- “The current massive influx (in DeFi) is purely because of this new greed cycle that we’ve created seemingly out of thin air,” said Andre Cronje of yEarn.
- Decentralized Finance (DeFi) is flying with more than $9 billion of total value locked (TVL) in this sector.
There is no doubt about the ongoing DeFi mania, which is glaringly obvious, especially in the way the unaudited protocols are locking in billions of dollars in less than a week of their launches.
Not to mention the skyrocketing prices of these DeFi tokens.
So, what is exactly driving this massive growth?
Greed is a pretty simple answer that has come right from the mouth of the horse. Cronje, the founder of DeFi darling YFI, the governance token of Yearn Finance in his interview with Chainlink said,
“I mean, the reason there’s such a massive influx of money right now is because people are making money in insane amounts and the reason they’re making money in insane amounts is because we came up with a whole new Ponzi.”
And the Ponzi, Cronje is talking about here is governance tokens, “which is this wonderful way where we give away free worthless tokens that for some reason people buy.”
The next wave then buys it so that the first wave can sell it, a cycle that then just keeps on repeating, while the token continues accruing more and more value.
YFI token gained popularity and a cult-like following for its most decentralized approach — zero supply, zero value, no VC funding, and no tokens allotted to the management.
The token hit an all-time high of $38,865 on August 31st, after its launch just over a month before that.
Also, “how economics work is that money comes to money,” shared Stani Kulechoiv, the founder of another popular DeFi protocol Aave.
It is “fake exposure” with those with capital deploying it in different protocols, minting tokens, and then selling them to those with only sufficient capital to buy them.
“It’s not fair,” for sure, but this is like the financial system, and “that’s how the market works,” Kulechoiv said.
The Real Thing
While all of this is making people wealthy by insane amounts, “it’s not the sustainable part of DeFi,” said Cronje.
But underneath it, all are also the protocols that are accruing value like the Synthetix ecosystem, Aave ecosystem, Compound, and the supporting tools like Chainlink. He said,
“These are the real things accruing value because they’re the ones that are going to be here in a year from now when this greed phase is over.”
According to Kulechoiv, in Synthetix or Yearn, one is optimization yields — using technology to get rid of efficiencies — and “that’s like the real growth that is happening.”
There’s substantial growth in things that we’re building, but then there’s the noise on top of them. It’s a dilemma in finance because the noise will always be there when people enter into financial markets with less knowledge, and they have to pay for that knowledge by actually buying things from other people, explained Kulechoiv.