Cryptocurrency projects to avoid in 2022

Crypto services and projects to avoid

After the crash of Terra, Celsius, and more recently 3AC and Voyager, a pattern begins to emerge. It turns out that the high yields of crypto deposits and algorithmic stablecoins are not really sustainable in a bear market (to anyone’s surprise), and as a result, crypto companies whose value proposition meets the above criteria find themselves in a desperate situation, not a group, but echoing theirs. hit “Money for Nothing”. Here is a list of crypto services you should probably avoid:

USDD Tron

The only thing that keeps USDD from causing as much excitement as LUNA is the fact that USDD has a market capitalization of only $700 million compared to UST’s previous market capitalization of $18 billion.

Like LUNA, USDD Tron maintains its peg with a management token, allowing users to either mint or burn Tron if the USDD price goes below or above $1. USDD Tron recently lost its peg and traded at $0.97, but was able to recover after that. Tron is looking to keep its stable coin over-collateralized to ensure it is pegged. USDD is currently over-collateralized by a 3 to 1 ratio, totaling $2.2 billion in TRX, BTC, USDC and USDD. However, as USDD usage grows, maintaining this ratio will become a financial challenge, exposing the Tron ecosystem to additional risk.

Nexo

Nexo is a cryptocurrency lender that provides financial services similar to Voyager and Celsius. Nexo allows users to deposit cryptocurrency and choose how they would like to borrow it. As of this writing, their website promises up to 16% return on daily crypto deposits. They also promise to pay up to 12% on most Stablecoins. Remember, if you don’t know where the returns are coming from, you probably are.

In addition to high deposit yields in annual interest rates, Nexo also offers crypto loans at 0% APR for up to $2 million. The best part is that user deposits are their insurance money: “custodial asset insurance for $775 million.” This effectively makes user deposits on custodial wallets Nexo’s collateral if something goes wrong. Unfortunately, this is true of most cryptocurrency companies using a similar business model.

Lido Finance

Lido Finance promises liquidity for delivered assets. Their most popular service to date has been Staked Ethereum rewards. Ethereum has not yet moved to Proof-of-Stake, which will allow users to receive staked rewards. On top of that, you would need at least 32 ETH to run a full validator node on Ethereum, so lido created a derivative token – stETH – that allows people to get rewards regardless of the amount of ETH (or any other coin) they contribute.

Users will be able to buy stETH and bet in the Lido app to be rewarded for stacking in stETH. The problem is that stETH has begun to move away from the implied 1:1 peg to Ethereum. It has reached a low of 0.92 ETH and is currently trading at 0.96 ETH. This has already resulted in more than $20 million in losses for Celsius, another cryptocurrency lender. If stETH continues to lose value against ETH, it’s only a matter of time before it could collapse. Betting is no longer profitable because of the price deviation.

Synthethix

Synthethix is an Ethereum-based protocol for issuing synthetic assets that range from cryptocurrencies, indexes, inversions and real assets such as gold. Synthethix uses decentralized oracles, smart contracts that act as a communication bridge between the blockchain and the outside world, which work as price discovery protocols, to track the prices of represented assets, allowing you to store and exchange synthetic versions of real assets.

Oracles are still quite experimental. Also, according to Synthethix, each synthesizer is backed at a 6:1 ratio according to the management agreement. As long as they can maintain a higher collateral ratio and ensure that decentralized oracles have fail-safe systems, synthetic assets are a fascinating financial tool. As with USDD Tron, the promise of overcollateralization will become exponentially more difficult to fulfill as Synthethix scales up, and lowering the overcollateralization ratio could undermine confidence.

Vauld

They are a cryptocurrency lender similar to Celsius, offering various financial services, but their core value proposition is again high-yield farming with yields of up to 12% on Stablecoins and other cryptocurrencies. The situation with Vauld is already pretty bleak, as they officially stopped withdrawing funds on July 4 and are currently undergoing due diligence by NEXO, which has offered to buy them out. If NEXO’s value proposition hasn’t sounded questionable at best yet, now that they’re looking to acquire a provably unsustainable business model, it definitely is.

Hodlnaut

Another valuable offer with a high yield if you deposit your cryptocurrencies with us. Hodlnaut’s promised yield is around 7%, but that doesn’t make it sustainable or safe. Deposits on Hodlnaut are not FDIC or SIPC protected, and because it is the highest yielding platform, your deposits are their collateral when lending to corporate lenders, earning the difference between the interest it pays users and what it charges for lending to its institutional borrowers.

As with Celsius and Voyager, this business model has proven to be flimsy at best.

TL;DR – Try to avoid all high-yield rewards platforms like Nexo, Vauld, Hodlnaut, etc. If they promise high returns on your deposits, your funds are almost always their collateral, and you are guaranteed to get hit if something goes wrong. wrong. Also avoid algorithmic stabelcoins, synthetic assets, and other financial instruments whose only pledge of stability is over-collateralization. They are good for transactions, but don’t try to outplay the market by cashing in and maintaining the stability of the algorithm.

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