How to trade in a bull market? Invest in the chain itself or the leading Defi project?

Author: Dacong Fred Source: X, @Dacongfred

The halving time is getting closer and closer. Recently, I discussed investment strategies with friends in Hong Kong. How to make the most money in bull market trading? After discussion and further research, I made some counterintuitive discoveries. Let's discuss and exchange with everyone.

Core question: Can we capture and amplify the benefits of public chain narratives by heavily investing in the token with the highest ROI on the public chain?

The core deduction idea is divided into three steps:

1. Public chain narrative

2. Amplifier selection logic on the public chain

3. Public chain token VS amplifier token income comparison

1. Chain narrative

The first step is to find the narrative of the chain you are optimistic about. In each cycle, there will be many chains with outstanding increases, such as the chains that performed very well in the token price increase in the last cycle, such as Fantom (more than 600 times), SOL (more than 500 times), BNB (more than 40 times), ETH (more than 20 times), Avalanche (more than 20 times), Near (20 times), BTC (8 times), etc.

During this round of bull market outbreak, there will be many public chains/Layer2 (regardless of new or old) that may break out again, such as Solana, Base, Blast, Sui, Aptos, Eth, etc.

Take me as an example. After doing some research in the second half of 2023, I was very optimistic about Solana. So when Sol price was 20, it was at a low point and no one was interested in it. I invested heavily in Sol and held it for a long time. It increased more than 10 times at the peak, and the current price is still 9 times. I shared with my friends when it was 20, and even those who got on the train at 40 now have four or five times. It can be seen that the power of research is still very obvious in the crypto market.

In addition to Sol, there are many other chains in this cycle that are also worth paying attention to. I will not discuss in detail which chain should be deployed in this bull market. The important thing is to choose a chain to buy in. If you are interested, I will communicate with you in the following article.

2. Selection of amplifiers on public chains

Assuming that we have selected several public chain narratives that we are optimistic about, let's take a look at which potential tokens are amplifiers of public chains, which can earn higher returns than the tokens of the chain itself after the chain takes off.

How to choose an amplifier has a key premise: choose an amplifier of the public chain β narrative, not α.

There are many projects on each chain that may be amplifiers:

1. Meme. Taking the solana ecosystem as an example, Bome, Wif, Slerf and other memes are charming. However, everyone knows the characteristics of memes. Most of the endless memes are as gorgeous as fireworks but ephemeral, and their lifespan in the bull market is often significantly shorter than other types of projects and chains themselves. It is not suitable to be an amplifier of the β narrative of the public chain, and it is more suitable to invest from the logic of α.

2. Games. For example, the token increases of Axie and Stepn in the last cycle were both very impressive. However, the characteristics of games are 1) the degree of binding with the chain is not high, and multiple chains may be considered; 2) the game itself is more inclined to capture α, and it is not as clear as Defi which game can become the first and second dragon.

3. DeFi. Defi is the most likely potential amplifier, and there are two core reasons: 1) Defi is deeply bound to the chain, usually officially supported or heavily cooperated projects; 2) Defi's first and second dragons are very clear at a glance, and you can find them more intuitively by looking at TVL and Volume.

In addition to the above types, there may also be some tracks where chains are making extra efforts, such as DePIN, AI, RWA and other fields, and there may also be some obvious first and second dragons like Defi, but overall the attributes are relatively more inclined to α logic. Therefore, we choose Defi as a potential public chain amplifier for further analysis.

3. Public chain token VS  Public chain Dragon One/Dragon Two Defi income comparison

Next, let's take a look at the income of the chains that performed well in the last cycle and the leading Defi projects on the chain.

Data specification: The calculation time is based on the last BTC halving (May 2020) as the starting point, and the performance from halving (May 2020) to the peak of the bull market (April and November 2021) is calculated; if the Defi project is still coin-issuing at the time of halving, the performance to the peak is calculated from the time of coin issuance.

We selected chains and Defi that increased by more than 20 times during the last bull market for comparison:

Fantom has increased by more than 600 times since the halving, SpookySwap on Fantom has increased by less than 3 times, and SpiritSwap has increased by 5 times.

SOL has increased by more than 500 times since the halving, Serum has increased by 8 times, Ray has increased by 5 times from the lowest to the highest (but the halving is the high point, and it is not necessarily the low point when buying, but it may be bought at the high point and be trapped), and Orca is about 6 times.

BNB has increased by more than 40 times since the halving, and Pancakeswap on BNB has increased by more than 30 times.

ETH has increased more than 20 times since the halving, ETH's DEX uniswap has increased 12 times, and Sushiswap has increased 8 times.

Avalanche has increased more than 20 times since the halving, and Joe on Avalanche has increased more than 130 times.

Near has increased about 20 times since the halving, and Ref Finance, a Defi aggregator on Near, has increased less than 2 times.

Through the data, we can find that, except for Joe on Avalanche, the top defi projects of most chains have not outperformed the chain itself.

From this perspective, if you want to make a profit in a β way, then the "amplifier of the chain's β narrative" < the chain's token, directly purchasing the token of the optimistic chain will have a higher ROI.