A new DeFi report by crypto services platform Crypto.com dove into yield farming opportunities and DeFi adoption across newer blockchains such as Binance Smart Chain, Polygon, and others.
The report, written by Crypto.com research manager Kevin Wang, concluded that the reasons for yield framing regaining popularity are the launch of new blockchains, layer 2 solutions on Ethereum, the evolution of autonomous market maker (AMM), and the development of yield aggregators.
Yield farming trends
Yield farming, also referred to as liquidity mining, is a way to generate passive rewards with cryptocurrency holdings. In May, Google Trends of DeFi peaked, and the TVL also tapped an all-time high of $86 billion.
In terms of Total Value Locked (TVL) — a metric for the total value of all cryptocurrencies locked in a particular protocol — Polygon and Binance Smart Chain emerged as the most popular solutions alongside Ethereum for DeFi applications and products.
The most popular layer 2 solution, on the other hand, was ZK-Rollups, a scaling solution designed with privacy and scalability in mind. Such solutions were designed to combat the inherent issues of high gas fees and network congestion on Ethereum; they submit aggregated data by batch to Ethereum’s mainnet instead of each piece of information.
AMMs and yield farm risks
Automated market makers (AMMs) — smart contract-based exchanges that match trades using liquidity pools — were highlighted as the ‘poster child’ for DEXs and liquidity in the DeFi market.
These, however, came with their set of issues. “AMMs are not exactly perfect solutions and do come with several limitations, such as low fund utilization, additional risk exposure, and the widely discussed issue of impermanent loss,” wrote Wang, adding:
“During the development last year, new market maker algorithms appeared to solve the traditional AMMs issues such as DODO’s PMM, Bancor v2, Balancer v2, and Uniswap v3.”
Meanwhile, the Crypto.com report stated that yield farming and AMMs had some inherent risks for users. “it is not a risk-free game and investors should bear in mind the potential risks, including impermanent loss and smart contract risk,” wrote Wang in the report.
Another issue cited was that of impermanent loss, or the loss due to the change of an underlying token’s prices in the AMM that lead to the tokens being less valuable than just holding. “No matter the rise or drop of price for the staking token, the impermanent loss always exists, unless the token’s price returns to the initial state,” Wang noted.
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A brand new DeFi report by crypto companies platform Crypto.com dove into yield farming alternatives and DeFi adoption throughout newer blockchains similar to Binance Good Chain, Polygon, and others.
The report, written by Crypto.com analysis supervisor Kevin Wang, concluded that the explanations for yield framing regaining reputation are the launch of latest blockchains, layer 2 options on Ethereum, the evolution of autonomous market maker (AMM), and the event of yield aggregators.
Yield farming tendencies
Yield farming, additionally known as liquidity mining, is a option to generate passive rewards with cryptocurrency holdings. In Might, Google Tendencies of DeFi peaked, and the TVL additionally tapped an all-time excessive of $86 billion.
When it comes to Complete Worth Locked (TVL) — a metric for the overall worth of all cryptocurrencies locked in a specific protocol — Polygon and Binance Good Chain emerged as the preferred options alongside Ethereum for DeFi purposes and merchandise.
The preferred layer 2 answer, alternatively, was ZK-Rollups, a scaling answer designed with privateness and scalability in thoughts. Such options had been designed to fight the inherent problems with excessive fuel charges and community congestion on Ethereum; they submit aggregated knowledge by batch to Ethereum’s mainnet as a substitute of every piece of data.
AMMs and yield farm dangers
Automated market makers (AMMs) — sensible contract-based exchanges that match trades utilizing liquidity swimming pools — had been highlighted because the ‘poster little one’ for DEXs and liquidity within the DeFi market.
These, nevertheless, got here with their set of points. “AMMs usually are not precisely excellent options and do include a number of limitations, similar to low fund utilization, further threat publicity, and the broadly mentioned concern of impermanent loss,” wrote Wang, including:
“In the course of the improvement final yr, new market maker algorithms appeared to unravel the standard AMMs points similar to DODO’s PMM, Bancor v2, Balancer v2, and Uniswap v3.”
In the meantime, the Crypto.com report acknowledged that yield farming and AMMs had some inherent dangers for customers. “it isn’t a risk-free recreation and buyers ought to keep in mind the potential dangers, together with impermanent loss and sensible contract threat,” wrote Wang within the report.
One other concern cited was that of impermanent loss, or the loss as a result of change of an underlying token’s costs within the AMM that result in the tokens being much less helpful than simply holding. “Regardless of the rise or drop of value for the staking token, the impermanent loss at all times exists, except the token’s value returns to the preliminary state,” Wang famous.
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