With most of the tokens associated with DeFi continuing to retreat from their peak this year, industry advisors have focused on whether the decentralized financial bubble has burst or will rise from the rubble.
Advanced projects such as Chainlink, Aave, and Synthetix decreased by half their peak time, while some cloning protocols decreased by 95% or more.
There are also signs that some cryptocurrency collateral is beginning to phased out and discounted from DeFi protocols as the two-digit returns begin to diminish. According to DeFi Pulse, the total value locked across all platforms is down 9.3% from its high at the end of September.
Cosmos co-founder Ethan Buchman said DeFi represents a big step forward in democratizing access to financial products, but adding that most protocols carry significant risks that aren’t always clear.
Unaudited and hacked smart contracts are at the top of this list of risks, and several exploits have been committed this year. Additionally, there were surprise loans and arbitrage attacks that resulted in loss of funds. Several DeFi platforms have affected, including bZx, Yam Finance, Bancor, dForce, Balancer, and more recently Soft Yearn.
Nicholas Pelikanos, NEM Commerce Officer, pointed to Yam Finance’s failure and subsequent collapse as evidence that DeFi is still in its infancy, and the infrastructure and operations are still in beta. he added:
“DeFi is currently at the forefront of capital management and can easily emerge.”
Fraudulent projects and pump and dump schemes, or “door wipers” as they are called in the industry, have also become commonplace in the DeFi sprayer. There have been many examples of the token price going up only to be reset after a few hours.
Renowned crypto analyst Josh Rajer recently reported how much he lost on the DeFi carpet:
The jump in profitability is another aspect that indicates the new DeFi room is designed for speed, not sustainability. The same security appears to be moving from protocol to protocol as crop growers, or “decadence,” as the industry calls them, chasing the latest hot food symbol, DeFi.
This was clearly shown in the sushi swap boom, which deliberately attracted cash from Uniswap, only to lose it again when the latter released its own UNI tokens and liquidity pools. The UNI symbol itself is now 60% lower than above.
Blockdaemon President Konstantin Richter compared the DeFi boom to the ICO bubble.
“Recycling the money and the effect to create crazy pumps from seemingly out of nowhere definitely chimes with what we saw in 2017.”
He added that the huge APY numbers of 1,000% or more for high-yield agriculture are unsustainable, which means most of these trials are likely to fail. However, he said that those who survived had a real chance to become the economy of the future.
In a panel discussion at this week’s LA Blockchain Summit, FTX CEO Sam Bankman-Fried suggested that the DEX volume boom that even led to Uniswap bypassing Coinbase last month is unsustainable. When excessive incentives to use non-custodial DEXs disappear, their scope will disappear, he said. It thus implies crop growing opportunities and distribution mechanisms for the control code.
The market is much more mature now than it was during the ICO boom, said Jason Wu, CEO and co-founder of Definer.org, and the future of the industry will be severely affected by the adoption of ETH 2.0 and the regulated way DeFi delivered. To circulate. He completed;
“As capital flows into the DeFi room, projects are creating more applications for the next generation of financial networks. So the DeFi obsession that we’re seeing in the market right now helps in our mission to transform the financial world.”