The crypto economy has exploded in recent years, creating significant wealth in the process. In fact, CoinMarketCap.com now lists over 9,200 different cryptocurrencies, which are collectively worth $1.75 trillion. But with so many options, it can be difficult to identify worthwhile investments, especially with meme tokens dominating the headlines.
On that note, Shiba Inu (SHIB 4.36%) rose to prominence last year, generating returns of roughly 42,000,000% in 2021. And now that the meme token is down 75% from its high, many investors are hoping for an encore performance in 2022. Some are even calling for the price to hit $1 in the future. Unfortunately, that's literally impossible. (Its recent price was about $0.000021.)
More importantly, Shiba Inu's sharp sell-off doesn't imply an equally impressive rebound. All that matters now is what type of returns the token can generate in the future. To that end, several cryptocurrencies look like much better investments. Here's one example.
Image source: Getty Images.
The case for Terra
Terra (LUNA 1.35%) is programmable blockchain powered by two different tokens. First, TerraUSD is a stablecoin that tracks the U.S. dollar. The Terra stablecoin can also be tied to other currencies. Second is LUNA, a cryptocurrency that absorbs volatility, keeping each stablecoin at its target price. For instance, if rising demand pushes TerraUSD above $1, the network will incentivize token holders to convert LUNA to TerraUSD, thereby increasing supply and reducing its price. The system works the same in reverse.
Also noteworthy, Terra is built on the Cosmos framework, which itself is powered by the Tendermint protocol, a high-throughput proof-of-stake consensus mechanism. To that end, Terra can scale to 10,000 transactions per second (TPS) while finalizing transactions in two seconds. By comparison, Ethereum handles up to 30 TPS and requires at least one minute to finalize transactions. That poor throughput has caused fees on the network to rise sharply in recent years.
So why invest in LUNA? Terra's throughput has made it popular with decentralized finance (DeFi) investors. In fact, Terra is the second-largest DeFi ecosystem (behind Ethereum), with $15.9 billion invested on the blockchain. Of course, Terra powers a number of interesting products, but let's take a look at two that could be particularly disruptive.
First, Anchor is a DeFi protocol designed to replace traditional savings solutions. Investors lend TerraUSD to the platform in exchange for interest, and the payout now sits at 19.5% APY. Second, PaywithTerra allows e-commerce merchants to accept Terra stablecoins. And because it's built on Terra's highly scalable blockchain -- meaning it's fast and no traditional financial institutions are necessary -- transactions are settled more quickly and they incur fewer fees. In fact, merchants pay a flat $0.05 per transaction. For context, PayPal charges 3.49% plus a fixed fee of $0.49 for domestic transactions settled in U.S. dollars -- that figure is even higher for cross-border payments.
In short, DeFi products like Anchor and PaywithTerra create demand for Terra stablecoins, which translates into demand for LUNA, because the network incentivizes token holders to convert LUNA to Terra to maintain stablecoin prices. And that demand should drive LUNA's price higher. As the developer team puts it: The more Terra is used, the more LUNA is worth. That's why this cryptocurrency looks like a much better investment than Shiba Inu.
The case against Shiba Inu
Shiba Inu in an ERC-20 token, meaning it's powered by a smart contract on the Ethereum blockchain. Put another way, Shiba Inu does not have its own blockchain, and therefore cannot support its own ecosystem of smart contracts and decentralized applications (dApps). That limits its long-term utility and very few businesses or merchants accept it as a form of payment.
To be fair, Shiba Inu does have its own decentralized exchange (ShibaSwap), which allows investors to earn passive income by staking (burying) SHIB tokens and providing liquidity (digging). In fact, you can get 30.5% APY if you stake SHIB right now. Unfortunately, once you decide to stop providing liquidity or staking, the platform keeps 66% of your rewards locked for six months, during which time the price of the cryptocurrency may crater.
Of course, there are other projects in the works as well. ShibaSwap will feature a non-fungible token (NFT) marketplace, where consumers can buy and sell unique Shiboshis (Shiba Inu-branded NFTs). In turn, those Shiboshis have special traits, such as laser eyes, that will be relevant to the planned Shiboshi game. However, in terms of functionality, an NFT-based blockchain game is hardly earth-shattering, and the Shiboshis NFT collection doesn't even crack the top 100 on OpenSea, which is by far the world's biggest NFT marketplace.
Shiba Inu's future is uncertain at best. The project cannot support its own decentralized ecosystem, and the token itself doesn't offer any extraordinary utility. That's why I think there are better ways to invest in the crypto economy.
