Chainfeeds Summary:
Has the era of "easily making profits" in the crypto world truly come to an end?
Article source:
https://x.com/justinalick/status/1993690167916577174
Article Author:
Justin Alick
Opinion:
Justin Alick: The first culprit is obvious: the bear market. The plummeting token prices emptied the fuel for many yields. The DeFi boom relied on expensive tokens: you could get 8% yield in stablecoin pools because protocols could mint and distribute governance tokens that were then skyrocketing. But when token prices crashed 80-90%, the game was over. Liquidity mining rewards either disappeared or became worthless. No free lunch without token appreciation. Token crashes are accompanied by a liquidity exodus. DeFi's TVL (total liquidity value) plummeted from its 2021 high, dropping over 70% between 2022 and 2023. Massive capital withdrawal, reduced lending demand, lower transaction fees, and fewer incentives—yields naturally withered. Even with a slight rebound in 2024, TVL was far from its former glory. The biggest irony is that traditional finance began offering better returns than DeFi. The Fed's interest rate hikes in 2023-2024 brought the "zero-risk yield" (government bonds) close to 5%. The highlight of stablecoin lending used to be: banks offered 0.1%, and DeFi offered 8%. But when risk-free 5% became available, DeFi's 3-4% seemed utterly foolish. Why put money into risky smart contracts for 4% instead of buying government bonds? The result: capital was siphoned off; on-chain stablecoins lay dormant in wallets, no longer deployed; the opportunity cost of holding non-yielding stablecoins became enormous. Now, Aave and Compound offer 4% (with various risks), while 1-year government bonds offer 5%, and are risk-free. Many of the high returns of the past were essentially fake: relying on token inflation, VC subsidies, or Ponzi scheme incentives. This approach was destined to be unsustainable. After 2022, protocols had to face reality: it was impossible to continue paying 20% APY in a bear market. It was impossible to print tokens indefinitely. It was impossible to maintain high returns through subsidies. Incentive reductions, depleted coffers, and the closure of mining activities—one project after another met their end. As a result, the only sustainable returns could come from real revenue (transaction fees, interest rate spreads), but these returns were very limited. DeFi has been forced to mature, but its returns have also shrunk to realistic levels. [Original text in English]
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