Any coin other than Bitcoin is considered an altcoin, and they range in size from large market-cap blockchains to small new projects. Altcoins are often considered an essential part of crypto portfolio diversification. By investing in good altcoins, you can reduce your portfolio’s overall risk. Investing across different classes of altcoin is a responsible investment strategy. These classes include platform tokens, stablecoins, DeFi tokens, even meme coins.
While Bitcoin has usually dominated the cryptocurrency news, altcoins now have their fair share of headlines. Whether it’s Dogecoin’s price rise or Ethereum’s updates, it’s good to learn more about what’s on offer when investing or crypto trading. There’s a massive amount of altcoins available, so let’s look at some of the top projects across different crypto asset classes.
What is an altcoin?
Why should I invest in altcoins?
Some blockchains allow users to create their own projects, tokens, and even interoperable blockchains. Ethereum is the best-known platform and one of the most popular, but others have followed its lead and provided an infrastructure for new innovative projects.
SOL acts as a utility token for users to pay transaction fees or gas when interacting with smart contracts. The network burns all a percentage of each transaction fee as a deflationary measure. The blockchain will mint 489 million SOL tokens in total. You can also become a network validator if you hold SOL and participate in its Proof of Stake consensus mechanism. Validators and stakers are rewarded with SOL tokens for work in adding new transactions to a block.
DOT’s governance model allows for users to make decisions on network fees, upgrades, and parachains. Each parachain is a customized blockchain for a project that attaches to the main blockchain known as the relay chain.
DOT is also used in Parachain Slot Auctions. Users stake DOT behind projects who want to win a parachain slot. If the project succeeds, the DOT is bonded until the parachain lease is over, and in return, stakers receive tokens from the project.
BNB is the native token of Binance Smart Chain and Binance Chain. The coin launched in 2017 on the Ethereum blockchain in an ICO to raise funds to develop Binance’s exchange services.
While meme coins traditionally haven’t provided much value for investors, they’re increasingly offering high returns. If you do add one to your portfolio, be aware that they’re especially high-risk investments.
Although Dogecoin is a satire of the speculative nature of crypto, it has over the years become an investment opportunity with significant gains. It has no use case other than to facilitate payments. Online communities on Reddit and other platforms used Dogecoin as a way to give tips. It’s seen an enormous increase in its popularity and online community due to its rise in value and meme-worthy Shiba Inu mascot. Elon Musk has also shown a lot of support for the project, spurring on its community and increasing its “meme” factor.
Dogecoin originally had a limit of 100 billion coins, but this hard cap has now been removed. This makes the coin inflationary as miners mine five billion new Dogecoins per year.
DAI is a crypto-collateralized stablecoin created in December 2017 that tracks the US dollar. A Decentralized Autonomous Organization (DAO) called Maker managed the running of the token. Each DAI token is overcollateralized with crypto to make up for its volatility and to ensure that DAI’s price remains relatively stable.
For example, if ETH is $3000, you need to provide 1 ETH for perhaps 2000 of DAI. This calculation is based on the assumption that you need 1.5x for collateral, but this changes according to the market.
If the price of your collateral falls below a certain level, you’ll incur a fee or be liquidated. Many users provide more collateral than needed to be safe. If the peg falls below $1 to say $0.99, users can retrieve their collateral for a lower price.
Based on our previous example, suppose we need to exchange 2000 DAI for $3000 of ETH. We can purchase the DAI for $1980 on the open market, saving us $20. As the price of DAI decreases, this discount becomes even greater. All DAI traded in is then destroyed, also reducing the supply. Both of these factors help bring DAI back up to $1. When DAI is above $1, the opposite situation occurs, making it cheaper to mint DAI, increasing its supply in the market.
DeFi projects are increasingly issuing their own tokens for governance, staking, and profit-sharing. Due to their multi-use, the coins are versatile and offer many ways to earn rather than just holding. If you decide to purchase DeFi coins, you can usually influence the project’s development using your voting power.
UNI provides holders with governance rights, allowing them to create and vote on proposals changing the platform. You need to own at least 1% (10 million UNI) of the total supply to make a proposal. However, anyone holding UNI can vote once their wallet is designated as having voting rights.
Your voting power is decided by how much UNI you hold. These proposals could include changes to the fee structure, new pools, or flipping the protocols fee switch. If enough users agree to the fee switch, 0.05% of all Uniswap’s swap fees can be used according to whatever the governance system decides.
CAKE also acts as a governance token that lets users vote on proposals and changes to PancakeSwap. Like most DeFi platforms, a user’s voting power is determined by the amount of CAKE they hold. You can also stake CAKE to earn more CAKE rewards and project tokens in Syrup Pools.
Investing in altcoins can be a good option if you want to diversify your crypto portfolio. If you’re new to cryptocurrencies, looking at some of the largest projects mentioned here is a good starting point. Large market-cap cryptocurrencies will typically be lower-risk than smaller, more recent projects. Overall, the best advice we can offer is to always do your own research on whatever token or coin you invest in.