Fight the inflation of the crypto winter and the token protocol in 2022

There is an old saying, “cash is king”, but if it is in a bank account or, in the case of crypto – a wallet, it is reduced daily due to inflation. This is especially the case now that inflation in the US is breaking its 40-year record. While the average dollar cost (DCA) strategy allows an investor to minimize the effects of volatility by buying a volatile asset over time intervals, inflation still causes a decrease in the value of a target asset over time.

For example, Solana (SOL) has a preset protocol inflation rate of 8%, and if the return is not generated through farming or through the use of decentralized financing (DeFi), one’s portfolio is depreciated at a rate of 8% per year.

Despite the US Dollar Index (DXY) rising by 17.3% year-on-year, as of July 13, 2022, hopes of receiving significant returns in the bull market are still pushing investors to engage in volatile assets.

In the upcoming “Blockchain Adoption and Use Cases: Finding Solutions in Surprising Ways” report, Cointelegraph Research will dig deeper into various solutions that will help resist inflation in the bear market.

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Cryptocurrency is a period in which anxiety, panic and depression begin to burden investors. However, many crypto cycles have proven that real value capture can be achieved during a bear market. For many, the current feeling is that “buying and holding”, combined with DCA, can be one of the best investment strategies during a crypto winter.

In most cases, investors refrain from direct investment and raise capital to buy assets when the macro situation improves. However, timing the market is challenging and is only possible for active daily traders. In contrast, the average retail investor has a higher risk and is more vulnerable to losses due to rapid market changes.

Where are you going?

In the midst of various disasters in the crypto universe, placing assets in betting nodes on the chain, locking in liquidity pools or generating returns through centralized exchanges, all entails a great deal of risk. Given these uncertainties, the big question remains whether it is best to just buy and hold.

Anchor Protocol, Celsius and other return platforms have recently demonstrated that if the basis for return generation is poorly supported by the tokenomics model or the platform’s investment decisions, returns that are too good to be true can be replaced by a wave of liquidations. Generating returns on available digital assets via centralized or decentralized financial protocols with robust risk management, liquid rewards and returns that are not too aggressive is probably the least risky way to fight inflation.

Both DeFi and Centralized Finance (CeFi) protocols can offer varying levels of return for identical digital assets. With DeFi protocols, the risk of lock-in to generate marginal returns is another important factor, as it limits an investor’s ability to react quickly should the market change negatively. In addition, strategies can lead to additional risks. For example, Lido liquid staking with stETH derivative contracts is vulnerable to price deviations from the underlying asset.

Although CeFi such as Gemini and Coinbase, in contrast to several other such platforms, have shown prudent user fund management with transparency, return offers on digital assets are insignificant. Although it is advantageous to stay within the framework for risk management and not take aggressive risk with the user’s funds, the return is relatively low.