Is investing in classic stocks always safer than defi? Not exactly | Opinion

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As a seasoned researcher with a front-row seat to the ever-evolving financial landscape over the past few decades, I’ve witnessed my fair share of market fluctuations – from the Black Monday crash of 1987 to the Dotcom bubble burst in 2000 and the Great Recession of 2008. Each event served as a stark reminder that no investment is completely immune to volatility, regardless of its perceived stability.

In 2011, a catastrophic earthquake of magnitude 9.1 occurred under the ocean near Japan, triggering a devastating tsunami. Over the next few days, Japan’s Nikkei stock market experienced a decline of 6.2%, mirroring the market’s response to an extraordinary calamity.

About a dozen years after their emergence, cryptocurrencies have gained significant attention yet are met with criticism due to their frequent, drastic price swings. These swift fluctuations can seem even more erratic than those seen in conventional stocks. This unpredictability might attract investors who are willing to take on risk for potentially large returns, but it serves as a warning sign for those who prioritize minimizing losses and follow a more cautious approach to trading.

In summary, the current state of the Nikkei indicates a changing storyline. With escalating economic doubts and market turbulence, stock prices show a significant volatility, often reaching levels similar to those seen in the crypto market.

Starting from early August, the Japanese stock market suffered its largest single-day decline since 1987, while the Dow Jones dropped over a thousand points in the U.S. These substantial decreases underscore the increasing volatility in mainstream markets, mirroring broader economic concerns and disruptions.

Currently, investors find themselves pondering: Is the risk of volatility tied to DeFi (Decentralized Finance) really more significant compared to the risks in conventional investment methods?

Traditionally, investing in real estate or stocks and bonds has been seen as a solid foundation for financial security, thanks to their association with tangible assets and the profits of the businesses they represent. They are generally considered less risky than cryptocurrencies due to this backing. However, recent market trends worldwide seem to cast doubt on their stability.

For the 2024 U.S. presidential election, there’s a sense of added uncertainty on the horizon. Economic events, particularly political ones, can significantly sway financial markets, affecting investor confidence and causing market turbulence. The recent market instability is due in part to the increased volatility of stocks, which is influenced by factors such as trade disputes, alterations in interest rates, and worries about inflation. These elements contribute to the market’s erratic behavior, leading to quick and frequently unpredictable changes.

As a crypto investor navigating through the turbulence of traditional markets, I find myself questioning the risks involved in DeFi investments. With the growing buzz around the latest innovations in this sector, it’s becoming increasingly challenging to determine if these risks are justified by potential returns.

Restaking is an innovative approach that boosts capital effectiveness by enabling assets such as Ethereum (ETH) to be used more productively across multiple networks. First introduced by EigenLayer, a protocol developed on Ethereum, this method enables users to use their staked ETH not only within the primary blockchain but also “re-stake” it elsewhere, thereby unlocking extra functionality and earning opportunities while preserving its security and worth.

While certain analysts have flagged potential issues related to stability and technical hazards in the context of restaking, it’s crucial to remain receptive towards these advancements. Notably, a venture capital firm specializing in web3, DFG, has recently released a report emphasizing the immense promise of restaking and liquid restaking, a segment that has expanded rapidly hand-in-hand with it. The report underscores that, despite the reservations, the sector’s inventions are redefining financial structures and presenting fresh possibilities for staking to make substantial impacts in the burgeoning DeFi landscape.

As an analyst, I advocate adopting these advancements with a thoughtful approach, always bearing in mind the underlying risks. This balanced stance could pave the way for forward-thinking investors seeking novel opportunities within a rapidly transforming financial sector. The innovative breakthroughs originating from the DeFi domain hold immense potential to unlock diverse investment avenues and entice a fresh influx of investors, captivated by the allure of an ever-evolving and adaptive investment ecosystem.

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2024-08-10 14:34