The Ethereum co-founder asked users not to risk their savings to invest in DeFi. He is convinced that high-yield protocols will crash.
Ethereum co-founder Vitalik Buterin warned of the dangers of investing in yield farming, the most popular segment of decentralized finance (DeFi) today.
In recent days, Buterin asked users not to “risk their entire life savings” by investing in DeFi.
In response to a question about his concerns over this segment that works on the Ethereum blockchain, Buterin replied that one factor is that many people do not see the risk.
To explain his reasoning, Buterin said that the interest rates provided by these platforms are exponentially higher than those of traditional bank accounts. That means that DeFi products are much riskier and more likely to crash.
Buterin commented that yield farming has recently been one of the most popular things. He said some applications give him 20% and 30% annual interest. However, he explained that the protocol that gives him this interest pays him again with what he produces, which is a problem. In other words, no one else provides the money that he earns with the interest that any protocol gives him.
The Ethereum co-founder warned that this is just a temporary promotion created by issuing a lot of tokens. He emphasizes the fact that these protocols will not continue to issue tokens forever to attract people to their ecosystems, but are short-term things. This means that once the attractiveness disappears and these incentives end, interest rates will drop to near zero.
However, Buterin recognized that using DeFi is not only “valuable” but also “essential”. He mentioned certain projects, such as stablecoins and decentralized exchanges like Uniswap, considering them “extremely valuable”.
Looking to the future, to improve the DeFi economy, Buterin hopes that stablecoins will soon predominate and the dominance of the US dollar will plummet.
In any case, it is not the first time that the programmer has assumed a critical position regarding decentralized finance and the practice of yield farming.
A little less than a month ago, Buterin expressed his disagreement about the fact that many people now prefer to take advantage of the Ethereum network to achieve a return. Rather, he believes that people should value the platform more for its global-access financial infrastructure, which allows for new forms of social organization.
Yield farming consists of using cryptocurrencies on DeFi platforms to take advantage of the high return rates of these platforms. In other words, users receive tokens for financing or requesting loans, so there is a possibility of making a profit.
In the framework of Ethereum’s anniversary and despite Buterin’s criticism, the DeFi market constitutes the phenomenon of the moment in the cryptocurrency ecosystem. According to data from Consensys, the ETH locked in DeFi recorded an increase of 500,000, after the launch of the COMP token of the lending platform Compound. This is precisely one of the protocols in which users make profits with the practice of yield farming.
By Willmen Blanco
