Saturday, September 18, 2021
DeFi The co-founder of the cryptocurrency Tezos explains why DeFi yield farming is...

The co-founder of the cryptocurrency Tezos explains why DeFi yield farming is doomed to fail – and breaks down the role she thinks digital assets will play in society moving forward

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Kathleen Breitman.

  • Tezos co-founder Kathleen Breitman isn’t a fan of DeFi yield farming.
  • In an interview with Insider, she said it will “age like milk.”
  • Breitman also shared her thoughts on the role digital assets will play going forward.
  • See more stories on Insider’s business page.

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Proponents of Ethereum-based decentralized finance (DeFi) often list the attractive yields users can rake in by lending out their cryptocurrencies as one of its selling points.

Compared to the outlook for returns currently available in many areas of traditional finance, DeFi offers investors an opportunity for meaningful yield, even if that yield comes in the form of the same hyper-volatile cryptocurrency users lend out. Yield farming protocols to automatically identify where the best opportunities are in the space on any given day have gained more popularity recently.

But yield farming isn’t quite Kathleen Breitman’s thing. That’s perhaps a surprise considering she co-founded the cryptocurrency Tezos (XTZ), and likes to point out that she considers it to be even more decentralized than Ethereum because it allows token-holders to propose and ratify changes to its network.

Tezos price
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So why the bearishness on yield farming? Breitman described the borrowing and lending of cryptocurrencies as a sort of circular dead end for investors, and that people would become bored with it in a matter of months.

“If you go into chat forums and you talk about what yield farming is, it’s effectively a way to distribute a token by artificially creating a very odd distribution mechanism that highly incentivizes first movers to it,” Breitman told Insider on Monday.

“And so what you’re left with at the end is a distribution model for just a token on a token. And then what do you do? You trade it. That’s the whole game: you get the tokens, you trade the tokens, you get the tokens again, you trade the tokens again,” Breitman continued.

She added: “It’s not at all different from what a lot of ERC20 coins were in the so-called ICO craze in 2017. It’s just repackaged. There’s only so many times you can have some sort of circular, round-about of tokens for tokens.”

It should be noted that yield-farming takes places on the Ethereum network, which could be viewed as a competing asset to Tezos.

Role of DeFi going forward

Despite not being a fan of yield farming, Breitman sees a longer future for other areas of crypto. These include some insurance protocols and stablecoins in DeFi. Stablecoins are cryptocurrencies tied to government-backed currencies, like the US dollar.

“Stuff that is basically advertising to gamblers by talking about how much yield you’re going to get artificially over the course of a few weeks is completely insane, and that will age like milk,” she said. “But I think a lot of the algorithmic stablecoins that have come and developed into the fore over the last 18 months, and that will definitely be a thing for the next few years.”

More broadly, Breitman said it is unlikely that cryptocurrencies ever have the dominance or default quality that fiat currently has in society, but that features of the assets – like the faster payments that blockchain technology allows – will continue to be integrated into the financial system.

“In terms of the better money promise, we’re already seeing a lot of ways that crypto is tying into the more convenient piping in the financial system,” she said. “There’s just been so much progress in the last two years of traditional financial institutions acknowledging this and trying to incorporate it into its pipeline.”

She added: “Programmable money is its own class of things that I don’t think we’ve tested the boundaries of in any meaningful way.”

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