Why do you say that DeFi and liquidity mining in Ethereum will not keep growing?

Liquidity miningLiquidity mining(Yield Farming) was all the rage, some even called itThe “Rocket Fuel” DeFi Needs. Exaggeration is good, but the question remains is liquidity mining the real deal? Or is it yet another one of those fantasies that often capture the attention of many in the crypto community?

It’s been 90 days since yield mining was mined, and it did mark the yield mining boom.secondary title

Liquidity mining is still shining?

In a recent article, Vauthey went on to present what he called "the case for liquidity mining." he claimedThis is likely to peter out soon and perhaps not sustainable in the long run.According to him, users may use the protocol briefly before moving on to discover the "next shiny thing."

He believes that the reason for this is becauseMany programs are unprepared for a scenario where incentives dry up, and most incentivize action by subsidizing the lower cost of action.However, most subsidies are paid through the project's own token, which is usually issued in batches after a few lines of code and has essentially no value unless attributed to it by the community.

According to Vauthey, these tokens lack "value capture mechanismsecondary title

play motivational games

Given how quickly yield farming captured the imaginations of many in the crypto community, that in itself is a pretty bold claim. There may be some examples to support his argument.

Look at the case of GUSD – back in 2019, the company Gemini offered GUSD to OTC desks at a discount. What did the user do? Well, they saw an arbitrage opportunity,GUSD can be purchased at a discount and exchanged for Paxos Standard. Here, users are not interested in GUSD or the fact that GUSD is near its peak market cap. Instead, theyinterested.interested.

Fast forward to 2020, and in the past few months alone, several cases have popped up. For example,Compound itself has been an elaborate target, seeing some users exploit the steep interest rate curve of the BAT and ZRX markets to mine large amounts of COMP.Later, they engaged in a practice called recursive lending, giving a false illusion of liquidity where they borrowed most of the liquidity they themselves provided without any of Compound's other users entering.

Balancer is also at the center of such events, with Alameda Research providing evidence that it is possible to manipulate these protocols. As Vauthey puts it,

"What Alameda shows here is that,secondary title“

a high risk business

This is not the first time the risks associated with yield farming have been highlighted. In fact, over the past few months,The DeFi space itself has been at the center of much scrutiny as the “total value locked” figure has grown exponentially.

In a previous post, we highlighted how Binance’s CZ was quick to highlight the risks involved. However, he is not alone, Ethereum’s Vitalin Buterin also commented on the future of this trend,

“(Liquidity mining) This is a short-term thing.In fact,

In fact,The growing complexity of DeFi and efforts such as liquidity mining have also caught the attention of Deribit, one of its Insights reports commented that multiple types of DeFi are coming together. The report also said there were too many layers in these "money Legos," making them more vulnerable to security risks.

Risk is not the only issue here, so are regulations.Or rather, the lack of it. According to Kristi Swartz, managing partner at SwartzBinnersley & Associates,

“……。DeFi operators seem to have an unspoken “code of conduct” and they are among the best in the space.Regulators are clearly watching the space carefully and have been known to be reactive rather than proactive in their approach. Arguably, a single deal could disrupt the whole thing. "

This is a crucial point, but one that is often overlooked. Surprising, as this is not one of the times the crypto industry has been accused of failing to flag vulnerabilities. Well, to say the least,Be careful and keep your illusions!

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