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Media outlet Boxmining and its team of cryptocurrency writers have stayed on top of the industry’s biggest headlines in 2020. In August, Boxmining interviewed Chengpeng Zhao, cofounder and CEO of Binance, the largest cryptocurrency exchange in the world.
But the year’s biggest headline is undoubtedly the emergence of decentralized finance. DeFi is a set of permissionless and trustless banking solutions that deal with digital coins and tokens whose transactions are secured on blockchain.
Decentralized finance brings Wall Street sophistication and tech brilliance to the crypto Wild West. However, the space can also be fraught with threats as certain operational and financial risks are transferred from institutions to the individual user.
Despite the risks, DeFi brings several key advantages. Products and services eliminate middlemen like investment banks. These reduce costs and enable frictionless settlements that also give users more privacy and security. Secondly, permissionless protocols are inclusive since lower-income persons can gain access to banking-like services.
Without bank or government intervention, people can freely move capital by borrowing, lending and staking crypto assets. The ability to earn high interest is appealing during a global pandemic recession where business opportunities are lacking. Moreover, DeFi projects are seizing on people’s distrust of financial institutions that offer no more than 2-3% interest on a savings account.
Boxmining Examines Promising DeFi Projects
Founder Michael Gu covers prominent projects in the space, which is seeing skyrocketing interest from users and investors worldwide.
In December 2019, the DeFi ecosystem had nearly $700 million in digital assets, according to DeFi Pulse. The total value locked (TVL) reached $11 billion on September 30, which represents a 1,470% increase since December.
Yield farming is the process of staking (or locking in) cryptocurrencies in exchange for crypto rewards. It’s like earning interest from a bank deposit. But Gu cautions about the risks involved: “As with all yield farming projects, YFValue farming [a DeFi yield aggregator] involves a huge amount of risk. Anyone intending to participate in yield farming should do full research and consider carefully the risks involved beforehand.”
The Growth of Yield Farming
What makes this type of investing appealing?
There’s a potential to earn large interest income by staking crypto capital. Chinese investors have participated in the market, bringing with them financial support that provides liquidity to the DeFi ecosystem.
Liquidity is important for scaling DeFi: Exchange mechanisms require funds in the system to work. Secondly, projects that don’t offer enough liquidity cannot attract and retain users, and thus cannot generate enough revenue.
YFI, YFII and SushiSwap
In a Sept. 7 article, Michal Gu wrote: “YFII (now formally known as DFI.Money) is a fork of the yEarn project (YFI) which offers a different token distribution model where token emissions are halved every week (YIP-8).” There is “growing support for the project, especially in the Chinese community. $YFII shares a 98% code similarity to YFI …”
He added, “YFII is offering very high returns on investment, with pool 2 offering more than 2000% as of this article. The important question now is if it is safe to yield farm YFII.”
It remains to be seen how long these types of returns will last. After all, there will be implications for a growing user base on how rewards are distributed.
One DeFi platform that has attracted plenty of interest the last few weeks is SushiSwap, a liquidity pool platform that allows anyone to provide liquidity. As of early September, SushiSwap boasted one billion dollars of locked liquidity.
Stakers can possibly get rewarded with high annual percentage yield (APY) of up to 1,000%. According to Gu, “unlike a traditional exchange like Binance where they employ market makers, SushiSwap is a community-oriented platform where users provide liquidity. In return, they get rewarded. Indeed, the users are the market makers.”
Boxmining continues to cover the year’s latest crypto trends and developments. What will be the biggest story of 2021?