GM! Welcome to Milk Road PRO – your weekly crypto dose that’s hotter than a DeFi summer. 🥵
Today, we're diving into the world of Decentralized Finance (DeFi), a sector we predict will skyrocket to $700 billion by the end of 2025.
That’s an astounding 8x increase from where it stands now.
But here's the kicker: not all DeFi categories will rise equally.
So let’s discover which categories are primed to dominate and deliver the biggest gains.
For example, the 'Liquid Re/Staking' market share is expected to grow more than 4x.
Consequently, the market cap for this category is anticipated to surge from the current $3.78 billion to $131 billion within just 18 months, marking an impressive 34x increase.
Now, you might be thinking… “That's a pretty astonishing growth projection for an industry that has been underperforming.”
Well, we believe DeFi's underperformance and waning investor interest stem from the DeFi summer 2020 bubble and current low prices.
However, the sector has made tremendous progress and now features many projects generating sustainable revenues.
If we take today's DeFi market cap and divide it by its current annualized revenues, we get a ratio of 26.
This means it would take 26 years for the revenue to equal the market cap. This is comparable to the technology index Nasdaq (NQ), which has a ratio of 32.
We use these ratios to determine if the sector or market is overvalued, fairly valued, or undervalued.
Moreover, we expect DeFi sector revenue to grow from the current revenue of $1 billion per year to more than $5 billion per year by the end of 2025.
❗So we're looking at a sector where revenues are expected to grow more than fivefold and its valuation remains below traditional benchmarks like the Nasdaq.
Isn’t that an outstanding investment opportunity? 👀
In today's report, we aim to understand how the DeFi market is poised to evolve.
We'll analyze the current valuations of each category, examine their business models, and identify which categories are likely to perform well.
This is what you can expect from today's report:
- What is DeFi and why is it going to perform well? 🚀
- Analysis of each DeFi category and our projections 📊
- How to pick best performing DeFi projects 🎯
- Portfolio Considerations 💼
P.S. This report builds on our previous report: Is your portfolio well-positioned for a $10 trillion market cap?
We recommend reading that report first before diving into this one.
Let's get into it. ⤵️
INTRODUCTION TO DEFI 💸
DeFi is one of the very first sectors to be built on the blockchain and thus, it’s one of the most robust.
It’s reached a stage where it’s ready for institutions to move their capital onchain and even Larry Fink, CEO of BlackRock says we are going to tokenize everything!
DeFi aims to bring the entire financial world onchain by offering a faster, cheaper, more transparent, and more secure way to move money and use financial products.
Here’s a quick look at the current size of global financial markets which is undoubtedly moving onchain over the coming decades.
Just a couple hundred trillion dollars worth of assets… no biggie. 🤷
In 2020, DeFi experienced a significant boom during "DeFi Summer" when activity surged due to the emergence of liquidity mining and yield farming programs.
Here is the chart of the DeFi market cap.
Back in 2020 and 2021, users frequently hopped from one DeFi project to another, chasing higher incentives.
This frenzy created significant sell pressure, coupled with token unlocks for investors and team members, which ultimately led to price drops of over 80% from their all-time highs. 😪
Fast forward to today, there are DeFi projects that:
- No longer rely on incentives
- Have the majority of their tokens in circulation
- Boast a decent user base
- Generate significant revenue
...and yet, they are the cheapest they have ever been. 💸
Today, the top 4 revenue generating DeFi applications are Lido, MakerDAO, Uniswap and Aave, having just a 24x price to revenue ratio.
Think of these as real businesses being built with substantial revenues and liquid tokens that enable people to invest in them.
This is a unique opportunity to invest in the next wave of high-growth startups, akin to buying Amazon shares back in 2002, after the dot com bubble crashed.
We believe now is the perfect time for this sector to outperform.
That's our mindset, and that's why we're incredibly bullish on DeFi. Let's walk you through each category.
Uh, Oh… 😧 The rest of this report is exclusive to Milk Road PRO members!
WHAT’S LEFT INSIDE? 👀
- Analysis of each DeFi category and our projections
- How to pick the best performing DeFi projects
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