Investment theme: Will the DeFi TVL/fees priced out of Ethereum Layer 1 DeFi migrate ‘across’ to alternative EVM compatible chains’ DeFi? PowerPool is proposing basket of sub-baskets containing an increasing number of alternative EVM L1 DeFi tokens with auto-harvesting of intrinsic yield and meta-governance-driven extrinsic yield from staking/lending, plus hedging options through borrowing/shorting.
Automated Multi-chain Basket of L1 DeFi Exposure
Blockchain software is open-source, meaning that anyone can copy and adapt or improve upon it by ‘forking’ the code of one project and starting a new project with different token ownership/tokenomics. This has happened many time in the past with Bitcoin, and it has also frequently happened to Ethereum. Competing chains which use Ethereum code unchanged are known as Ethereum Virtual Machine (EVM) compatible. Congestion on Ethereum, with surge pricing, has lead to fee levels prohibitive to smaller investors, opening the door to EVM compatible clones. The sizeable lead that Ethereum has in terms of network effects, developers and TVL suggest that the many competing incarnations will have to offer significant rewards to attract TVL away from Ethereum L1. They will also have to compete for TVL with Ethereum Layer 2 scaling options, often running the same protocols. There will also be competition for TVL from non-EVM compatible chains like Solana, Cosmos and Polkadot chains, etc. Some people are (still) talking about DeFi on Bitcoin Lightening scaling layers.
Who will win? Who will win over 1 year? Who will win over 5 years? No one knows. But VCs do not try to ‘pick winners’. They pick a theme like DeFi and often invest in direct competitors. You should do the same. But much of the investment case for DeFi relies not on pure speculation, but on the additional value of periodic rewards/yield. Harvesting this across a diversified portfolio with ever-expanding numbers of tokens each with volatile yield generation options requires automation.
Given that crypto investing is like early stage venture capital, with everything speeded up by open-source software, a diversified basket of EVM-compatible DeFi portfolios across multiple chains, WITH PowerAgent automation to auto-harvest the rewards/yield that are the main weapon in the cross-chain/cross layer competition for TVL, AND analytics-driven DAO management of re-balancing across staking options, individual tokens in chain-specific sub-baskets, and even the proportion of sub-baskets in higher-level pools-of-pools seems the best approach for responsible investing (as opposed to trading). PowerPool technology makes it possible not only to optimise and auto-harvest intrinsic yield on tokens in each basket, but also leverage aggressive meta-governance power to generate extrinsic yield opportunities from staking/lending each basket token, while also managing leverage and hedging options via borrowing and shorting entire baskets/pools, or even pools-of-pools. Delta-neutral hedging of a broadly-diversified pool-of-pools auto-harvesting rewards during a continuing ‘liquidity war’ should be a very attractive risk-adjusted investment.