In the past few weeks, conversations about hot dogs, sushi, and yams have infiltrated the crypto industry. However, Such references are not what they seem and actually relate to assets in the decentralized financial sector of cryptocurrencies. Over the course of 2020, DeFi identified project-based speculative bubble levels that may or may not be promising or stable over the long term. Opinions on the new riot over food stamps differ.
“It’s just a fad,” Tone Vays, a YouTube content creator and derivatives trader, told Cointelegraph, adding: “They are all literally Ponzi schemes. “Philip Salter, head of the mining company on the Genesis Mining Bitcoin cloud mining team, believes it is not. “I think DeFi is an extremely important development,” he told Cointelegraph, noting the impact of decentralized trading on digital assets:
“We see the emergence of an ecosystem with competing platforms, each of which has small deviations from this basic concept. Since these exchanges are open source and hosted as smart contracts on the Ethereum blockchain, the cost of creating new and custom versions is essentially zero and therefore there are a large number of nearly identical platforms. “
DeFi is sweeping cryptocurrencies
DeFi as a sector of the cryptocurrency industry is focused on enabling crypto participants to borrow and lend digital assets as well as earn interest on their holdings. As a result, New projects like sushi, yam and others have popped up everywhere, with speculators chasing the highest interest income and coin pumping. One project asset, YFI, rose from less than $ 1,000 to more than $ 38,000 in just a few weeks.
The concepts surrounding these DeFi assets can be difficult to understand. Essentially, DeFi products allow cryptocurrency holders to lock their digital assets and earn interest. In return for freezing these assets, they are given stable coins as collateral that they can use while their digital assets are held while they earn interest.
After receiving the guarantee, users can revoke this guarantee for a new exchange such as Uniswap. (With Uniswap, participants can trade person-to-person directly on the blockchain.) Blocking these stablecoins results in the liquidity provider using these tokens for other activities looking for interest.
All of these activities work with different tokens, the price of which has also increased. In its simplest form With DeFi, participants can currently borrow substantial amounts of capital, earn interest and benefit from rising token prices. DeFi has quickly grown into a sector valued at more than $ 7 billion. Numerous DeFi assets or DeFi-related assets rose dramatically in price in 2020, some of which are largely based on speculation.
Fraud shows up?
Unfortunately, there are also many new opportunities associated with fraud and jokes, and dishonest parties try to profit from innovation. SushiSwap serves as a current example. Launched as a fork of Uniswap in late August 2020, SushiSwap has garnered more than $ 1 billion worth of attention in just a few days.
The project manager, an anonymous character named “Chef Nomi,” only had the keys to a $ 27 million developer fund. As a rule, this type of fund is subject to the control of certain checks and balances, e.g. B. the blockchain voting requirements (a parameter that prevents a single person from having all powers).
Nomi stepped down as head of SushiSwap shortly after its inception and took around $ 13 million from the fund as payment for the work before handing the project over to FTX CEO Sam Bankman-Fried. The project completed its migration from Uniswap to its own platform on September 9, under the supervision of Bankman-Fried. As a surprise to the public, Nomi returned the funds on September 11th and apologized several times.
While SushiSwap doesn’t seem like an outright scam at the moment, other projects have shown signs of fraud. Yfdexf.Finance disappeared on September 10, stealing $ 20 million from attendees after a series of misleading and bogus promotions on social media over several days. Such cases support Vay’s arguments about widespread Ponzi schemes. “There’s nothing in the backend,” Vays said of the entire DeFi meme coin sector and the projects’ lack of potential. “It’s worse than ICOs.”
DeFi has reached its maximum bubble state, similar to the first coin offering scene in 2017, which saw millions of dollars invested in projects out of sheer speculation. “The DeFi bubble will burst sooner than expected,” said Ryan Selkis, founder of the crypto data company Messari, in a tweet, mentioning the presence of Ponzi schemes and other antics.
Innovation in the hype
However, some parties, like Salter, see a promise within DeFi’s advertising movement. “We are also seeing loan platforms that allow anyone to lend money with a near zero risk that the borrower will default on their loan.”Salter said, adding to his stance on the importance of the DeFi movement.
“On the other hand, there is an option for trading robots to simply borrow the money they need to execute a profitable trade and repay the loan immediately after the trade is completed.” Salter pointed out. Such an automated and self-contained framework means efficiency and creates profit potential through arbitrage and other DeFi activities. Due to its focus on the crypto and blockchain mining sectors, Salter has recently started looking into the DeFi space and the opportunities it offers.
“I know I don’t understand everything, but even the concept of what is happening is amazing. Maybe DeFi is the “killer app” cryptocurrencies have been looking for? On the other hand, let’s not forget that DeFi is a giant bubble. An exchange thrives on its liquidity and user friendliness. Many projects work on usability, but not many exchanges can be liquid at the same time. It’s a zero sum game. “
The DeFi bubble will likely only grow this much before projects and platforms disappear from the game. This in turn, It will reduce the opportunities to make a profit, which will fade the hype, although the decentralized exchanges will continue as part of cryptography in the future as wellSalter noted.
As has been seen in the past, bubbles from the dotcom boom in the late 1990s to the ICO mania in 2017 either lead to new technologies or give the current technology greater prominence. Although many projects, ideas and companies fail in these periods of time, the world often ends up with some form of innovation or sustainable benefit.