Unrealistic yield is one of the hallmarks of a ponzi scheme. The DeFi yield opportunities require more money to flow in than to flow out.
Apple stock, for example, pays a dividend that is not dependent on more people buying Apple stock but on the company profits for the next quarter.
Not exactly. In DeFi they just give you newly printed tokens. That's the "yield". Why wait for money to flow in when you can instead print it at will.
How exactly do cryptocurrencies finance their DeFi yields to their investors? The only way I can think of is with the money of future investors, but that is a pretty blatant Ponzi scheme.
These DeFi yields must be funded in other ways than just loans.
Which is exactly how protocols like Compound work, although 'governance tokens' are also issued simply for using the system.
> These DeFi yields must be funded in other ways than just loans.
Which? DeFi stands for Decentralized Finance, which pretty much means the rules are easily available - as long as you talk about a specific example, not spherical cows.
Also ‘governance tokens’? This smells like another term for “money from new users entering the system”. Which is precisely how Ponzi schemes work.
EDIT: I went on a little scouting mission on google (well DDG actually) to find out if I could borrow some USDT on the Compound and how much it would cost me. But I mostly came across articles explaining how you could make money by doing the opposite (buying Tether and lending it), and numerous dashboards with all sorts of hard to understand data with the prices of various cryptocurrencies and some rates I couldn’t understand. I suspect that the only people borrowing USDT are actually also speculators that are invested in the cryptocurrency market (perhaps they are trying to short it).
USDC is at 2.3% APR, USDT 3.78%. I think you'll find that most people cannot obtain unsecured loans that low, and the forms of collateral a bank will accept are much more limited. The biggest reason is also the reason why people like Elon Musk have massive loans: avoiding taxes on realized gains.
https://compound.finance/markets
> Also ‘governance tokens’? This smells like another term for “money from new users entering the system”. Which is precisely how Ponzi schemes work.
Sure, just like how "startups" are actually Ponzi schemes with early investors preying on the later ones. Same people owning it, too!
That said GP’s claim was that these yields are “much better "passive" interest than bank deposits or treasuries” however that doesn’t seem to be the case for all but few of the currencies. I get better interest rates at my credit union. For those currencies that are actually yielding higher interest (USDT being one of them) are also being borrowed with higher interest then loans at my credit union. So I think GP’s claim is simply wrong. Yields are only higher if you offer your money in a lending scheme with abnormally high interest.
As for who takes these loans. I don’t see that though. You need up to 2× the loan amount as collateral in an asset that is already as liquid as the cryptocurrency you are getting. Normal people would just use the money they already have and pay 0% interest, not put it up as collateral so they can borrow half that amount. I don’t even see how this could even be used as a tax evasion scheme because the collateral is equally liquid to your lending amount and should be under the same tax clause. The only use case I can see are speculators. And the only way to make these higher yields, is if a speculator makes a financial blunder, which is not sustainable either.
aka obfuscated
does the yield come from anywhere other than funds deposited by new users?
The 2 sources I mentioned above are essentially flows that accrue during the bull markets. It's not magic, when people want to long assets they borrow stables. If you lend into these markets you'll get the yield. With liquidity pools you can get some transaction fees even during market volatility and draw-downs, in the short term at least.
"stable" coins... yes, that's been an interesting ecosystem lately.
> access to DeFi yield opportunities with much better "passive" interest than bank deposits or treasuries
Not to mention much greater risk of losing everything.
When you deposit your Tethers somewhere, you're taking an additional risk, namely the risk that you might not get the deposit back. The interest that you get on deposits is compensation for taking that risk, but not for the other risk.