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Yield Farmers Could Place Too Much Strain on DeFi

What is yield farming and why it can’t be ignored

Republished by Plato

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Decentralized Finance (DeFi) is without doubt the biggest news to come out of the crypto space this year. Bitcoin is grabbing the attention of Wall Street at last over its surprising price resilience and recovery during the pandemic, posting YTD returns of 65% and running circles around the S&P 500 at just 8% YDT and even gold at 31% YTD… But the real gains are happening in DeFi.

The rise of an alternative financial system that can lend services to the world’s unbanked, bring real-world assets onto the blockchain, and allow for the transfer of billions of dollars in value in seconds at a next-to-nothing fee while providing high returns and passive income is simply too compelling to ignore.

The Most Diverse Audience to Date at FMLS 2020 – Where Finance Meets Innovation

Yet, as with almost all areas in this nascent space, DeFi’s growth is a marathon and not a sprint–at least, it should be. We’re seeing one exciting innovation after another come out of this industry and billions of dollars of value being locked into its protocols. But while there are many promising projects to invest in if you truly believe in the promise of DeFi, short-term parabolic growth is inevitably going to attract the speculators looking for quick gains.

When DeFi tokens are soaring by more than 1000% in less than a week, it’s hard not to want a slice of the action. Yet, unlike the ICO boom in 2017, it isn’t only speculators driving this momentum. Yield farmers are further fueling the fire feverishly searching for the best APYs in the space to make superlative gains while they can.

While all this action is certainly contributing to the growth of the DeFi economy (yield farming has led to more than $9.1 billion in locked value today), it’s starting to place too much pressure on the projects in the system. DeFi mania is forcing decentralized finance to run before it can walk and, if the pressure gets too great, could place a strain on its future development.

What Is Yield Farming and Why Is it Potentially Harmful?

With so many innovations happening in a short space of time, it can be hard to keep up with the latest practices and terminology coming out of DeFi. But let’s take a look at the main one that’s driving its wild growth right now: yield farming. In a nutshell, yield farming is where projects create tokens to reward liquidity providers on their platforms. It doesn’t matter whether it’s a lending or borrowing app, or a DEX; the premise is the same: to

Jay Hao, CEO of OKEx
Jay Hao, CEO of OKEx

receive these rewards (yields), holders must lock their tokens into the project.

These tokens must remain locked for the liquidity providers to receive rewards and cannot be sold or traded. It’s not surprising then, that with the staggering growth many DeFi projects are seeing (yEarn’s YFI token grew by an astonishing 15,000% in less than one week) that the USD value of all the tokens locked into DeFi projects is skyrocketing higher every day.

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Locking tokens for yields also has the double effect of restricting supply and pushing its price higher, leading to beaming smiles on the face of many a speculator. And it’s not only DeFi tokens that are being locked into protocols but plenty of Ether as well. While there is abundant anticipation for the upcoming switch to ETH 2.0 and Proof of Stake, it’s also no coincidence that ETH price is flying as more of it is locked into DeFi.

As DeFi has galloped ahead, ETH has posted a YTD of well above 260% even reaching $471 at its peak in recent days. Why is this a problem? Because just like pot stocks, the ICO craze, or Bitcoin’s FOMO-fueled run in 2017… we’ve all seen what happens when price outstrips the real underlying value of the asset.

DeFi Still Has Many Challenges to Overcome

At my company, we haven’t been watching the growth of the DeFi space from the sidelines. We’ve been actively contributing not only by offering the most comprehensive range of high-quality DeFi tokens for our users but also by building alongside the major protocols.

We’re truly invested in the DeFi economy and believe in its promise and longevity over time. But, we must remind all investors that this technology still has a long way to go. Anticipation over ETH 2.0 is building yet it isn’t entirely certain when (or indeed if) the PoS switch will come. We’re seeing more DeFi protocols independent from ETH springing up, yet the vast majority are still overwhelmingly dependent on the Ethereum blockchain, including major players like Maker and Compound.

The fact remains that even with innovations and pushes to improve the security of the sector, such as open price feeds and decentralized oracles, DeFi’s fundamentals are not improving as fast as the price of its tokens. This could be a problem as investors hellbent on increasing their risk are leveraging to obtain maximum yields. This snowball of frenzied hype and expectation could cause DeFi to undergo enormous strain and even lead to a shakeout that sees a lot of people getting burned.

If there is a problem with the tech, such as network congestion or a breakdown in oracles, a price correction may come and the hungry over-leveraged yield farmers will be unable to liquidate their assets. This could cause a landslide that shakes the confidence in this area and undermines DeFi’s long-term trajectory.

While it will be the weak hands shaken out of the market, it will still be a shame if it happens. We should support the growth of DeFi by actively building and working to make it more robust–rather than seeking quick gains and creating unreasonable expectations.

Jay Hao is the  CEO of OKEx

Source: https://www.financemagnates.com/fintech/yield-farmers-could-place-too-much-strain-on-defi/

Blockchain

Bitcoin: Temporary Correction or No ATH This Year? The Crypto Weekly Market Update

Republished by Plato

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Bitcoin has a way of surprising people. This week was no exception. A few days ago, almost everyone believed that the cryptocurrency is inevitably headed to a new all-time high. And how could they not? BTC was trading at a few hundred USD below the record from back in 2017. Unfortunately, things took a turn for the worst.

Yesterday was undoubtedly a bad day for bitcoin as it plunged a total of around $3,000 in less than 24 hours. From a high of about $19,500 down to $16,200, the bears poked and showed their faces. The entire market lost around $80 billion of its capitalization as altcoins actually had it worst.

During the market dive, Bitcoin’s dominance actually increased, showing that not only altcoins failed to hold their ground, but they dropped harder than BTC. Since then, there has been a slight recovery and at the time of this writing, the primary cryptocurrency is trading at around $17,000.

The move was seemingly propelled by the news that US regulators might seek to require identity verification from crypto wallet providers. Coinbase’s CEO, Brian Armstrong, commented on the matter, expressing his worries that if the new rules are implemented, they would be rather harmful to the users and the industry, in general.

At the same time, the popular cryptocurrency exchange OKEx opened withdrawals for the first time since they were shut down around a month ago, which might have prompted users to cash out the profits that they have been sitting on. In fact, CryptoPotato reported that around $500 million were withdrawn from the exchange as the crash started to take place.

In any case, the results are here, and it remains particularly interesting to see where will bitcoin go from here.

Market Data

Market Cap: $512B | 24H Vol: 181B | BTC Dominance: 62%

BTC: $17,132 (-7.98%) | ETH: $516.86 (+1.71%) | XRP: $0.56 (+74.08%)

Bitcoin Worth $500 Million Withdrawn From OKEx as Users Look for Other Alternative. Data shows that users withdrew a total of 29,300 BTC from the popular cryptocurrency exchange OKEx right after it resumed full functionality. This happened just as bitcoin plunged $3,000 in a matter of 24 hours. The exchange also resumed the withdrawals a day earlier than announced and during the Chinese trading hours.

Bitcoin Black Friday 2020: The Sales You Better Not Miss. It’s the end of November, and with this comes the long-anticipated shopping season. For many, this is a time to enjoy massive sales. We’ve taken the liberty of listing a few sales within the cryptocurrency field that aficionados might find interesting.

Facebook’s Libra Could Reportedly Arrive in January 2021 in a Scaled-Down Version. Libra, Facebook’s long-awaited cryptocurrency project, might be set to launch in early 2021. However, the version that’s potentially hitting the market is scaled-down and specifically intended to abide by the regulations of Switzerland’s FINMA.

Research Suggests Satoshi Nakamoto Launched Bitcoin From London. New research shows that activities associated with Satoshi Nakamoto from 2008 and 2010 might have taken place in London when Bitcoin’s network went live. This brings the experts a step closer to identifying who’s behind the legendary pseudonym.

6 Possible Reasons For Bitcoin’s $3,000 Daily Price Crash. Bitcoin went through a massive crash two days ago when it lost around $3,000 of its value in a sudden red candle. These are six reasons for which this may have happened and a brief outline of what might be next to come.

Coinbase CEO Fears Rumored Regulations Proposed By The Trump Administration. Brian Armstrong, the CEO of the leading US-based cryptocurrency exchange Coinabse, has said that he’s worried about the rumored regulations concerning third-party wallet providers having to identify their users. He said that this might harm users and the entire ecosystem.

Charts

This week we have a chart analysis of Bitcoin, Ethereum, Ripple, Chainlink, and Stellar Lumens – click here for the full price analysis.

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Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. See Disclaimer for more information.

Cryptocurrency charts by TradingView.

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Source: https://cryptopotato.com/bitcoin-temporary-correction-or-no-ath-this-year-the-crypto-weekly-market-update/

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Blockchain

Ripple Plans To Cash Out 33% Of Its MoneyGram Stake With A Significant Profit

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  • The San Francisco-based payment protocol has filed a document on Friday with the US Securities and Exchange Commission (SEC). It reads that Ripple Labs has entered into an agreement with MoneyGram, which entitles Ripple to sell up to 4,000,000 shares of common stock.
  • Ripple’s option to sell these shares will expire “upon the earliest of March 31st, 2021, the time at which the maximum amount shall have been sold, or the occurrence of certain other customary events affecting the issuer.” 
  • CryptoPotato reported last year that Ripple and MoneyGram announced a strategic partnership. The initial term of the agreement was for two years. Ripple had agreed to provide a capital commitment amounting to $50 million in exchange for equity through the two-year period.
  • As per the SEC filing, Ripple owns 6.22 million shares of the giant money transfer company (or 8.6% of shares outstanding). However, the blockchain company has a warrant to buy up to another 5.95 million shares, amounting to a total equity position of 12.2 million shares or 17% of MoneyGram’s shares outstanding).
  • With the initial investment in 2019, Ripple purchased the MoneyGram shares at 4.10 per stock, which was a significant premium to the market price. 
  • Nevertheless, MoneyGram’s stocks (MGI) have surged in 2020, closing Friday’s session at $7.42. As such, Ripple can cash out with an 80% profit, despite the initial premium.
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Source: https://cryptopotato.com/ripple-plans-to-cash-out-33-of-its-moneygram-stake-with-a-significant-profit/

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Blockchain

South Korea To Postpone Previously Planned Crypto Income Tax

Republished by Plato

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Lawmakers in Korea are planning to postpone a recently considered tax on crypto assets profits. Reports say the tax rule delay will be about three months – instead of October 2021, January 2022.

The New Crypto Income Tax Rule To Wait Until January 2022

According to a recent media report, the South Korean congress plans to put off the recently considered cryptocurrency income tax rule. A planning and finance committee of the National Assembly has issued a report, which proposes the necessity of implementing the crypto income tax rule from at least 2022.

A few months ago, in July, a report stated that South Korea’s Minister of Finance and Economy believes that the country should come up with a tax on cryptocurrency trading and investing. Back then, he added that South Korea has been in discussion with other countries about introducing a new digital law.

In July 2020, the country’s Ministry of Economy and Finance amended its tax code, where it included the plan for charging residents a 20% tax on gains from cryptocurrency trading, which are worth more than 2.5 million Korean won (about $2,000).

Lawmakers in the National Assembly are to approve the Government’s plan, which was to carry into effect the cryptocurrency income tax rule from October 2021.

Reason For The Delay – Time Is Tight

As per the media report, the reason for the postponement of the crypto tax law is based on some concerns, raised by local crypto exchanges. They have claimed the lack of time to build their proper tax reporting system and infrastructure, needful for the process to begin.

The so-called “Specific Financial Information Act” would be enforced from March next year, so crypto exchanges have to complete the necessary reporting system by September 2021 for verifying their real names of deposit withdrawal accounts.

As CryptoPotato reported, South Korea announced the planning of the crypto income tax in June this year. The Asian country went through some different views on how and whether it should tax profits from cryptocurrency. Firstly, at the beginning of 2020, the Ministry of Economy and Finance did not consider that digital asset trading gains as taxable income. A month later, another local report said the Ministry believes that the nation could start label cryptocurrency trading profits as “other income.”

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Source: https://cryptopotato.com/south-korea-to-postpone-previously-planned-crypto-income-tax/

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