For a veteran cryptocurrency investor who has seen the results of the ICO craze in 2017, the current bull run of DeFi It is history that repeats itself. High gas rates, projects that increase five times in size in just one week, and 'meme' projects are just some of the few problems that are present again in 2020. In that sense, how sustainable is the bull run? current and when will we do it? Do you see the DeFi bubble finally burst?
Yield Farming emerged this summer as a revolutionary mechanism that would solve the liquidity problem and establish further decentralization. The platforms decided incentivize investors to convert their assets into collateral and reward them by delivering higher returns. Additionally, yield farming evolved rapidly as platforms began offering both yields and governance tokens. These governance tokens would increase many times in value due to high demand.
The DeFi explosion
The development of yield farming combined with the rise of the decentralized exchange Uniswap resulted in a DeFi boom. Data from DeFi Pulse shows that the Ethereum ecosystem completely changed in just a few months. As of June, investors locked in about $ 1 billion in the sector. Today, DeFi's Total Locked Value (TVL) reaches a record $ 9.03 billion.
Among DeFi's leading projects are respectable giants such as Aave, Maker and Uniswap. However, numerous products that provide nothing but performance agriculture plague the sector. Basically their projects are based on investors adopting the platform in hopes of profiting from it, just like most of today's pyramid and MLM schemes.
There is no value behind "meme" projects like today's Yam.Finance, Spaghetti, and SushiSwap. SushiSwap is nothing more than a Uniswap DEX fork with higher rewards, but it hit $ 150 TVL five hours after launch. Despite the lack of value in the real world, they still have some success in attracting farmers and at least doubling their assets. The question remains, how long will this practice last? While investors, primarily whales, are profiting, the Ethereum blockchain hits a bottleneck.
Uniswap DeFi Merchants Affected by Gas Rates
At the time of writing, the Ethereum statistics platform EthStats shows that the average price of gas is currently around 442 Gwei. While Etherscan shows a slightly better picture with gas rates of 236 Gwei, we still have a look at the rates in the past. For most of the last two years, gas rates averaged between 10 and 20 Gwei.
In dollar terms, users today pay on average between $ 30 and $ 50 per transaction. When I made a small purchase on Uniswap this morning for $ 300, it was a total gas fee of $ 40. While it's normal for gas rates to be high at a time when merchants transact more, the issue still raises the question of how sustainable the DeFi boom is.
Investors are simply not willing to pay more than tens of hundreds for a small transaction. The solution to the huge fees would be ETH 2.0, but we are years away from Vitalik Buterin's improved platform. Also, how profitable will DeFi be when the price of Bitcoin drops several thousand dollars? It seems that DeFi is a bubble eagerly waiting to burst and most investors are not expecting it.
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