How to Create a Defensive Strategy
With the current crypto market in turmoil, we thought it might be essential to discuss why and how to create defensive recipes in our play-to-earn game, CryptoChefs.
A quick reminder of how our game works: Players need to create recipes, which track the real-life performance of a basket of tokens. The recipe's performance needs to be above 0% to qualify for rewards. This means that, especially in a bear market, it's crucial to create recipes with a positive return in order to keep earning rewards. Here are three tips on creating defensive recipes:
When it seems that everything is down, one class of tokens remains constant: stablecoins. Since most of them are supposed to be pegged to one U.S. Dollar, their net performance should always be 0. This means you can use stablecoins to reduce the volatility of your recipes, but keep in mind that it won't turn a losing recipe into a winning one, since they remain stable. Even in times of extreme market volatility, where stablecoins like USDC have shown to have a positive performance, it is often so minuscule that it doesn't matter.
Add commodity tokens
Although most of the cryptocurrencies you can choose in our kitchen are strongly correlated to Bitcoin and Ethereum, not all of them are. Especially tokens representing off-chain, real-world assets can be an excellent hedge for market downturns. One of the tokens you can add is PAXG, which is backed by one troy ounce of gold. This means the performance is tied to the price of a commodity and not the overall crypto markets. As you can see in the image below, many recipes combine it with stablecoins to have their performance completely detached from the crypto markets.
Look for Innovation
Even during the most brutal weeks in crypto, one truth has remained constant: innovative and popular projects can appreciate no matter the market conditions. The negative performance of the overall crypto markets can (and has been) overcome by sheer demand for a token. Two recent examples come to mind: TRX and XMR.
Let's talk about Tron (TRX) first. When most cryptos were down in early May, Tron skyrocketed after announcing their newest algorithmic stablecoin USDD. This was before the UST/LUNA meltdown and investors were very bullish on the blockchain after that announcement. With an uptick in demand, TRX managed to be one of the few coins that had positive returns in a sea of red.
Looking at Monero (XMR), we can see that fundamental technology can be just as important as new announcements. Following the UST/LUNA collapse, a wave of politicians announced they would have a closer look at crypto regulations. Investors then rushed to Monero due to its focus on privacy, leading it to outperform the markets significantly.
Putting it together
Now that you know at least three ways of creating recipes for a bear market, it's time to put it into practice! Visit the Buffet first to see how other Chefs keep earning AROMA with their defensive recipes. Remember that you can't copy recipes since they have to be unique. They may inspire you though. Keep in mind to have a balanced portfolio of aggressive and defensive recipes, since defensive ones tend to underperform during market rallies.
So, what are you waiting for? It's time to Cook, Stake and Earn!