Vitalik Buterin, the founder of Ethereum, raised concerns over yield farming yet again this week after new protocols locked up billions of dollars in value and “printed tokens nonstop” to give their investors some gains.
Ethereum founder a farming skeptic
Buterin had earlier called the yield farming frenzy as one to be wary of, especially as most of these protocols—such as Sushiswap, and YFLink—remain unaudited and yet continue to lure investors as their tokens rise in value.
Put simply, yield farming sees stablecoin and Ethereum holders lock up their tokens on pools like Uniswap, Curve, and Balancer, in turn receiving a portion of fees accrued from the traders on those platforms. Holders of these pool tokens can, in turn, go lock up their tokens on newer products, like Sushiswap, in turn receiving — or “farming” — tokens like Sushi.
There are also others like governance tokens Yearn Finance (YFI), which allow holders to play a part in the future of the protocol’s operations, including listings, new products, and the like. Annual interest yields on these go to as much as a staggering 1,000% APY (not a typo).
But while the above is a significant engineering feat and shows how smart contracts and liquidity providers could benefit in the financial system of the future; it is not free of critics.
Some, like podcast host Udi Weithermer, call it a game of musical chairs, while others, like Ethereum’s Buterin himself, remain skeptical.
He tweeted on Monday:
“Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they’re all run by Ron Paul.”
Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they’re all run by Ron Paul.
— vitalik.eth (@VitalikButerin) August 31, 2020
Or in other words, yield farming projects are increasing making central bankers and fiat printers incessantly print money look like a shallow proposition, according to the Ethereum founder.
Pessimistic on Uniswap forks
While the farming frenzy has, in the last month alone, give rise to meme coins, governance tokens, yield farming, they are all incentives printed in the form of funny-sounding tokens as long as investors keep playing.
But Buterin doesn’t consider it sustainable, and understandably so, “I see no plausible path toward them generating cash flows. That requires building applications that generate fees,” he said.
I personally am steering clear of the yield farming space completely until it settles down into something more sustainable. But I’m not particularly a “smart mind in defi” so…. https://t.co/1Db86JwP0D
— vitalik.eth (@VitalikButerin) August 31, 2020
“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,” added Buterin, in another tweet.
His comments come a month after cautioning investors against yield farming. “You do NOT have to participate in ‘the latest hot DeFi thing’ to be in Ethereum,” he said at the time, as this outlet reported.
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