is well known for its high volatility and high risk trading, but earning a return on stablecoins is a safer way to grow a portfolio without the downside risk of investing in Bitcoin (BTC) and altcoins.
In both bull and bear markets, liquidity is necessary for DeFi protocols to work properly, and the integration of stablecoins on centralized and decentralized exchanges has helped the market mature and remain sufficiently liquid.
Platforms like Curve Finance, Beefy Finance, and Trader Joe offer a return on stable liquidity pools, and rates can be as high as 20% APY.
Related: Bipartisan bill to give CFTC authority over exchanges and stablecoins
Lossless Token Offerings
Another way to “use” cryptocurrency is to participate in lossless token offerings launched in the ecosystem.
An example of a lossless token offering is the parachain auctions that occur on the Polkadot and Kusama networks. In this type of protocol launch, investors interested in backing a project can lock DOT or KSM for a specified period of time as a form of security for the project.
Contributors receive the newly launched protocol’s native token in exchange for locking in their investment in the project’s smart contract. After the designated lock-up period ends, the full token balance is returned to the contributor, meaning they retain their original holdings while adding new assets to their wallet.
Lockdrops are another example of this type of lossless token offering. One of them was recently used in the launches of Astroport and Mars Protocol.
Lockdrops have also been called airdrops because they don’t technically help projects raise funds, but rather require a certain level of commitment for future use from token recipients. While airdrops merely distribute tokens to users who sign up, airdrops require interested parties to commit to locking up cash that can be used by the project when it first launches.
The launch of Astroport involved a new liquidity seed phase where contributors could provide liquidity pool pairs in exchange for a higher reward level. Upon locking, a unique locking reward is distributed to participants to hold, trade, or use to provide liquidity.
Liquidity providers also receive trading fees and other incentives based on the pool of liquidity they are in to improve the opportunity cost of providing that liquidity.
Once the agreed lock-up period is over, users are free to withdraw the liquidity.
Lossless token offerings give long-term crypto holders a chance to earn tokens for newly launched protocols in exchange for a return and choice of which token they would like to accumulate as a reward.
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