The other side of DeFi: In addition to more speculation, it is also an amplifier of greed and fear
There is no doubt that the blockchain world is the "Wild West" of our era, and the DeFi field provides a lot of opportunities to make money. I still can't believe that the development of DeFi is so fast and brutal. Leading projects such as Aave and Uniswap continue to gain interest from US listed companies and institutions; there are countless "DeFi Lego" projects that provide services on the basis of leading projects such as Uniswap, such as providing leveraged market making (Alpha/Alpaca ), or the machine gun pool (Yearn) that constantly adjusts positions to find the highest returns; not to mention the new projects that are constantly launched, and new leeks are being harvested on the new public chain.
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Why is DeFi rising? What problems does it solve?
What problem does Defi solve?
If it does not include providing a quick way to roll money, DeFi is currently mainly used for leveraged currency speculation, trading altcoins, and insider trading.
By encouraging users to use its own platform, DeFi provides mining rewards (yield farming), attracting users in the currency circle to borrow at a negative cost, add leverage to speculate in coins, or go online quickly and at zero cost, and trade altcoins. Users can even trade "Synthetic stocks" in DeFi complete insider trading in the stock market.
Indeed, whether DeFi is a decentralized lending agreement like Aave or a decentralized exchange like Uniswap, it does provide a possibility of future finance, but their basic assets are cryptocurrencies, and cryptocurrencies are currently The biggest use is speculation.
This means that the problem that the DeFi project solves is: how to speculate better and more conveniently. They are not a hair away from changing the financial system of the world.
However, for the currency circle itself, DeFi is undoubtedly a revolutionary innovation: when the cryptocurrency under Leek’s hands is still “developed” for several years away from the “Star Ocean”, DeFi allows their currency to have practical uses!
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DeFi – Greed and Panic Amplifier in the Currency Market
As mentioned above, the emergence of DeFi provides users with more speculative tools, which is beneficial to the currency market as a whole. DeFi not only gives cryptocurrencies more reasons not to sell, but its own mining rewards will increase the purchase demand of cryptocurrencies. However, the emergence of DeFi has also greatly increased the number and supply of cryptocurrencies, whether it is the ever-emerging DeFi platform currency itself, MLM coins and air coins produced for speculation.
DeFi has simultaneously increased speculative demand and money supply for the currency circle, which has caused the amplification of the ups and downs.
In the bull market, users and new funds in the currency circle are incremental, and they will be attracted by various forms of "MLM coins" and DeFi mining strategies. The emergence of DeFi provides more liquidity and Buyer pressure. More transaction demands mean higher DeFi platform currency prices, higher platform currency prices mean higher liquidity mining rewards, higher mining rewards mean more miners, and more miners It also means more demand for cryptocurrencies, and more demand for cryptocurrencies means a higher overall market value of the currency circle.
This creates a spiraling cycle, because as the price of the coin rises, more new users and funds enter the market, which continues to drive the price of the coin.
The negative impact of DeFi on the entire cryptocurrency market is reflected in the selling pressure brought to the market by the "mining, selling and withdrawing" strategy, and in various pyramid schemes and air coins listed on decentralized exchanges.
In the bear market, the users and funds in the currency circle are stock, but the mining rewards and new "air coins" of the DeFi platform will continue to flow out to the market, absorbing the liquidity and funds of the market like vampires.
Smart investors will use the "mining, selling and withdrawing" strategy to obtain stable delta neutral returns when the market is unstable: first hedge the fluctuations of the base currency pair and then participate in mining, and then sell mining rewards every day, when the rewards decrease Raising the stake, which is definitely negative for the entire cryptocurrency market. Once the mining, selling and withdrawing strategy dominates the market, the hedging needs of miners will put selling pressure on the futures market, and the continuous decline in spot prices will greatly reduce the user's demand for leverage, which leads to a reduction in the lending rate of the lending platform.
So far, the lock-up volume and handling fees of the DeFi platform have also been reduced, which has affected the fundamentals of the DeFi platform currency - further promoting the situation of "mining, selling and withdrawing". In addition to the spiral decline brought about by the strategy of "digging, selling and withdrawing" to the market, decentralized exchanges have also made new types of pyramid schemes and air coins more rampant.
Through DEX, anyone can issue coins and provide new cryptocurrency trading pairs - this is extremely unhealthy for the long-term development of the currency circle, especially in a bear market. These MLM coins can violently increase the price of the currency in the short term through a high degree of control and a built-in "destruction mechanism". However, once enough leek investment is attracted, the currency issuer can put all the coins into the DEX's liquidity pool to absorb the flow sex, or take away user funds and run away on the grounds of "hacking".
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Where is the future of DeFi?
As long as central banks around the world continue to find excuses to provide excess liquidity to the market in the future as they do now, and the real yield rate continues to be negative, there is no reason why more financial institutions will not try to invest in cryptocurrencies and take a share in this profitable field to ensure their The income did not underperform the speed at which the central bank prints money. This is also the source of the interest of major financial institutions in DeFi mentioned above: even in the bear market of the currency circle, the 3% stable currency deposit rate on AAVE is better than any money market fund in the traditional financial market. The question is, when the central bank finally had to close the valve for excessive currency issuance, and the speculative demand dropped to a freezing point, what application scenarios does DeFi have?
Perhaps one day, we will return to the essence, turn commercial bills into NFT, remove banks through a decentralized method, and provide short-term financing for enterprises? Or maybe with the explosion of the metaverse, more of our GDP will be generated in the virtual metaverse, and DeFi will be the basic pillar of the metaverse economy? In any case, the DeFi we see today is based on virtual cryptocurrencies, and the main demand behind cryptocurrencies is speculation.
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Readers are requested to strictly abide by the laws and regulations of the region and do not participate in Any illegal financial conduct. Wu said that without permission, it is forbidden to reprint or copy the content, and those who violate it will be investigated for legal responsibility.
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Readers are requested to strictly abide by the laws and regulations of the region and do not participate in Any illegal financial conduct. Wu said that without permission, it is forbidden to reprint or copy the content, and those who violate it will be investigated for legal responsibility.
