6 Reasons Crypto projects don’t survive the bear market

Cryptocurrency markets have experienced a roller coaster of highs and lows over the past few years, and the recent bear market has been no exception. Many Crypto projects have failed to survive the bear market, and the reasons why can be complex.

In this post, we’ll look at 6 common reasons that Crypto projects don’t make it through a bear market, and what developers can do to avoid them.

1) Lack of liquidity

When it comes to surviving a bear market, many Crypto projects simply lack the liquidity needed to stay afloat. Without sufficient liquidity, projects can quickly find themselves in a precarious financial situation, unable to pay for expenses or expand in any meaningful way.

This lack of liquidity is one of the primary reasons that so many Crypto projects fail when the market takes a downturn. In order to ensure that projects have a fighting chance in a bear market, it is essential that they have adequate liquidity in place.

This can be done through a variety of methods, such as issuing Defi Bonds through Mizu decentralized platfom to raise liquidity or strategic assets, but whatever the approach, liquidity is essential for any project that hopes to survive a bear market.

2) Lack of Diversification

The lack of diversification is often a major factor in the failure of Crypto projects. Many projects are overly reliant on their native token, and their success or failure is tied to its value.

This means that if the price of the token drops, the project is likely to fail. Additionally, the token is often the only source of funding for the project, leaving it vulnerable if the token’s value plummets.

One solution to fix this problem is to diversify treasury holdings across different types of assets such as stablecoins, LP, and native tokens (ETH, AVAX, BNB etc). The easyest way to do this is to use Defi bonds to diversify the project treasury providing more stability and reduce exposure to market fluctuations.

3) Relying On Mercenary Liquidity Providers

Relying on mercenary liquidity providers can be a dangerous proposition, especially if the incentives are too high.

This is why it is important to be mindful of how much incentives are given to liquidity providers and to ensure that the incentives are not so high that it can lead to a bank run.

Indeed, mercenary Liquidity Providers often sell their rewards in order to recoup their investments. Unfortunately, current solutions such as time-locked staking do not adequately address this issue and simply delay the inevitable attrition of liquidity.

Implementing Protocol Owned Liquidity with Defi Bonds is a better way of managing liquidity than relying on mercenaries LPs. This model can ensure that the incentives are not so high that it causes this issue.

4) Insolvency

Crypto projects often lack the necessary funds to cover operational costs, leaving them vulnerable to insolvency in a bear market. Despite the potential of a project, lack of funds can be a major roadblock to success.

Without the necessary funds to cover operational costs, cryptocurrency projects can quickly become insolvent when the market turns bearish. Unfortunately, this means that projects can be put on hold, or even shut down entirely, due to a lack of funds.

This is often caused by the same issues we saw in the previous points, as well as in the ones we will see below. It can be resolved by raising the capital needed to operate by issuing Defi Bonds.

5) Bad Tokenomics / Too Much Inflation

Bad tokenomics, or the mismanagement of a cryptocurrency’s token supply and inflation, is a serious problem that can lead to a decrease in the value of the currency and lead to its collapse.

Too much inflation can lead to a decrease in demand for the currency as people are less likely to purchase something that is losing value. This can lead to a decrease in market capitalization and cause the currency to become worthless.

In order to combat high inflation caused by the need to compete in liquidity mining markets, developers should explore alternative solutions to acquire permanent liquidity and reduce inflation.

Deflationary mechanisms can be employed to reduce the current inflation rate of tokens. These mechanisms can include burning tokens, creating a limited supply of tokens, and increasing the difficulty of mining tokens.

Issuing DeFi bonds is another option, as it facilitates the transition from renting to owning liquidity and ensures that it is always available in the liquidity pool to secure swaps.

6) No Way to Raise Assets After ICO

Following an initial coin offering (ICO), many blockchain projects are left without any tools to raise additional assets. To increase their chances of success, blockchain projects need to find ways to raise additional funds to pay for development, marketing, and operations.

However, the use of Defi Bonds can provide a potential solution. These bonds are backed by the project’s underlying asset, and they provide a valuable source of assets and liquidity to the project.

Conclusions

As we already seen, Defi bonds are a great answer to the difficulties presented by existing Defi models. They offer liquidity, diversification, and a reliable method for obtaining resources post-ICO.

Rather than relying on liquidity suppliers who just seek profit, defi bonds allow you to maintain a stable tokenomics and secure the capital necessary for your Crypto project while simultaneously reducing the possibility of bankruptcy.

About Mizu’s Bond Platfoms

Mizu’s permissionless platform is designed to help companies and organizations create and launch their own Defi bonds quickly and easily. The platform allows users to create bonds in a few simple steps, without the need for any coding or technical knowledge.

Learn more

Mizu Website: https://mizu.fi
Mizu Dapp: https://app.mizu.fi
Docs: https://docs.mizu.fi

Disclaimer: The content provided on this post is not to be considered investment advice, financial advice, trading advice, or any other form of advice. Mizu does not recommend that any cryptocurrency be bought, sold, or held by you. You should always do your own due diligence and consult with a financial advisor before making any investment decisions.

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