Golden Observation丨Is it risky to obtain passive income through DeFi?

Jinjin Finance Blockchain, August 22 News   Nowadays, people can earn passive income just by storing their encrypted assets on DeFi platforms and DeFi services, and the loan interest rate and compound rate of return provided by the DeFi protocol are higher than those of many traditional banks. Interest rates are much higher; moreover, people can earn income faster in the crypto ecosystem than in the traditional financial system. So is this seemingly good passive income reliable or risky?

First of all, there are now 5,700 digital assets in the cryptocurrency market. People can use mortgage verifiers or wallets to store digital currencies in custodians that can provide interest payments. In addition, people can also accumulate from certain cryptocurrency mortgages. Earn and profit. It is reported that there are currently more than 666 mortgage and income service providers in the market that can provide interest-generating mortgages.

Mei Hongrui, co-founder of Golden Hashrate Cloud: Long-term view of the Filecoin track: Golden Finance live report, sponsored by open source mining pool and Huobi, co-hosted by Golden Hashrate Cloud, ChainUP, and Filecoin Beijing The first stop of the Storage China Tour and the Open Source Mining Pool IPFS Private Sharing Session” was held in Beijing on November 13, 2020. Mei Hongrui, the co-founder of Golden Hashrate Cloud, said at the meeting that Golden Hashrate Cloud is bullish on the Filecoin track for a long time, and the Filecoin project will have growth value in the future. There are specific application scenarios. All developers and application scenarios in the future will have demand for FIL. Second, the value of Filecoin is underestimated. From the perspective of the disk, the private placement value of Filecoin in 2017 was 2.5 billion U.S. dollars, but the current circulation is 30 million, and the circulation market value is about 800 million U.S. dollars. The digital currency circulation market value does not rank in the top five, and the value is underestimated. One year later, the liquid disk will reach about 100 million. Assuming that the market value of circulation enters the top five, the price of Filecoin will be around 100 US dollars. [2020/11/13 20:45:03]

Staking service providers are actually similar to investment platforms that allow users to stake proof-of-stake tokens, and these platforms pay their users weekly or monthly income. Mortgage validators will be responsible for processing proof-of-stake payment transactions. They can obtain corresponding fee income when processing these transactions. Some digital currency wallets will also provide proof-of-stake token mortgage services. Users only need to store tokens through these wallet clients. Mortgage income available. However, it should be noted that the mortgage rate is variable and depends on the type of tokens that the user mortgages, but the mortgage rate that the user can obtain is basically between 1-100%.

Golden Noon News | List of important developments at noon on October 7: 7:00-12:00 Keywords: DC/EP, Polkadot, US CBDC

1. The transaction value of the central bank's digital currency DC/EP pilot has reached 1.1 billion yuan.

2. Polkadot disclosed the details of the "Initial Parachain Issuance" plan, and half of the parachain slots will be pledged by DOT holders.

3. President of the Federal Reserve Bank of Kansas City: The Federal Reserve is indeed studying CBDC, but currently has no plans to launch it.

4. This year, 75 crypto exchanges have been shut down, and nearly 2,000 altcoins have disappeared.

5. The market generally fell, DOT and LINK fell by nearly 10%, and BTC temporarily reported at $10,589. [2020/10/7]

Currently, staking service providers on the market include platforms such as Stake Fish, SNZ Pool, Hashquark, Figment Networks, Everstake, Mycointainer, Staked, Just Mining, Infstones, Stake Cube, MXC, Hotbit, and Stakin. To give one example, the encrypted tokens that Hashquark users can mortgage include DASH, Cosmos, Irisnet, QTUM, and Tezos, but the yield of each token is different. In addition, those who are interested in token mortgages can also use some digital currency wallets that support proof-of-stake token mortgages, such as Atomic Wallet, Atomex, Cake Defi, Chainode Tech, Math Wallet, and Gaurda Wallet, among which Atomic Wallet currently supports There are the most types of mortgage tokens, including assets such as NEO, Vechain, Algorand, TRON, Cosmos, Tezos, Komodo, and Band.

Exclusive | Jinse Finance Mining Earnings Report on February 11th: Jine Finance reported, according to the data of Coinin Mining Pool:

The daily income of mainstream currency mining is: BTC (￥1.13/T), ZEC (￥0.42/T), LTC (￥21.02/G), BSV (￥1.10/T), BCH (￥1.16/T), DASH (￥0.08/G).

The current popular mining machine data and net income are: Whatsminer M20S (BTC, ￥47.04), Antminer Z11 (ZEC, ￥42.75), Innosilicon A4+ (LTC, ￥6.19). [2020/2/11]

Of course, in addition to using the aforementioned collateral to obtain passive income, digital currency holders can also use the DeFi platform of cryptocurrency exchanges and managed interest-bearing accounts to obtain passive income.

We can see that many well-known cryptocurrency exchanges, mortgage income service agencies and custodians are now providing interest-bearing accounts for digital assets. One of the more popular interest-bearing account platforms is Cred, which allows people to earn interest on a monthly basis, and users can also earn daily compound interest, and can also mortgage Bitcoin, Ethereum, Bitcoin Cash, LINK, USDT and a large number of other cryptocurrency. At present, its business has covered more than 60,000 customers in 196 countries and regions around the world, and has promised to provide more than 200 million US dollars in encrypted assets. Not only that, but the Cred website also offers a “calculator” personalized service that can calculate how much money users can make based on the encryption projects they choose. Another platform, Blockfi, also claims to allow investors to earn interest, borrow and trade cryptocurrencies, and customers can earn 8.6% annualized returns on their holdings of Bitcoin, Ethereum, Litecoin, USDC, GUSD and PAX tokens , and there is no minimum balance requirement for accounts using the Blockfi platform to earn interest. In addition, data from a platform called Crypto.com shows that people can earn a maximum annual rate of return of 8%, and the interest rate of stablecoins is even higher, reaching 12%.

Analysis | Golden Disk: FGI Fear Index 14: Golden Disk Comprehensive Analysis: The FGI Fear Index showed 14 on September 12, and the market is in a state of extreme panic, because the market is worried about the cash-out behavior of the ICO project party based on Ethereum and the rumored launch The impact of ETH futures contracts on prices has led to a sharp drop in ETH recently, driving a large number of underlying inertial declines. Investors are requested to view market volatility rationally and do a good job in risk control. [2018/9/12]

It is undeniable that the income and risks of income farming are synchronized, and the excessively high yield highlights the existence of additional risks in the market. First of all, we can see the risk of system design: many DeFi protocols have not been in operation for a long time, but they provide a lot of incentives, such as Balancer, with just a simple loophole, FTX can obtain more than 50% of the income; secondly It is the risk of smart contracts: DeFi smart contracts are easily exploited by hackers. The explosive growth of the DeFi industry has led to a large amount of funds being injected into nascent protocols, and attackers can easily find loopholes in these immature protocols; the third is the liquidation risk: The encrypted collateral in the DeFi protocol is vulnerable to market fluctuations, and there is a risk that the debt position will be under-collateralized during market fluctuations, which will then induce a liquidation mechanism and cause users to suffer further losses; finally, there is the risk of bubbles: because the expected future price is usually consistent with the The degree of network popularity and application is related, and network usage is affected by the future price of network incentive tokens. Therefore, the price dynamics of some underlying network tokens (such as COMP) will be reflexive.

Jinse Finance live report Ruan Anbang, founder and CEO of 8Wen: Blockchain and smart contracts still have some problems: Jinse Finance live report, at the 2018 Big Data Industry Summit, Ruan Anbang, founder and CEO of 8Wen said that blockchain and smart contracts There are still some problems in the contract. First, the calculation outside the chain is untrustworthy. Unless the complete calculation process is written by the smart contract, the security problem of any link in the data transmission outside the chain will lead to the loss of global credibility; the limited excuse, even if Turing is complete, and the interfaces and functions supported are still far less than those of stock applications; transplantation and reconstruction are not compatible with stock applications, and full transplantation and massive reconstruction are required; complete redundancy, all operations of smart contracts need to be performed in the global The network nodes are completely redone, resulting in a huge waste of resources and performance loss; inefficient consensus, extremely low consensus efficiency, and extremely low consensus operation value, resulting in a huge waste of resources and loss of new energy. [2018/4/19]

From the above risks, we can see that the essence of the platform is only an exchange and a custody service provider. Once you deposit assets in it, it means depositing assets in a "third-party provider", and the corresponding risks are inevitable. . Over the past two years, most of the investment tools that allow holders of encrypted assets to obtain income have shown exponential growth. On some decentralized financial platforms, anyone can obtain passive income in a variety of ways. Through mortgage verifiers, DeFi lending services, and interest-bearing accounts can indeed provide digital currency holders with a way to "make money" with assets, and most people have also begun to choose to store their own cryptocurrency for a long time, through "earning passive Income" to explore the use value of cryptocurrencies.

But at the same time, we must also be alert to the existence of risks, and we must know that no DeFi platform is perfect. Don’t forget the black swan event encountered by the cryptocurrency market on March 12, 2020. The price of Ethereum once fell to $160, causing a large number of loans to fall below the mortgage threshold and triggering the liquidation mechanism of MakerDAO, the world’s largest DeFi project at that time. In fact, income farming and risks have shown synchronization at present. Although the current DeFi market is still relatively small, the excessively high yield highlights the additional risks in the market. These risks mainly include:

1. Smart contract risks: DeFi smart contracts are easily exploited by hackers, and several examples have appeared in 2020, such as bZx, Curve, and Lendf.me. The explosive growth of the DeFi industry has led to a large amount of capital being injected into nascent protocols, and attackers can easily find loopholes in these immature protocols;

2. System design risk: Many DeFi protocols have not been in operation for a long time, but they provide a large number of incentives, such as Balancer. With just a simple loophole, FTX can obtain more than 50% of the income;

3. Liquidation risk: The encrypted collateral in the DeFi protocol is vulnerable to market fluctuations, and there is a risk of debt positions being under-collateralized during market fluctuations, which in turn induces a liquidation mechanism and causes users to suffer further losses.

4. Bubble risk: The price dynamics of some underlying network tokens (such as COMP) will be reflexive, because the expected future price is usually related to the popularity and application of the network, and network usage is affected by the future price of network incentive tokens .

In short, if you have strong funds and can bear the risk of investment losses, then DeFi may be a good choice for you to "make money", but if not, maybe you'd better keep your pockets tight.

Part of this article is compiled from Yahoo Finance

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