After a prolonged period of sluggish Initial Coin Offering (ICO) progress, the emergence of DeFi and with it yield farming, reinvigorated the crypto market in the midst of a global pandemic and resulting economic turbulence. It seemed too good to be true, as DeFi platforms and decentralized exchanges (DEXs) began offering 100x returns or more to yield farmers. At one point, DeFi projects were spending more than $25 million monthly on rewards to keep up the massive inflow of new users into the market.
The important question, however, is this: How long can the DeFi sector sustain these lucrative incentives and rewards?
CEO of Binance, Changpeng Zhao (CZ), said in an August interview that while he believes some features of DeFi are indeed innovative and will last, the rewards are likely to go first in the near future. Finder, a content platform which focuses on finance, lifestyle and tech, recently published findings from a panel of well-known personalities in both the traditional equities and also crypto industries, where 44% of panellists stating that yield farming will either collapse any day now, or have a maximum lifespan of six months.
As reported earlier, DeFi growth in recent weeks have been largely negative and stagnant, with major DeFi tokens seeing losses of up to 30% week on week. The longevity of the DeFi hype may be difficult to predict as the growth of DeFi has ballooned against expectations, but the worry of the bubble bursting is very real.
“As more players enter the space, inefficiencies will be arbitraged away and yields will consolidate. These 100% per annum returns are based on a short time window and can not be expected to hold across longer time frames. That being said, I expect DeFi yields to stay compelling, and am eager to watch the space develop further,” an associate from Wave Financial, Andrew Ballinger, said.
The same report also broached the topic of Ethereum as DeFi’s dominant blockchain network, and the panellists surveyed in the report agree that Ethereum has a “first-mover’s” advantage. This gives it an edge over its competitors, despite the network congestion, spike in gas fees and the upcoming ETH2 launch.
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