crypto strategy

How DeFi can overcome the stench of shitcoins and ponzinomics

DeFi Summer has been an exhilarating time for many. It was a high-octane roller coaster ride, characterized by insane payoffs and seemingly overnight millionaires.

Unfortunately, this ride has now slowed down in the middle of Crypto Winter. Many projects that have received huge hype without delivering on their promises have been exposed as scams, Ponzi schemes and meaningless”shitcoins.”

As the global cryptocurrency market capitalization has fallen from an all-time high of US$3 trillion to less than a third of its former glory, many naysayers have also viewed the crypto as just a sham offering empty promises of generational wealth.

Over US$4.2 billion has also been lost to DeFi (decentralized finance) operates, which means security and accountability are far from ready for wide-scale adoption.

While there was a time when hype and meme-based platforms flourished, Crypto Winter proved that a lasting foundation cannot be built on the foundation of hype and expectations.

DeFi, which was once hailed as “the future of finance” due to its ability to transcend geographic and wealth barriers through methods such as yield farming, has also been downgraded to “casino in line”.

There’s a silver lining to all of this – namely that bear markets suppress unviable projects, forcing space users and builders to focus on utility and practicality.

Without the fog of euphoria and the “get-rich-quick” mentality as distractions, we are able to look below the surface much more rationally for answers to important questions.

One of those questions often swept under the rug was “where does the yield come from?” In many unfortunate cases, the answer is, “If you still don’t know, you are the yield.”

Builders need to double down on practicality and utility to deliver sustainable, non-ponzinomic returns to users to restore damaged trust in DeFi and allow its potential to shine.

Real performance: Just a pipe dream or more than a meme?

The decline of financial markets and the growing number of failing or closed platforms are also fueling skepticism about promised returns, giving rise to the hunt for “real return”.

In the realm of intangible “magic internet currency”, having external and organic revenue streams for a platform that are not solely dependent on new investors (proper tokenomics instead of ponzinomics) and yields top-notch asset returns or in stablecoins is as real as it gets

In line with this growing trend, many platforms have started marketing themselves as “real return” providers in an attempt to capture users’ interest, but how do you identify wolves in sheep’s clothing?

It may take time and effort to research and understand, but looking below the surface to understand the revenue-generating mechanics of the protocol will almost certainly help.

While not the sexiest or most exciting to hear, most real-return platforms will fall under the following strategies rooted in traditional finance: (1) asset collateralized lending and borrowing, or (2) options and structured products.

The trade-off for the actual return is that the annualized percentage returns (APY) provided will be much lower than the “degen” returns characterizing DeFi Summer, which can reach four digits and more.

Instead, users will mostly have to settle for single-digit or double-digit returns on blue-chip assets such as Bitcoin, Ethereum, or established stablecoins.

Mathematically, it might make sense to chase those high APYs, but Crypto Winter has shown that those high returns aren’t sustainable.

Many of these platforms offer rewards in the form of “farm tokens” or shitcoins that inevitably tend to zero, or turn out to be outright scams or Ponzi schemes.

For yield farmers who insist on chasing those high APYs, they run the risk of losing their capital in its entirety.

DeFi is not just an online casino

While some users are comfortable taking high risks for high rewards, this is not true for the majority exploring DeFi.

The promise of DeFi is in decentralization and financial inclusion, not in degeneracy after all. Its core value proposition is to remove reliance on intermediaries and provide self-sustaining ownership of assets and wealth.

While most users consider banks and other traditional intermediaries to be safe and reliable, this is not an absolute, even for countries with established financial systems. Past events like the financial crisis of 2007-2008 and the collapse of Lehman Brothers, the fourth largest investment bank in the United States, have proven this.

Even for the most secure bank accounts, users are still at risk of censorship, be it bank runs, transfer limits, or lengthy verification processes.

Unlike bank accounts, your self-custodial wallet used in DeFi also cannot be frozen and you retain full ownership of your own assets at all times. While this comes with its own set of risks, such as hacks and exploits, it can be mitigated with good wallet hygiene, security audits, bug bounty, and other best practices.

With improvements in security and accessibility, there is huge potential in DeFi to be the next iteration of finance for users with autonomous assets and wealth.

‘Simplifi DeFi’ to Achieve Widespread Adoption

Another key value proposition of DeFi is simplification through the automation of smart contracts. Although the underlying technology may be complex, it is a challenge for developers, not users.

On the front-end, the user interface (UI) and user experience (UX) can be designed so that users can complete a chain of transactions with one click. They just need to know the relevant factors to consider for each action, such as the underlying risks and expected results.

This can be especially useful for covered calls and other advanced trading strategies, which are familiar to financial experts and seasoned traders, but not to the average person.

With automated smart contracts, users only need to focus on the risk to their capital and what kind of terms they should be wary of.

For example, strategies like a covered call that are complex to analyze and execute manually can be greatly simplified through automation. All users need to know is the expected payoff and risks of each strategy, select how much to invest, decide when to withdraw, and how often to monitor their deposits.

Smart contracts also do not discriminate between users as long as the required parameters are met, which means CEOs of Fortune 500 companies and minimum wage workers all have equal access to DeFi.

It’s often been touted that DeFi needs to be so simple that “even your grandma can use it”, and Crypto Winter is the best time for builders to focus on achieving that.

It’s time to “Simplify DeFi” so everyone can seamlessly and securely access and focus on sustainable return and practical innovation on proven financial strategies. Only then can we restore faith in DeFi’s potential for financial inclusion and empowerment.

#DeFi #overcome #stench #shitcoins #ponzinomics #crypto strategy

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