This just seems unsustainable. all these platforms try to lure in TVL with high yields but often times the rewards are paid in the platform’s hyperinflationary token. 200% APY gets eaten into literally nothing as the value of the reward plummets over time.
sure, you’ll tell me to harvest and sell often, but that just accelerates the downfall.
and what happens when all these coins eventually burn out emissions? they fork some new coin and repeat? I dont see how this is safer and more sustainable than just parking money in treasuries or stock market funds.
after a year of messing around on defi, it seems the best thing I’ve done so far is just park money on yieldyak single staking stables for 5-10%. yes, its helluva lot better than fiat bank rates, but its not exactly revolutionary.
chasing 5% in what we all agree is not exactly a totally safe environment isnt going to lead to a hurry up in mass adoption IMO.
26 thoughts on “I’m starting to lose faith that defi is the future of finance”
Don’t think it’s the future, it’s the best alternative to traditional finance. For us privileged people that have access to all financial tools (stocks, bonds, banks), DeFi is a great way to diversify and search for riskier but higher reward investments/gambles.
For people that don’t have access to traditional finance because of financial discrimination, DEFI is one of few possible ways to invest on a global scale.
You raise great points. I think it all depends on what hope you put into DeFi though.
If you think of it (and especially stablecoins and synthetic assets) as a way to expose yourself to some currencies (e.g. USD) or assets (e.g. Google, Apple, etc.) while it is hard to access these in your home country (think Lebanon) or while your home currency is falling (think Turkey, Venezuela), DeFi is extremely great.
If you think of it as an edge against inflation, having 5-10% yield on somewhat safe protocols (Curve, Liquity, Uniswap stable pools…), and even insured at a 1.3% rate (with Nexus Mutual), it is already better than what traditional finance has to offer.
If you think of it as a get rich quick scheme, I agree, DeFi is not here for that and is unsustainable. The degen yields in UST, MIM and others are not sustainable. Even those yields at 5-10% APY are questionable in the long run. Still, there is value in all the financial possibilities DeFi opens, especially if you look out of the US as well.
A missing key for me: undercollateralized loans.
A major part of DeFi’s value is the ability to borrow against your assets at a low or no interest rate (e.g. AAVE). Since it’s collatorized borrowing it’s much safer, faster, and requires no credit checks. Meanwhile your assets can increase in value and you can use you gains to pay off your loan, or leave it in a higher interest protocol or do a number of other things with it. This keeps you from having to sell assets to pay a bill, thereby avoiding capital gains.
I think the key issue is that DeFi is being swamped with get rich quick scams or ponzi games. If you lower your expectations and stop looking at DeFi as a lottery ticket, you’ll see it is an extremely interesting and growing area of finance.
I would stop looking for the highest APY and highly incentivised schemes. These are often ponzi games taking money from new investors to pay out old investors.
There are huge opportunities in DeFi, just need to be a little realistic about it.
My experience may be tainted as I got into about 15 Ohm forks all of which are 90% down. Pure ponzi games.
Defi is less than two years old and this guy is losing faith because he can’t get 200% APY. Being revolutionary is not always about the money and huge yield. Also, the mass population who are used to 0.01% will find 5% pretty revolutionary and will gladly adopt defi.
You can swap the rewards back in stablecoins. I compound the half and the another half gets swapped.
>but its not exactly revolutionary.
Sometimes, small changes can yield revolutionary results.
Here, the change is from banks being singular points of failure and gatekeeping in the financial system, to individuals having the ability to easily do so themselves.
Also, going from sub 1% APY to 15% is a 15x increase in returns. If that’s disappointing to you your expectations were unrealistic to begin with. Did you really think there was a low risk way to guarantee triple digit returns?
Defi protocols are farms. You are the locust. Eat and move to the next one.
Edit: for the high yeilds. In time defi will get sustainable but then will have rate close to cefi basically.
Shits not even like 2 years old at this point. I think tales of it’s demise may be highly exaggerated.
I think it has a super bright future. The open and permission less nature of it means everyone can participate and the protocols never discriminate against you. That alone has made crypto the most diversely used financial product going off of things like race, sex, and nationality.
Imo it’s undeniably the future of finance and revolutionary if for no reason other than we finally figured out how to remove humanity’s desire to discriminate against others from the equation.
The hoops you’d have to jump through to get a loan from a bank, even if you’re a billionaire and the bank knows all your assets are ridiculous. Compare that to the entire process taking like 1 minute in Aave *and* you get lower rates.
Having said that though, every now and then I see people riding a horse down the road as transportation. Not like a New York carriage ride, but just one person on a horse using it for transportation. Defi will probably never 100% replace tradfi just like how the automobile hasn’t 100% replaced the horse… but at some point it’s only going to be weirdos who aren’t on board.
DeFi is in a wild west territory where you never know who’s behind the project and at any time you can get wiped out with a rug pull.
You need to understand that in order for you to make a profit someone else actually has to lose money, because the scheme is always to have someone else to invest after you invested.
The only way you can mitigate that risk is to look for projects with deflationary native token, small capped supply no more then half billion tokens and try to invest mostly in the stable farms…lower apr but much safer.
The best scenario in DeFi to be sustainable is that everyone who wants to participate to pay a procentage when you entry and also to pay another procentage when you exit the project.
That procentage should be distributed to everyone inside the project based on they’re contribution, buybacks and liquidity.
Participants needs to understand the best way for sustainability is to pay some fee in order to make profit.
Defi is inevitable and is here to stay.
The super high APY’s wont.
But, the APY and earning potential of defi will always beat traditional finance.
The capital efficiency of defi is incredible compared to legacy markets, plus you are not paying for operating costs, like building leases, technology infrastructure and inflated wages of TradFi organizations.
Lines of code displace entire TradFi entities.
Within 5-10 years, every major bank and investment firm will be in crypto and defi. Every computer interacting with money will touch blockchain in some way, either on the front end or back end.
This isnt to say that every individual will interact directly on-chain, but rather the brick and mortar bank and website they currently use will likely remain, just the bank they deposit into will use those funds and earn significantly higher yield.
Take that red pill. Experiment with defi and actually use the smart contracts. It takes first hand experience to truly understand just how much better web3 and potential is. Once you’ve experienced the difference, you almost feel bad for the ‘normies’ who still dont yet have a clue.
This current iteration is not the future of finance. This is early days. People are experimenting. Most of these tokens will be worth nothing and the projects will die. But a few will grow very large and prosper. That’s how it goes with technology. For every Google and Microsoft there are thousands of dead startups from the dotcom era. People were building all sorts of dumb crazy stuff back then, scammers were rampant, it was super risky. Sound familiar?
This is not a reason to degen yield farm. However it is a reason not to give up on the space entirely. Just wait a few or ten years and watch how things develop.
And if you can get lucky and hold onto the tokens of a farm that turns out to be the next Google – you’re gonna make a lot of money 😉
Everybody in defi is trying to beat the system and get as much money out of it before moving to the next one.
Defi is about USING your money in a decentralised way, not making money, that’s should be an added bonus.
Having a “bank” account without a bank, taking out loans without a credit score, having decent interest rates, etc. That’s defi.
Yeah you shouldn’t go for degen 1000% APY strategies with iflationary tokens. That’s defi 101 and doesn’t mean there is something wrong with defi. You were a rookie but now have learnt stable low APY is always a better approach.
De-Fi is in its very early stages, the products you see today aren’t where the long term value lies.
Eventually we will see tokenisation of almost all real-world assets. That tokenisation allows fractionalisation, which coupled with globalisation supports the democratisation of finance.
Anyone will be able to buy a share of anything, anywhere, in any amount, using any currency – digital or fiat.
In addition, new financial systems, products and organisation types will become available.
The barriers to entry we see today (technology, jargon, complexity, poor UX) will be removed as defi focuses on broad appeal, accessed through mobile and supported in brick and mortar stores.
… and of course, the wealthy will have a myriad number of new ways to prey on the poor.
Big APY numbers are dangerous lures and that’s true. Unfortunately, not everyone knows about it (or even worse, they know it and ignore it because of greed!)
But there are many good DeFi options out there.
I’m “saving” USDT with BlockFi and Yield, making up to 10% APY with low to no risk while exploring DAFI Super Staking and I can’t complain.
Dude there is no free money.
Even SP500 average is like what 20%? 7&%?
You chat expect Just park your money at some defi platform and harvesting the tokens to beat the market.
People are pulling hairs off working full-time just to beat the market and half of them failed.
To be honest.
Wanted to greatly beat market by just farming harvest yield with no additional risks is the same asking if just changing the car engines and wheels can beat the speed of light.
4%,5% is great for many institutions to park their money already.
There are more applications than just yield farming! I launched a peer to peer prediction market: contraqtual.com – it runs on the avalanche network 🙂
I’m only interested in earning swap fees. Earning an inflationary farm token is just the cherry on top, they’re a tiny slice of the pie compared to swap fees. I’d rather the percentage that goes to the farm token go to the swap fee instead, which is why I use platforms like uniswap and tinyman. If the AMM has consistently decent volume then that’s good enough for me.
I think DEFI with a purpose is doing better than hyper inflationary emission tokens. Look at DEFI Kingdoms. Addictive gaming elements with a roadmap and good team. Lock-in periods prevent whale farming and selling. People want to rollover their profits back into the eco-system. This to me is far more sustainable.
You’ve seen through all the hype.
The vast majority in the cryptoscape just don’t know “traditional” finance…That or just too enthralled in all these advertised rates.
Times like these when the markets have taking a beating is when people start to either question and hopefully adopt some rationale if it wasn’t there to begin with.
After more than several months of putting myself in crypto “bootcamp” it’s apparent that all this is just smoke and mirrors for the most part.
The real winners are the devs, miners and the brokers…heavily lopsided – especially in the ETH world.
If it’s too good to be true…you know the rest.
As a tradfi banker, I don’t think you realize how attractive 5%-10% yields are for most banks.
My current bank/employer has a cost of capital around 0.5% and lends it out at high 3s to mid 4s and, if we’re good, that’ll generate a 20% return on equity which will go down to low teens after paying all expenses. What do you think my ROE becomes at 8% yield?
As others have pointed out, DeFi is mostly being used by people trying to get insane yields (get rich quick schemes). Similar to ICO’s in 2017, most of these projects have no real reason to exist beyond the allure of massive returns. That in itself is not a value proposition.
There is no free lunch. Short term these projects did provide some huge returns because of the Ponzi effect. New investors were joining so quickly that old investors were heavily rewarded. That has mostly subsided, especially in shitty projects. The dumb money has mostly evaporated, some lucky/early people made big returns, and the smart money survives.
So now we’re in stage 2 of the process where projects are expected to actually provide value. Ignore “Tokenomics”. Tokenomics are not value. They are still important in determining the performance of a token, but if the project is not creating value from somewhere, they are useless on their own.
So how do projects create value in DeFi? Well, there’s some obvious ways. For one, they can provide liquidity to traders. This is the most common and popular form of value creation in DeFi. Platforms like AAVE, CURVE, etc. are built on providing liquidity.
Another important value add is synthetic assets. Want to be exposed to Google stock? USD? You can use synthetic assets on the blockchain without a brokerage account to get the same exposure. Long term I think this is going to be extremely valuable. Many countries do not allow easy access to global equities markets.
Derivatives are another useful tool which are now being provided onchain. DYDX is the leader here, but other platforms like [Gains.Network](https://Gains.Network) are gaining traction as well. All of these applications have come a very long way over the past 2 years.
We tend to be a bit early in crypto. The 2017 ICO bubble was testament to that. We can see what the future holds, but the market often gets ahead of itself. The market throws money at products that aren’t quite ready. But the underlying direction that the market is forecasting is correct.
So yeah, right now DeFi is still very early. But we’re already seeing real world applications and usage. Much more traction than we saw in the 2017 ICO bubble with projects getting big valuations despite zero utility. I’m sure some valuations today are getting ahead of themselves, but that is likely always going to be the case in this type of market.
Don’t make an assessment of the landscape today and expect it to represent the future of the ecosystem. Instead, look how far the industry has come in a short time. Understand how much money and talent is focused on DeFi. We’re talking billions and billions of dollars in venture capital, fund raising through token sales, etc.
This industry is moving at breakneck speed. We won’t even recognize the landscape 5-10 years from now. Be patient and focus on projects that PROVIDE VALUE. Ignore the allure of high APY’s. Good luck and happy investing.
Code forks + influencer marketing.
Defi is really a race to the bottom for rates there’s definitely short term money to be made but with any market, as it gets more efficient prices drop and that’s honestly a great thing. Why would anyone want to borrow against their crypto at ridiculously high interest just so you can make easy money and do nothing. High returns take a lot of work and you have to find the inefficiencies in the market.
Yep. This was kind of obviously going to happen. You can’t have ridiculous rewards for loaning money without risks – be it default risk or inflation. In the end, most of these DeFi platforms are at best [wildcat banks](https://en.m.wikipedia.org/wiki/Wildcat_banking) and at worst Ponzi/high yield schemes.