Financial stock market chart. Selective focus. Shows TradingView financial market chart.
With the resurgence of the investment strategy known as yield farming, in which users hold digital assets on a blockchain to earn income, cryptocurrency platforms are once again offering returns of 70% or more per year.
Less than 18 months after the collapse of stablecoin project Terra that triggered an industry-wide meltdown, platforms like decentralized derivatives exchange GMX and broker Binance are offering double-digit incentives to boost trading after months of stagnation.
Terra, once the most ambitious experiment in decentralized finance (DeFi), promised returns of nearly 20% per year to investors who deposited funds into its protocol.
CONTINUED AFTER ADVERTISEMENT
“It will always be like this,” said Zaheer Ebtikar, founder of crypto fund Split Capital. “People can’t help it. (Crypto) is literally the most FOMO (fear of missing out) industry of all time.”
High returns, essentially invisible outside of distressed assets, were key to the emergence of DeFi in 2020, which aims to eliminate traditional intermediaries like banks.
CONTINUED AFTER ADVERTISEMENT
Yield farming involves lending cryptocurrencies in exchange for interest and sometimes additional payments, with the bulk of the reward often being in the form of units of a new digital asset.
The DeFi market grew to $179 billion in November 2021, just before the implosion of exchange FTX triggered a massive exodus of investors from digital assets. After cryptocurrency markets recovered in October, the DeFi sector was valued at $44.1 billion, according to data tracker DeFiLlama.
GMX, which allows users to trade Bitcoin (BTC) and other cryptocurrencies with up to 50x leverage, launched an incentive program on Wednesday with Arbitrum DAO, a decentralized autonomous organization that aims to ease network congestion. Ethereum (ETH).
CONTINUED AFTER ADVERTISEMENT
Through the program, users can earn annual returns of up to 70% for trading, liquidity provision, and other activities. Around 12 million Arbitrum ARB tokens – equivalent to $12 million at current exchange rates – will be used to pay the additional returns.
Levant
Highly valued stocks
The stock analyst with more than 30 years of experience in the market tells you how to choose small caps that can help you make significant profits
Demand has also increased as interest rates for borrowing stablecoins such as USD Coin (USDC) and Tether (USDT) rose to over 10% in recent days on Aave (AAVE), the largest peer-to-peer lending platform are. -peer (peer-to-peer) in DeFi. The rise in crypto lending activity coincides with the growing demand for leverage in trading.
“Traders who want to gain leverage need to deposit risky assets into lending protocols and lend dollars against those risky assets,” said Keone Hon, co-founder and CEO of Monad Labs, developer of a new blockchain called Monad. “They then use those dollars to buy riskier assets. The demand for leverage is the fundamental source of returns.”
Yield farming was once a popular method for crypto projects to acquire new users in a short period of time. It was particularly popular in the extremely low interest rate environment during the Covid-19 pandemic. That changed as cryptocurrency prices fell and traditional interest rates rose.
Also read:
“It took a while for the industry to get used to a regime of high trading returns with low crypto volume and to be able to develop competitive products in this space,” said Leo Mizuhara, founder and CEO of institutional asset manager DeFi Hashnote. Tradfi is a popular term to describe traditional finance.
“I think the GMX product only makes sense if there is interest in cryptocurrency trading, and there is now with the recent (price) run,” Mizuhara added.
Incentive programs aren’t just in DeFi. For example, the largest cryptocurrency exchange Binance promotes a “bonus” return program through its Binance Earn project, offering users who deposit USDT stablecoins on Binance an annual profit of up to 13% per year.
According to the exchange’s website, Binance offers an additional 7% annual return on up to 500 USDT on top of the 5.93% interest rates on USDT savings.
“As market sentiment begins to recover, projects may think now is a good time to issue to gain momentum,” said Monad Labs’ Hon.
© 2023 Bloomberg LP
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.