- Crisis cause
- Where does the yield come from?
- Can real yield be achieved in DeFi?
- DeFi is not gambling
- Умный DeFi
- Conclusion
DeFi Summer was a period when the DeFi market experienced rapid growth in the summer of 2020. It was an exciting time when lucky enthusiasts achieved spectacular gains and became millionaires overnight.
Now, during the period of Crypto Winter, things have changed. Many hyped projects have not produced the promised results and have been exposed as scams, Ponzi schemes and “shitcoins.”
Crisis cause
After reaching its all-time high of 3 trillion US dollars, the global cryptocurrency market cap has decreased to less than a third as much. This fact has inspired skeptics to claim that crypto is just a scam with idle promises of untold wealth.
Moreover, DeFi platforms have exploited more than 4.2 billion US dollars over the past six months, demonstrating a total lack of market regulation. Now, the time of short-lived phony projects seems to have passed. New financial projects can only be built on value and not hype.
DeFi used to be referred to as “the future of finance” because of its power to transcend geographical and wealth barriers. Nowadays it is being equated to gambling.
When crypto became an integral element of global financial markets and began to be traded, unviable projects could no longer withstand competition and stay on the market. Nowadays, it is all about being useful and practical. By giving up the lucrative idea of getting rich quick, it is possible to gain a more rational understanding of the crypto market.
Where does the yield come from?
In the case of many crypto projects, the yield comes from the users’ money. However, this approach has stopped working. Of course, there will always be people blinded by the desire to make money easily, but there seems to be less of them now. Soon, the percentage of such opportunists in the crypto average will decrease to the statistically average level.
Developers need to double the practicality and utility of their projects to provide real sustainable yield to their users without any Ponzi schemes and pyramids. This is the only way to restore the confidence in DeFi and help it reveal its potential.
Can real yield be achieved in DeFi?
The skepticism toward promised returns is also fueled by the weakening financial markets and the growing number of closed and bankrupt projects. Everyone is looking for “real yield,” but is it actually possible in the world of “intangible internet money”?
To accommodate the needs of their customers, many projects have begun to market themselves as providers of “real yield”. How can we tell the difference between genuine projects and scams?
Your best bet is to study the project’s documentation and find out how it generates revenue. It turns out that most platforms providing real yield use one of several strategies borrowed from traditional finance. These include collateralized lending and borrowing, as well as options and structured products. For users, it means that the annualized percentage yields (APY) become significantly lower than what they might be used to.
Although choosing projects with high APYs may seem reasonable, Crypto Winter has demonstrated that such high yields can rarely be sustained over longer periods. Many of these projects provide “farm tokens” or even “shitcoins” with little to no value. Others happen to be scams or financial pyramids.
DeFi is not gambling
Although some people are willing to risk for the sake of potentially high rewards, most DeFi users don’t.
After all, it is not quick returns, but rather decentralization and financial inclusion that DeFi aims to achieve. Its value is in removing intermediaries and ensuring self-custodial ownership of assets.
Although the majority of users believe banks and other traditional financial intermediaries to be safe and reliable, this is not always the case, even in countries with an established financial system. Even if a bank account is very secure, there is still a chance of censorship to access, whether this is about bank transactions, transfer limits, or complicated verification procedures.
Unlike a bank account, a self-custodial DeFi wallet can’t be frozen. The owner always maintains full control over the assets. This benefit is accompanied by certain risks, including exploits and hacks, but these can be reduced with the help of proper security measures.
Thanks to these qualities, DeFi has a chance to become the favorite technology of users with self-governed assets and wealth.
Smart DeFi
Another important benefit of DeFi is simplification thanks to smart contract automation. With a single click of a button, a user can conduct a chain of transactions. Everything else is programmed in the smart contract. You only need to take into account the main risks and expected results.
There are many areas which may not be familiar to casual users but can be automated with the help of smart contracts, for example, trading. Another benefit is that there is no need in intermediaries with smart contracts. To make payments, certify transactions, and perform other actions, there is no need in bankers and lawyers anymore. The transactions are organized and made secure with the help of a blockchain program.
Moreover, Smart contracts do not distinguish between users who comply with the required parameters. This eliminates discrimination — CEOs of top companies and ordinary workers have equal access to DeFi.
Conclusion
Now is the time to “simplify DeFi” and to ensure real yield by offering genuine value. DeFi meets every possible requirement. It can be simplified, its transactions are immune to interference, it is difficult to hack, and it protects the assets of users.
Simplifying is the only way to restore faith in the ability of DeFi to expand access to financial services and provide users with more rights and capabilities.
