Some users of Ethereum DeFi products earn more than 100%, is the risk approaching?
Unlike Bitcoin, which has been stuck in the low $9,000s,Ethereum-based decentralized finance (DeFi) has grown exponentially in the past few weeks。
Former Bloomberg journalist and Ethereum publicist Camila Russo noted on June 19,The total value locked in DeFi applications has increased by 40% in the past 7 days alone。
Due to the joint influence of various factors,The attractiveness of investing in this part of the cryptocurrency market has increased dramatically. That is, users can now use stablecoins (such as USD Coin or Tether’s USDT) to obtain more than 100% annual return.
But, as usual, gains of this magnitude are not without risks,secondary title。
What is behind the high returns of Ethereum DeFi?
With most major cryptocurrencies stalled as bulls and bears are locked in a tug-of-war, investors are looking for other ways to make money in this fledgling market.
Most notably in the past week, through DeFi's "Lending proceeds”。
Due to the high demand for borrowing cryptocurrencies, many DeFi protocols have implemented incentives, among other factors,Stablecoin gains have surpassed 100% for some Ethereum users in the past week(annualized rate of return).
Remember, that's more than 100 times the deposit yield offered by Wall Street bank savings accounts, which don't offer much yield on personal savings due to low policy rates imposed by central banks.
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not without risk
However, the high yields offered by DeFi applications are not without risks.
Tony Sheng, a cryptocurrency analyst and investor at MultiCoin Capital, recently reviewed five risks faced by investors seeking high-yield stablecoins.
They are listed as follows:
Smart Contract Vulnerabilities in Loan Protocols。
Smart contract vulnerabilities in underlying assets, whether it’s USD assets, Tether’s USDT or altcoins.
Liquidation events lead toLenders lose their cryptocurrency, large fluctuations in the price of Ethereum or other cryptocurrencies may trigger such liquidations.
Agreementeconomic design failure, possibly due to improper incentives.
User error.
Tony Sheng added that the risks of DeFi are compounded when you consider that this part of the Ethereum ecosystem is interconnected.
This means that bugs in smaller protocols or system crashes can negatively impact the entire space.
“The scariest thing is that these systems involve a lot of different smart contracts, so,The original text comes from bitcoinist, compiled by the Bluemountain Labs team, the English copyright belongs to the original author, please contact the compiler for Chinese reprint.”
The original text comes from bitcoinist, compiled by the Bluemountain Labs team, the English copyright belongs to the original author, please contact the compiler for Chinese reprint.
