With so many tokens associated with DeFi down from this year’s highs, many industry experts are relying on the fact whether the decentralized finance (DeFi) bubble will burst or rise from scratch.
Many high-quality projects such as Chainlink, EV, and Synthetics have subsequently halved from their all-time high rates, while the other known protocols have been on a reduction with 95% or even more in some cases.
As double-digit yields begin to decline, there are indications that some cryptocurrencies are being liquidated and may break away from DeFi protocols.
The overall value dropped and locked is up by 9.3% on all platforms as the last all-time high was seen back in late September as per the DeFi Pulse.
Ethan Buchman, the co-founder of Cosmos, also noted that DeFi is a big step towards democratizing access to various aspects of financial products, but still many protocols have significant disadvantages that are not always clear to the owners.
Unauthorized and compromised smart contracts are considered to be on the high-risk list as there were multiple exploitations in this year. Also, attacks on flash loans and arbitrage led to a subsequent loss of funds. It has affected many DeFi platforms including BZx, Yam Finance, Bancor, dForce, Balancer, and even Soft Yearn.
The Head of Trading at NEM Nicholas Pelecanos refered the Yamm Finance bug as the root cause of the collapse for the firm all this contribute to the fact that DeFi is still in its infancy phase that is having a lot of its part in the developmental and experimental phase.
One of the other factor is Yield hopping that significantly indicates the increasing DeFi sphere is built for speed.
Thus the reason being crypto farmers seem to be shifting yields from the same old ancillary protocol to protocol exchange, or follow the latest hot DeFi food token called ‘Degens’ in the industry.
This is a clear proof of the recent SushiSwap boom that subsequently attacked the liquidity from Uniswap, but still lost all the tokens as soon as the firm launched there own UNI token and liquidity pools.
CEO of Blockdaemon, Konstantin Richter, likened the DeFi boom to the ICO bubble;
He futher said that APY estimates of 1000% or more for the current yield as they are unsustainable, which means that most of these experiments are likely to fail.
However, he also added that there was a real shot at what the future holds for finance.
Recently while being one of the panel member at the LA Blockchain conference this week, FTX CEO Sam Bankman-Fried suggested about the DEX volume jump, which surpassed the Uniswap coin base last month.
He said that with the use of non custodial DEXs there can be a huge reduction in the quantitative benefits to size,. By this he means the yield opportunities and administrative token distribution systems.