In the last two weeks, one of the most shocking news in crypto was when prolific developer Andre Cronje (AC) declared that he will withdraw from the DeFi projects he participated in - and from the DeFi space altogether. This negatively impacted the entire DeFi market, with Ethereum-alternative Fantom (FTM) taking the brunt of it. Coin prices aside, Cronje’s departure could be a sign for the crypto world to reflect on the current state of DeFi.
When we talk about AC, the first project that comes to mind is Yearn Finance (YFI). Simply put, Yearn Finance is a protocol that helps users to earn profits automatically. How? Its algorithm acts as an aggregator and searches for the DeFi borrowing & lending protocols with the highest returns. In this scenario, users have no need to search for the best options themselves or transfer crypto among different protocols - they simply deposit crypto into one protocol and wait. The creation of Yearn Finance was a breakthrough in DeFi, yet things took a downturn.
From that point in time, APY became the key focal point of DeFi. Projects’ APY became unprecedentedly high as both developers and traders cultivated a toxic environment focused on profits instead of DeFi’s original goal.
Is APY a bad thing? Definitely not. (3,3) is a DeFi model driven by APY, and models like this can create synergies and promote confidence in the project. However, blindly pursuing high returns may not be wise. At DeFi’s worst, traders easily ignored the security (or lack of security) of smart contracts, the utility of the protocol, and whether there was inherent rationality in the token economy. As a result, rugpulls disguised as second-generation DeFi projects sold like hotcakes. At the same time, (3,3) projects with decreasing APY lost attraction and investments decreased dramatically.
APY is not and cannot be the key to DeFi. Why was DeFi created? Because we wanted to enjoy borderless financial services with a low cost of trust. Instead of focusing solely on APY, it is more important for us to understand the project’s whole ecosystem and always DYOR.
Further reading: Check here for some tips on identifying legit DeFi projects.
The views expressed in this article are the author's alone and do not necessarily represent the views of ApolloX.
Risk Reminder: Crypto trading carries a risk. All trading activities are done at your discretion and at your own risk. The information here should not be regarded as financial or investment advice from ApolloX. ApolloX will not be liable for any loss that might arise from your use of any financial product.
The ApolloX app is available on Apple Store or Google Play here.
Stay up to date with ApolloX!