Is the DeFi madness over yet?
Updated: Aug 26, 2020
It has been a full month of madness in the DeFi scene. It all began with Compound Finance which I had wrote about here. Then came an elastic money called Ampleforth. These are alongside some of the already popular decentralized lending pools such as Aave and decentralized exchanges such as Curve, Uniswap and Balancer. Some guy name Andre Cronje top it off with a fund management like smart contract protocol called Yearn Finance. Its governance token YFI which went from 0 to 3000 USD in less than a week time. All hell broke lose from thereon. Clones of YFI started appearing one after another. Now we have YFI, YFII, YFFI, YFL, and the most recent YFV. Memes tokens of YFI and Ampleforth such as YAM, Shrimp, Based.Money ($based) and Spaghetti.Money ($pasta) also took full advantages of the yield farming madness. To give a sense of the madness, YAM accrued 500m USD of total value locked in contract within 36 hours of its launched. At the time of writing, total value locked in Yearn Finance is more than 1 billion USD and the price of YFI token has skyrocketed to 13000 USD a piece. Annual Percentage Yield for these tokens are at triple digits most of the time. 1000% to 5000% APY is not unheard of. This is clearly not sustainable and a zero sum game. Millions of dollars are made and lost. Is the madness over yet?
The dust has sort of settled and the enthusiasm tampered this few days. New project launches are not getting as much attention and a sense of fatigue has set in. At least from my perspective. However there are important take away messages from this epoch. Decentralized finance is here to stay. Innovations such as non-custodian smart contract based lending pools, automated market maker algorithm, decentralized autonomous organisation governance, stake/claim token distribution model and the transparent administration of fund investment strategy contract are here to stay.
There are now so many ways to participate and make some passive income in an open finance. No, the madness is not over yet. We are just getting started.