We spoke with Phillip, professional DeFi analyst, who works for Hash Cib. Hash Cib is a global crypto investment firm which specializes in providing financial solutions in the crypto-asset markets.
- Firstly, we asked him to tell us about his background, how long he has been in crypto, and what he is currently working on.
Phillip graduated with a major in economics and finance at the University of London. He began working as an investment banking analyst shortly after graduating, where he worked on extremely sophisticated and distressing datasets for his clients. As he stated, he did not love working on it because of the monotonous aspects of traditional investment banking, as well as offering certain market research that did not correspond with reality at all, but he had to do this work to satisfy their clients. He knew crypto existed at the time, but he didn’t know what it was exactly, so he started researching it – like what is a smart contract and what “cool stuff” you can do with it, etc. – he really enjoyed it and it was a wild time – like in 2017, most projects were just terrible, but for him, it happened that he started working on some great projects, one of which was Aave. He was assisting them with marketing campaigns, community management, and other tasks. And, as he explains it, “he fell down the crypto rabbit hole” during that time. Because crypto was always on his mind while working in investment banking, he decided to quit the job and pursue a career in crypto — this was around 2019 when crypto was experiencing a downturn compared to all-time highs in 2017 and 2018. Most crypto companies were struggling at the time – there was nothing on the market – therefore, despite bearish crypto expectations, he decided to join a startup called Hash Cib. He now works in the Asset Management Division as a DeFi analyst, providing/constructing portfolios for their institutional investors/clients.
- We then asked him about his experience with DeFi products in general.
He responded that he has been working in the DeFi field since August 2020, which is around a good year. When asked if he transferred job experience and skills from traditional finance to the crypto sector, Phillip answered, “Sometimes it’s useful, sometimes it’s not. Traditional finance focuses on the monetary system. On the other hand, it is associated with protocols. What matters is that when you graduate for example from the Faculty of Economics, you get some level of abstract and critical thinking ability. And I encourage you to finish some finance or economics classes to get these ideas, because economics is highly abstract.”
- The following question was about what he thinks what are crypto DeFi trends that the market isn’t seeing right now.
“I would probably divide market trends into two rails. One of them is more for institutional products, such as most derivative platforms today, while the other is for DeFi native protocols. There is fierce competition between them for attention, such as who will stay the longest. Institutional types of protocols are attempting to obtain market feeds via derivatives – their market is massive, and they simply want to use some of the traditional derivate stuff-traditional markets in the crypto. DeFi native protocols, on the other hand, think more in crypto native terms because they consider DeFi as money legos. They take one product, kill another on top of it, and then utilize things like massive community support to promote and sell this product, and so on.”
- We then asked Phillip what will happen to DeFi in like 10 years. Is it going to upset the entire financial industry, or will it only affect a subset of the entire financial world?
“I am more of a multi-chain guy.” Phillip said. “I believe that in the next ten years, our financial system will be truly multi-chained. There will be numerous blockchain systems and blockchain layer one protocols that will compete with one another.”
- The conversation with Phillip then shifted to our main topic: analyzing various DeFi protocols. We asked Philip where you should begin your research when looking at DeFi projects.
“From my perspective, and I believe it is more of a market perspective, we distinguish layer-one systems from smart contracts or DeFi systems, which are layer-two based systems. Layer-based systems are typically based on a layer-one system, such as Cardano and Matic. So, when we talk about Cardano and Matic, we’re thinking about them from a layer-one perspective, not from a financial perspective, but from a blockchain perspective – how the blockchain should evolve.”
“I also recommend that you do not go directly to DeFi protocols via Google links, but rather through their Twitter account, where they usually provide the correct link for the protocol.” Otherwise, you may come across some phishing sites that will steal your money.”
- Analyzing PancakeSwap
“PancakeSwap is a typical automatic market maker, similar to Uniswap – they basically took its code base and ported it to the Binance smart chain, so the mechanism of work is nearly identical. PancakeSwap’s only new features are predictions, the lottery, and the NFT marketplace.”
“First and foremost, if you decide to investigate protocol, you must have a strategy. What you want to go with is more of a safe strategy – investment strategy, what to expect, and what your investment process entails. You want to expand to make any pool you want, so you want to pick the best performing pool.”
“For a long-term strategy – because the nominal is important here, you will most likely consider your long-term strategy to be denominated in dollars. You can consider increasing your Bitcoin holdings, but I believe that for long-term savings, you will most likely choose to increase your dollar savings, so your strategy should be more focused on pairs that are not volatile or simply stable coins, but their return may not be as high as the more risky ones.”
“Right now, there are various types of stable coins on the market. Some are algorithmic, some are not, and some, for example, are fiat-based. To begin with, when looking into tokens and pools, it should be a true liquid pair, as liquid pairs are not truly affected by market volatility. BUSD (Binance USD), for example, is a popular stable managed by Binance. The most conservative type of stuff is stables-to-stables, where you can just invest and forget – on PancakeSwap, you can choose the most stable-ish of stable coins – USDC/BUSD – it is the best PancakeSwap can offer, as is USDT/BUSD. Other strategies, for example, investing in WBNB/BUSD is riskier because when you invest in any pool on PancakeSwap, you buy a 50-50 proportion of both assets. So, if you want to invest in this type of strategy, I recommend two options: open a short position or buy an option.”
“Because it is a risky market, I would not recommend excluding any, except stablecoin pairs, because sometimes the market is growing, the next day the market is falling, and it is extremely risky.”
“What I also recommend, in my opinion, is the one-dollar cost strategy.” You invest in a stable coin pool, such as USDC/BUSD, and once or twice a month you sell this yield for CAKE tokens, so what you earn on top can be invested in Bitcoin, Ethereum, and so on.”
“When analyzing any protocol, whether it’s a new or well-established one, you should look into their development team and community so you know who they are, where they’re coming from, their credentials, past projects, and so on.” If you are unfamiliar with the codes that underpin protocols, you must seek out the developers (where they are, where they came from, who knows them…). You should research and ask yourself, “What are their main perspectives, and why are they doing that?”
- Analyzing Abracadabra Money
“First and foremost, the Abracadabra Money team is completely anonymous. What they do is offer a different perspective on the large established protocols. Instead of idle collateral, Abracadabra provides collateral in the form of various interest-bearing crypto assets such as yvYFI, yvUSDT, and so on. So they are a lending platform that uses interest-bearing tokens (ibTKN) as collateral to borrow a USD pegged stablecoin (Magic Internet Money –MIM), that can be used as any other traditional stablecoin.”
“They’re doing it through Yearn, so they’re using Yearn investment strategies, so we have different pools like Sushi and others for that.” The fact that the majority of these pools are invested in Yearn, which is one of the most secure protocols on the market, is a good sign. Abracadabra also allows you to borrow a stable coin that you can invest in any way you want. So, how do you analyze Abracadabra: what reason do they have; research what your collateral risk is when you invest in Yearn – Yearn has a very complex structure because it is an asset management platform with a very large base of smart contracts (approx. 100 smart contracts right now). When you invest for the long term, you borrow some coin, and as a result, Abracadabra prints some stable coin. You have liquidation when you borrow any stable coin – you must maintain a healthy collateral factor in order to borrow your stable coin.”
“Whenever you go investigate a protocol, the first step is to analyze it – I recommend going to GitBook and checking what they have there, updates, and so on.” If the protocol has no audit on GitBook, you can simply go to the GitHub page (before they deploy smart contracts, they upload it on site for everyone to see – open source). Even if you are not familiar with coding, I recommend that you visit GitHub because there is some interesting content there. Even if you don’t fully understand the code, you can see contributors—people who added codes to create the Abracadabra money protocol. And if you find a well-known developer in this code, that’s a good sign (for example, look at his/her Twitter account, how many followers they have, credentials, and so on). Also, I recommend checking it on Ether Scan to see if it is a system smart contract.”