Vitalik Buterin thinks DeFi yield farming sustains, in the same way, the central bank prints money to save the economy

Vitalik Buterin, the co-founder of Ethereum, is still skeptical of the latest craze that’s befouled his blockchain – yield farming. Besides, Buterin has again taken to Twitter to warn against naive bullishness in the DeFi sector, comparing the economics of yield farming tokens to the Federal Reserve’s money printing.

Vitalik Buterin thinks DeFi yield farming sustains, in the same way, central bank prints money to save the economy

On Ethereum, you get decentralized lending protocols and market makers. The details vary, but the important part is protocols reward you for putting cryptocurrencies into smart contracts with… more crypto!

Then came yield farming, where protocols would give you even more crypto, this time in the form of so-called governance tokens, for choosing their platform above others. yEarn’s $YFI, Compound’s COMP, and Aave’s LEND are prime examples.

Gumptious community members can use these tokens to vote on proposals to update the network, but another reason people farm these governance tokens is because they are worth lots of money—more each day, with some DeFi yield farming protocols promising returns of 2,000% a year.

Buterin thinks the market is unsustainable.

He tweeted as below, with reference to the former libertarian-minded Republican Congressman who famously called for the end of the Federal Reserve during his run for president.

In other words, the way yield farmers are going, central bankers and their money printers might seem conservative by comparison, according to the Ethereum co-founder.

To encourage deposits, DeFi lending protocols and decentralized exchanges must constantly dangle lucrative rewards in front of their investors. But if everyone does that, those operating the protocols must constantly find ways to create new value to convince investors to increase their deposits into various protocols.

Meme coins, governance tokens, yield farming—all these are examples of value, plucked from thin air, as incentives to keep investors playing. It’s working for now, while the hype around the market still exists, but Buterin doesn’t think it’s sustainable.

He stated:

“The thing is, I see no plausible path toward them generating cash flows. That requires building applications that generate fees. And so far the only strategy toward generating long-term fees that I see is some kind of weird financial attack to grab liquidity and steal network effect from Uniswap. And I’m pessimistic on that strategy.”

After that, he added:

“I personally am steering clear of the yield farming space completely until it settles down into something more sustainable.”

Earlier this month, Buterin cautioned investors against yield farming:

“You do NOT have to participate in ‘the latest hot DeFi thing’ to be in Ethereum. In fact, unless you really understand what’s going on, it’s likely best to sit out or participate only with very small amounts.”

Vitalik Buterin comments come in the light of decentralized exchange and yield farming platform SushiSwap exploding in popularity over the weekend owing to an aggressive governance token distribution strategy intended to incentivize early users, with 10 times the base rate of 100 SUSHI per block set to be paid out to liquidity providers.

The yield farming frenzy has reignited concerns regarding Ethereum’s scaling capacity, with the complex smart contract executions underpinning the transactions of many DeFi projects resulting in fees in triple-figures to perform basic operations.

The decentralized exchange (DEX) for ERC-20 tokens, Uniswap, has emerged as the network’s largest source of gas fees — driving roughly $7 million in fees over just the past month.

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