Bitcoin
Bitcoin$41 331.30

-0.42%

Ethereum
Ethereum$2 675.50

7.46%

Tether
Tether$1.00

0%

Binance Coin
Binance Coin$343.23

3.14%

Cardano
Cardano$1.35

3.35%

XRP
XRP$0.762083

1.79%

Vitalik Buterin compares DeFi tokenomics to the Fed’s money printer


01 Sep 2020   #Ethereum

Ethereum’s co-founder has taken aim at coins designed to incentivise yield farming, comparing their underlying economics to irresponsible monetary policies.

Vitalik Buterin, the co-founder of Ethereum (ETH), has again taken to Twitter to warn against naive bullishness in the decentralized finance (DeFi) sector, comparing the economics of yield farming tokens to the Federal Reserve’s money printing.

Yield farming - providing liquidity to earn interest in the form of tokens - has taken the crypto community by storm and sparked the DeFi boom.

However, Buterin highlighted the aggressive supply inflation of many governance tokens, saying this puts downward pressure on the prices of “coins that are getting printed nonstop to pay the liquidity providers.”

Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they're all run by Ron Paul.

Buterin is not alone in his assessment of these inflationary aspects of the DeFi sector, with Twitter user ‘Larrypc’ likening yield farming to “a giant Ponzi scheme.”

Not everyone is a skeptic, with investor David Lach responding: “If you see those printed coins as new cryptocurrencies (like BTC, ETH etc.) then yes, it's insane. But if you see them as equity in new crypto startups/projects that generate cash-flows, it's not that crazy. There will always be new startups with real potential in crypto.”

But Buterin countered that he sees “no plausible path” for many projects to generate cash flow, emphasizing the need for fee-generating applications to sustain a project over the longer term:

So far the only strategy toward generating long-term fees that I see is some kind of weird financial attack to grab liquidity and steal network effect from Uniswap. And I'm pessimistic on that strategy.

Buterin’s comments come in the light of decentralized exchange and yield farming platform SushiSwap exploding in popularity over the weekend owing to an aggressive governance token distribution strategy intended to incentivize early users, with 10 times the base rate of 100 SUSHI per block set to be paid out to liquidity providers.

The yield farming frenzy has reignited concerns regarding Ethereum’s scaling capacity, with the complex smart contract executions underpinning the transactions of many DeFi projects resulting in fees in triple-figures to perform basic operations.

The decentralized exchange (DEX) for ERC-20 tokens, Uniswap, has emerged as the network’s largest source of gas fees — driving roughly $7 million in fees over just the past month.

Source

#source

Be the first to receive Cryptocurrency Price Predictions and Forecasts daily

Get cryptocurrency price predictions, forecasts with analysis and news right to your inbox.

© 2015-2021 Crypto-Rating.com

The usage of this website constitutes acceptance of the following legal information. Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website, including information about the cryptocurrencies and bitcoin is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Crypto Rating shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about cryptocurrencies. The entire responsibility for the contents rests with the authors. Reprint of the materials is available only with the permission of the editorial staff.