The total cryptocurrency market cap has soared about 200% this year, hitting $2.5 trillion at the time this was written. Much of that growth has come from Bitcoin ( BTC 0.16% ), which makes up about 45% of the market, according to Coinmarketcap.com. But over the long term, other digital assets such as Cardano ( ADA 2.75% ) and Aave ( AAVE 3.13% ) could help drive growth and adoption in this exciting sector. Let's explore why.
Launched in 2017, Cardano is a public blockchain platform that facilitates peer-to-peer transactions through its internal cryptocurrency called Ada. The platform allows users to program decentralized applications (dApps). And it has an edge over rival programable blockchains like Ethereum ( ETH 2.31% ) because of its more environmentally friendly proof-of-stake mining process called Ouroboros.
Unlike proof-of-work protocols, in which miners harness thousands of computers to solve complex computational problems to validate transactions (and mint new coins), Ouroboros allows miners to validate transactions based on the number of coins (the stake) they hold. This system consumes less energy, giving Cardano an economic advantage in an increasingly environmentally conscious world.
Cardano hosts several dApps, which are peer-to-peer software projects programmed on its blockchain, the network of computers where blocks of encrypted data reside. These include the decentralized cryptocurrency exchange Flanoswap and Theos, a marketplace for digital certificates of ownership (non-fungible tokens, or NFTs) of art, video and music. Because these dApps are programmed on Cardano, they will help support demand for Ada tokens, which will be used to validate transactions.
Ada prices have rocketed more than 1,100% since the start of the year, earning Cardano a market cap of roughly $69 billion, and making it the fourth biggest cryptocurrency. Cardano's environmentally friendly mining system and ecosystem of useful dApps could help sustain continued long-term expansion.
Cryptocurrencies often rely on the greater fool theory, which means people buy them to sell to someone else for a higher price without considering fundamentals. Assets such Aave push back against this narrative by building real-world use cases to encourage adoption.
Unlike Cardano, which is a public blockchain, Aave is an ERC-20 protocol programmed on the Ethereum blockchain. It aims to decentralize consumer finance by allowing people to borrow and lend more than 20 different cryptocurrencies without a central intermediary.
Users deposit digital assets into "liquidity pools" where they earn interest. The pools also serve as funds that borrowers can draw upon, with the loans overcollateralized (borrowers must put up more than 100% of the loan value in other tokens) to reduce risk on the platform. Lenders benefit from earning income from their cryptocurrency holdings, while borrowers can cash out their holdings without having to sell.
At a recent price of $301 per coin, Aave has soared about 500% during the past 12 months, according to cryptocurrency exchange Coinbase Global ( COIN -1.37% ). Its market cap is about $4 billion, making it a small fry compared to major cryptocurrencies like Bitcoin or Ethereum, with market values of $1.2 trillion and $450 billion, respectively.
Investing for the long haul
Cryptocurrency is a challenging investment because of all the speculation involved in digital-asset valuations. But investors focused on fundamentals can mitigate this uncertainty by betting on platforms that offer tangible value to users. Environmentally friendly blockchain Cardano and decentralized-finance platform Aave fit the bill, which could set them up for long-term success, even if the crypto hype cools.