DEFI stands for Decentralized Finance and lately, it become the new madness in the crypto space. Millions of crypto investors pour billions of dollars into these DEFI projects, in the race for a quick high return profits.
But are these DEFI projects so good for the average investor, as they promote? Let’s dive in and see all the pitfalls DEFI has.
They pay high interest rates that comes from just nowhere!
When you lock your ETH in the DEFI project pool, you get some amount of DEFI issued tokens, that can be “lended” or simple staked in their dapp. In exchange you earn monthly interest from the tokens staked, paid to you in DEFI tokens. Interest rates vary from 20% up to 500% per annum. For example, by investing in Swerve DEFI, you get their SWRV tokens, that you can stake for 65,11% p/a. So if you stake 1000 SWRV tokens, you earn 651.1 SWRV per year, or 54.26 SWRV every month. At the current market price of 4,03 USD for one SWRV token, if you sell your earned SWRV tokens on the exchange, your monthly profit amounts to 218,67 USD, a total of 2624 USD per year.
And if you decide to sell your staked 1000 SWRV tokens, you must send them back to Swerve DEFI project, and receive your initially invested ETH, while Swerve burn these 1000 SWRV tokens.
As you can see, the earnings math is looking juicy and that is what buys so many crypto investors souls. But the question is, where do those 65,11% yield profits comes from? The answer is from nowhere.
Scamers can steal the ETH sent to the pool by investors and close the shop.
Many scam artists take advantage of this DEFI trend and flock like moths to the fire. Just last few months there were numerous scam exits, where investors lost their money. Here is one out of many examples: media outlet ZyCrypto wrote on Sept. 10 – “liquidity mining pool DeFi project, Yfdexf.Finance has exited the market after defrauding investors of $20 million in total funds locked in its protocol”.
Devs can easily depreciate the value of DEFI token by dumping their team tokens.
DEFI teams usually keep some amount of tokens for themselves, for further development, marketing, etc. Most of the DEFI teams state that most of their tokens are vested for some period of time, but in reality, the team can sell all their tokens and bring down the remaining tokens cost very much. For example, read the SushiSwap story, how their token depreciated almost 80% after the DEFI creator sold all his tokens and cashed out almost 18000 ETH.
DEFI tokens prices are highly volatile. It can lose more than 50% in value just in one day.
Almost all crypto tokens are volatile by default, and DEFI tokens are not exception. Any negative news or information from the financial markets, can create fear of losing, which leads to a huge sell off on the exchanges, so token prices go down very fast. If an average DEFI investor do not monitor the crypto news space 24/7, the probability to wake up in the morning with a minus 50% of their DEFI tokens value is almost guaranteed. For the sake of example, the above mentioned Swerve DEFI token lost more than 20% of its value in just one day!
When whales sell, DEFI token price drops considerable and the average investor lose their money.
When whales sell their tokens and move to another “best project in the history”, the price fall right to the bottom, from where it has a long way to come back if at all. Usually, the average investor is left in the dust with their worthless tokens.
If you still want to play this one-way game, you have nothing but to do it.
Here is what Ryan Selkis, the founder and CEO of crypto data site Messari, recently tweeted: “The DeFi bubble will pop sooner than people expect. We’re nearing the apex of ponzi economics, rug pulls, and ‘yield’ hopping, and ETH fees are going to eat too heavily into non-whale profits.”
But only time will tell if this sentiment is true and how long the hype will continue. Until then, crypto-entrepreneurs need to remain alert and look for any red flags that may wipe their investments in minutes.
Keep in mind, that it would be definitely wise from your side to at least check the Trigon Stable Growing Token Protocol – the price of this token is always growing whenever the token is bought or sold!
Just visit the Trigon site and find out how this stable growing token is working. By having Trigon (TRGN) token in your portfolio, you will definitely be in profit. How many Xs you make, depends on just how long you hodl.