DeFi has all of a sudden burst onto the cryptocurrency scene in a big way this year as the entire ecosystem has surpassed the billion dollar mark and seen projects expand greatly. The idea of a new decentralised financial system that can ease many of the current pain points seems like a great step in the right direction, but there could be issues on the horizon.
DeFi is a great idea in principle and has the potential to revolutionize the financial world, but the blockchain and cryptocurrency space has seen this before in ICOs which also had the disruptive power for venture capital. ICOs failed because of the greed that came to the space, and DeFi also has a greed problem.
This was recently pointed out by the co-founder of Ethereum, Vitalik Buterin, who tweeted about the new trend of yield farming in DeFi. He tweeted:
“Some people: let’s create easy-to-use global-access financial infrastructure and use mechanism design and smart contracts to create new forms of social organization!”
“Other people: YAY yield farming 135%!!!1! There’s a tension here that we should be talking about more.”
What is Yield Farming?
Yield farming is the act of leveraging DeFi protocols and products to generate high rates of return, in some cases reaching over 100% annualized yields when factoring in “cashback” bonuses and incentives.
Clearly, this is another way in which people can make a lot of money without having much understanding or belief in the underlying product/project — which is a similar fate that befell ICOs.
It could be a dangerous path if this becomes more enticing and exciting than the DeFi projects and their potential. Chasing after this nascent and emerging space just to get rich quick can lead to the potential not being reached and the entire idea dying off.
In support of yield farming
However, there are instances where Yield Farming is being supported and praised. Eric Conner, a podcaster and Ethereum core developer claimed that this new scheme isn’t so different from familiar investment mechanisms
Anthony Sassano, an EthHub co-founder, outlined that this euphoria could get people interested in other valuable things on Ethereum while analyst Adam Cochran highlighted the role of early DeFis as a sandbox environment for future products:
“Flashy short-term things help us test long term features, but also attract new thinkers, builders, users and explorers to the space.”