DeFi wool is not squeezed, you may also catch your own sheep
Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
Q: The expected annualized return of an investment project reaches 1000%, is it reliable?
"Liar" and "MLM" were the first reactions of most people in the currency circle two months ago.
After all, the era of ICO (Initial Coin Offering) is gone forever, and investors have been fully educated by the market. One of the most frequent words of Lao Leek is "Buffett's annualized income is only 20%".
But in this wave of DeFi liquidity mining boom, four-digit annualized returns can be seen everywhere. Projects such as Compound, YFI, YFII, and YAM have triggered a collective carnival, and made many old leeks regret it.
After the epiphany, the old leeks began to end up with huge sums of money, striving to be "farmers" and digging "corn" and "sweet potatoes". Although we know it is unsustainable, we are bound to get a piece of the pie and grab a wave of wool.
The ending was not as expected. The farmers who did not grab the first mine and entered the market later were "surprised" to find that the income could not even offset the Gas cost, and it was even more difficult to escape the endless code loopholes, sudden failure of the project, and the countdown to the crash...
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DeFi rate of return tends to be stable, becoming a normalized investment
In the past two months, the hottest topic has been DeFi. In particular, liquidity mining has stimulated the market's enthusiasm for participation.
In view of the fact that many old leeks still haven’t caught up, let’s first explain, what is liquidity mining?
To put it simply, users provide liquidity for a certain token, and the project party gives governance tokens as income feedback.
Take Compound, the originator of liquidity mining, as an example. Users can deposit/loan DAI, USDC, USDT, ETH and other tokens to it to provide liquidity and obtain the native governance token COMP.
(1) 20,000% annualization is not a dream
In the early days, as the COMP price rose from $18.5 to $381.89, the annualized rate of return (ARP) of both depositing/borrowing USDC and USDT was above 200%.
What is the concept of an annualized rate of return of 200%? At present, the highest deposit rate of U.S. commercial banks is 2.10% (Bank of Express), while the global deposit rate is generally below 3%. The DeFi income is more than 100 times that of bank deposits, which is crazy enough.
Because of this, Compound attracted a large amount of funds in the early days, and the locked position surged to 1 billion US dollars within two weeks, becoming a leading product in the lending market, comparable to the established lender MakerDAO.
However, an annualized return of 200% is only the starting point for DeFi. Phenomenon-level projects such as YFI, YFII, and YAM took over Compound and continued to gallop on the high-yield road.
On July 18, yearn.finance officially launched the sub-governance token YFI and started liquidity mining. The initial annualized income was once as high as 2000%.
On July 27, YFI, which had been online for two weeks, began to fork the project, a new project YFII was born, and two mining pools were opened for liquidity mining. Among them, the initial annualized rate of return of the second pool was once as high as 4,000%.
On August 12, Yam Finance carried out the first token YAM distribution and started liquidity mining, and opened 8 pledge pools; among them, the AMPL/ETH pool has just launched and the hourly income can reach 1.6%, which is equivalent to an annualized income of up to 14049%; The annualized income of the worst performing WETH pool can reach more than 2000%. In less than a day after its launch, the total lock-up amount of Yam Finance has exceeded 200 million US dollars.
On August 13, Yam Finance launched a new second pool in addition to the eight mining pools-YAM/yCRV Uniswap v2 LP pool. The annualized income of the second pool can even reach more than 20,000%, and a top mine user once obtained an annualized income of 500,000%...
The above are just a few of the more well-known DeFi mining projects. In fact, all kinds of imitations continue to emerge, and the annualized returns are all above four digits.
(2) Profit drops sharply and returns to rationality
It is obviously illogical to continue to maintain high returns. Most of these projects can only maintain thousands of annualized returns within 1 to 2 days of going online.
On the one hand, with the influx of a large amount of funds, the mining income obtained by users is diluted (fewer coins are obtained); on the other hand, the operation path of most miners is "digging-withdrawing-selling", and the selling pressure is relatively high , leading to the unsustainable price of governance tokens in the secondary market and a sharp drop. Under the double effect, the user's mining income will also drop sharply.
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(The income of different currencies on each platform, the picture comes from yearn.finance)
It is worth noting that the above-mentioned DeFi interest rates are basically current interest rates, which are still higher than the current interest rates of centralized financial products.
Taking PayPal as an example, the current interest rate of USDT, TUSD and other stablecoins is 3.5%; the 30-day fixed interest rate is 6.5%, and the 90-day fixed interest rate is 7%.
Because of this, even if DeFi interest rates drop, many investors still use DeFi as an interest-earning tool.
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(Shenyu posted CRV mining, the picture comes from its Weibo)
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(Curve mining income statement)
But in any case, liquidity mining, especially mining with stablecoins as pledged currencies, currently has a higher stable income than CeFi, showing a strong demand, and DeFi is gradually becoming a normalized investment method.
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How risky is DeFi mining?
After reading the DeFi mining income, many friends should be moved and yearn to become a DeFi "farmer".
Those with sufficient capital may already be planning to invest money in DeFi projects; those with insufficient funds may want to borrow money from CeFi to arbitrage DeFi.
However, before taking action, if you do not consider the following issues, what awaits you may be nothing.
(1) Benefit PK cost
Benefits and costs are the primary considerations. Simply put, DeFi mining is not suitable for retail investors.
On the one hand, the current Gas fee on the Ethereum chain is extremely high, directly dissuading retail investors with insufficient funds.
Previously, the Gas Price was basically maintained at 10 -20 Gwei, and occasionally reached 20 Gwei; but currently it is basically maintained at more than 200 Gwei, and even broke through the 300 Gwei mark on August 13, reaching as high as 309.44 Gwei, setting a new record high.
This allows users to charge more than 0.1 ETH ($40) for a single transfer when mining on DeFi; during peak periods, even 0.3 ETH or even higher is required. Before this DeFi boom, Ethereum Gas basically only needed 0.001 ETH ($3).
Shenyu posted on Weibo that he would give a maximum handling fee of 2.98 ETH.
If your principal is only a few thousand dollars, a few transfers may wipe it out.
On the other hand, mining revenue may be difficult to cover Gas fees.
The fact is that the vast majority of retail investors simply cannot grab the top mine of the project. Take YAM as an example. When Erchi was first opened, the landing page encountered a BUG, and most people were blocked from the door. Only a few people who were proficient in code grabbed the first mine.
Moreover, the vast majority of retail investors learn about project news through the media. Even if you rush in, the funds are not dominant, and you can only get a small amount of governance tokens.
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(Note: I really didn't expect that a picture of random P could spread so widely)
Borrowing a sentence from the super king Wu Guanggeng: "DeFi is a relatively risky investment behavior, and it is not suitable for participation if there is no more than 50,000 dollars (principal)."
(2) DeFi learning threshold is high
For the vast majority of users, the learning threshold for DeFi liquidity mining is very high, and it takes a lot of time and energy.
Taking Curve mining as an example, the editorial department of Odaily still took several hours to successfully mortgage after referring to the tutorial. During this period, there were constant problems: from the exchange of stable coins to the pledge to the mining pool, each step seemed simple, but it was actually hidden. There are countless pits.
However, in order to obtain high profits, it is necessary to grab the first mine. At this time, there is no tutorial, and users can only explore by themselves. As a result of self-exploration, high tuition fees are required.
Several users told Odaily that during the first liquidity mining, transfer errors occurred and tokens were lost.
This situation is uncontrollable, and the phenomenon of human-to-human transmission has already occurred. Even experienced projects may make mistakes when dealing with DeFi.
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(Alpha Link mistakenly locked the position)
(3) Systemic risk
If we talk about the first two problems, investors can use their subjective initiative to solve or avoid them, but the last systemic risk is inevitable and powerless.
The systemic risks of DeFi mining mainly include three points: mining project smart contract loopholes, economic model design failure, and mortgage asset smart contract loopholes.
Mining project smart contract loopholes are the most common problem.
At present, the vast majority of DeFi projects have not been audited by a professional security team, and their security is greatly compromised.
On the one hand, the project party may do evil subjectively and leave a backdoor in the smart contract. After the user mortgages the assets, the project party pretends to be a hacker to attack the project and directly plunders the user's deposit.
On the other hand, the project party does not do evil subjectively, but due to limited capabilities, the contract code leaves BUG. In the early morning of August 14th, YAM, which was launched for only one day, was exposed to have a loophole. The consequence of this bug is that the actual total amount of YAM after each rebase (adjustment) exceeds the estimated total amount, and a large number of additional Yam tokens are minted. Ultimately, the object was declared a failure, surviving only 36 hours.
Therefore, for users, try to avoid participating in project mining without audit.
Secondly, the failure to design the economic model of the project will also lead to a collapse.
A good economic model can motivate network participants. But more importantly, the economic model is designed to be sustainable. However, most of the current economic models of DeFi projects cannot do this.
Taking liquidity mining as an example, users can earn income by staking, but where does this income come from? If the user's mortgage assets are used for lending and the interest income is obtained, it is undoubtedly sustainable.
However, the vast majority of projects are blindly subsidized and cannot generate income, which also causes their governance tokens to have no value support at all. Therefore, the vast majority of projects are one-day tours or spreading flowers by drumming. Only a few projects like Compound that have opened up the lending/loan network can truly continue.
Furthermore, the loopholes in the mortgage asset smart contract also have to be guarded against.
Many liquidity mining projects, in addition to supporting common assets such as USDT, DAI, and USDC, also support assets such as AMPL, LEND, MKR, and Comp.
On the one hand, the price of such altcoins fluctuates greatly, and users need to make a comprehensive comparison of benefits and costs to avoid liquidation caused by currency price drops. On the other hand, there may also be loopholes in the smart contracts of these tokens themselves.
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Summary: Don't take orders, keep safe
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(The value of locked assets on the chain)
Behind the data is the investment of real money from users at home and abroad.
Every day, a large number of users are using a large amount of funds to conduct stress tests on DeFi products in pursuit of returns, but not all products can pass the test. In the face of uncertainty, it never hurts to be cautious.
If you want to participate in the mining of a DeFi project, you can ask yourself a few questions:
How much are you prepared to invest? Are you a big family?
Do you understand the mining process of this DeFi project?
Are you a head mine user of this project?
Has this program been audited? Are the assets safe?
If the answer is no, then you can basically wash up and sleep.
Of course, you may want to buy some DeFi coins in the secondary market, then think about itYAM plummeted 99% in two days, and invested 100,000 into 800s story. Believe me, you will be more cautious.
For the majority of leeks, as long as you maintain enough sense, the sickle will not be able to cut you.
