- Derek Lim is the head of crypto insights at the third-largest crypto derivatives exchange Bybit.
- He started buying SOL at below $2 in 2020 and sold his position at about $240, making a huge profit.
- He shares his framework for identifying strong projects early and the tokens he’s betting on now.
In the fast-moving world of crypto, it is the early birds and risk-takers who tend to reap the biggest gains.
Such was the path to digital assets charted by Derek Lim, the head of crypto insights at Bybit, the third-largest crypto derivatives exchange by open interest and trade volume, according to a CoinGecko ranking.
As bitcoin was ascending to $20,000 in the fourth quarter of 2020, Lim, then a full-time teacher in Singapore, made the high-stakes career transition into crypto full-time.
Courtesy of Derek Lim
A beginner in the kaleidoscopic space, he tinkered with what he calls “social trading,” a glorified phrase that describes crypto trading based on social media chatters and word-of-mouth recommendations from friends.
“I didn’t really know what I was doing,” Lim recalled in an interview. “I didn’t really care about on-chain metrics or technical analysis,”
In a raging
bull market
, it seemed like anything and everything had nowhere to go but up. As Lim dived deeper into the wild west of crypto, he started paying attention to fundamentals and looking for frameworks that could help him identify promising projects early.
The blockchain trilemma
One of the concepts he clicked with early on is the blockchain trilemma. Coined by the ethereum cofounder Vitalik Buterin, the phrase refers to the three issues that often afflict blockchain layers — decentralization, security, and scalability.
While a perfect blockchain network would theoretically be decentralized, secure, and able to support an enormous amount of transactions, balancing the three has proved challenging, as evidenced by ethereum’s high gas fees and network congestion.
However, ethereum’s scalability problems have been a huge boon for rival layer-one protocols that seek to solve the trilemma. That’s how Lim came to purchase solana (SOL) at between $1.474 and $1.944 throughout the last three months of 2020. On behalf of a team of friends, he invested five figures in the SOL token, which was fairly obscure at the time, according to screenshots of his transactions viewed by Insider.
“Solana was the one that actually solves for the trilemma in a really strong way,” Lim said. “Personally, I don’t believe in diversifying too much in this space. I believe that if you are highly convicted in a play, you invest a copious amount for more significant results.”
Unlike bitcoin’s proof-of-work model or the proof-of-stake consensus mechanism used by other blockchains, solana’s proof-of-history mechanism allows for ultra-fast transactions without compromising decentralization and security, in Lim’s view.
While the jury is still out on whether solana has successfully solved the blockchain trilemma given its string of network crashes and outages, the SOL token has surged exponentially to as high as nearly $260 last year. Despite the recent bouts of sell-offs, the token was still trading at about $103 as of Tuesday morning in New York, up about 1,076% over the past year, according to CoinGecko data.
Lim, who saw global central banks’ hawkishness as a sign of near-term headwinds, started selling their SOL holdings in November and December last year at between $230.75 and $247.39, according to screenshots of his transactions viewed by Insider.
Altcoins he’s betting on right now
As macro headwinds continue to loom large, Lim expects more price corrections to befall major cryptocurrencies in the short term.
“The macro side of things is definitely more unstable, whether it’s the rate hikes or geopolitical tensions that are mounting around the world,” he said. “Even though the on-chain metrics have been bullish over the past few months, I think the macro sentiment overrules a lot of these bullish signs.”
As gloomy as the outlook can be, near-term signs of weakness can make for long-term buying opportunities. Given how much the crypto market has evolved since late 2020, Lim does not think the blockchain trilemma works as well anymore for identifying strong future projects, though it is still an important concept for evaluating smart contract platforms.
These days, he is paying close attention to trends that could emerge as bigger investment themes. One of the trends he has spotted is the revival of decentralized finance applications, which have been in a
bear market
since reaching their all-time highs. Lim said he is looking for DeFi applications with strong ecosystems and value accrual frameworks.
Another trend on his radar is metaverse-linked projects. Instead of crowding into the usual virtual worlds, he likes ambitious projects that give investors a stake in the future before the metaverse becomes an omnipresent thing. For example, social tokens and music tokens would fit into this category.
Based on these trends, Lim said he is betting on layer-one protocols including fantom (FTM), terra (LUNA), avalanche (AVAX), and cosmos (ATOM), which have shot up 1,103%, 890%, 130%, and 47% respectively in the past year, according to CoinGecko pricing.
Amid an ongoing layer-two boom, Lim also likes metis (METIS) as a short-term play because the network has yet to garner strong venture capital support. He added that he would try to exit his entire position by April or way before that. For now, Lim is generating yield via the METIS/USDT pair in a yield farming pool that he said generates a three-digit annual percentage yield.
The METIS token has plunged 50% in the past month, though up 27% in the last two weeks, per CoinGecko data, but the yield farming strategy serves as an effective hedge to his position, Lim said.
Another bet includes a little-known decentralized investment platform beethoven x (BEETS). The BEETS token, which has surged 67% in the last two weeks, was trading at $0.863199, as of Tuesday morning in New York, according to CoinGecko pricing.