DeFi and Yield Farming in 2021. What can we expect?
27 January 2021
For the blockchain sector, 2020 was the year of decentralized finance, and Yield Farming. The total value of locked (TVL) assets in DeFi protocols rose to $18.5 billion, having started the year with just $620M on the radar.
We are seeing more and more traditional financial institutions embracing the benefits of cryptocurrencies, and the blockchain and DeFi worlds are highly likely to positively disrupt investment banking and capital markets in 2021.
2021 will probably see a large focus on regulation and compliance that facilitates bridging the worlds of traditional and decentralized finance.
That’s why I’ve asked the Experty community about the future of the DeFi and Yield Farming:
- Do you use DeFi products to accumulate assets (yield farming/mining)?
- How do you perceive the Yield Farming trend?
- What can we expect this year regarding the DeFi/Yield Farming area?
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1
Blockchain Consultant
Do you use DeFi products to accumulate assets (yield farming/mining)?
Yes, I do use some DeFi products to accumulate assets. Mostly staking on various DeFi platforms like AAVE, CRV, PowerPool, and Flamingo finance. In general, it has been more profitable than hodling because it is essentially hodling with a little more risk and reward. I generally participate in lending, which generates an APY and I get back my original tokens.
How do you perceive the Yield Farming trend?
The yield farming trend has emerged from a financial system that offers no yield and the need to bring liquidity into the cryptocurrency ecosystem. Different protocols and platforms are using the ability for people to earn significant interest as a way to drive up volume and total value locked (TVL) in the platform, and yields will likely decrease over time as the ecosystem continues to grow.
What can we expect this year regarding the DeFi/Yield Farming area?
As far as what is ahead in 2021 for DeFi and yield farming, I feel that these sectors have only scratched the surface of their true potential as many projects are still developing and expanding with some hampered by network congestion on Ethereum. As Eth2 continues to roll out and other blockchain platforms emerge as viable options to hold DeFi and other smart contract platforms, the real breakout in price growth and public adoption will begin.
2
Digital Asset Hedge Fund Manager. Venture Partner at Blockchain Founders Fund. Trading | Venture Capital | Arbitrage
Do you use DeFi products to accumulate assets (yield farming/mining)?
Incentive-based DeFi products are popular to accumulate high-risk assets. Our firm does have a portion of assets in the yield farming ecosystem. Typically, we take a risk-averse approach, using stable coins or excess token inventory, knowing that the possibility for impermanent loss is very real. This has worked quite well since we've participated in a select few Farming activities and those projects since acquiring the assets have outperformed many other digital assets. As a whole, I prefer to invest in the platforms that offer Yield Farming, such as Kyber Network, Balancer, UniSwap, and Sushi Swap.
How do you perceive the Yield Farming trend?
As a whole, Yield Farming is a gamified way to bootstrap your project and I think that will be an ongoing motif in the digital asset space. I do think that the retail community will become more sophisticated and reduce the overall number of projects receiving meaningful allocations.
What can we expect this year regarding the DeFi/Yield Farming area?
This year, Yield Farming will become more accessible and user-friendly which will increase the overall adoption rate of DeFi assets.
3
Senior deFi Project and Crypto Research
Do you use DeFi products to accumulate assets (yield farming/mining)?
Yes, I have joined and used deFi Yield products, such as Farming and staking. And for the Defi Yield product (Farming or Staking), it is more profitable than just hodl.
How do you perceive the Yield Farming trend?
There is a reasonable chance of losing your money in yield farming. For specific protocols such as Uniswap, automated market makers can be quite profitable. However, volatility can cause you to lose funds. Any adverse price change causes your stake to reduce in value, relative to holding the original assets.
What can we expect this year regarding the DeFi/Yield Farming area?
Looking back on 2020, it is clear that decentralized finance had a great year. It was the year DeFi started showing its potential such as making you the real owner of your funds, and threads such as high fees or impermanent loss. I think that we need bigger players from standard financial institutions to enter the DeFi market in order to discover even more DeFi potential.
4
General Manager @ Excoincial Exchange
Do you use DeFi products to accumulate assets (yield farming/mining)?
I do not use yield farming to accumulate assets because of the previous incident where people's funds or investments were locked up forever and millions of dollars were lost. E.g. Stefan Thomas ex-CTO of Ripple which has only 2 chances to access his $220 million worth of bitcoins.
How do you perceive the Yield Farming trend?
Yield farming trend is good for accumulating wealth but more emphasis on security and governance is needed in order to start being completely Decentralized.
What can we expect this year regarding the DeFi/Yield Farming area?
Too much yield farming has raised red flags prior to the rise of gas fees and security, only a few DeFi projects will make it that will create a second layer on the blockchain, perhaps the coming of ETH 2.0 will change the game of DeFi projects with a combination of staking and PoW.
5
Developer
Do you use DeFi products to accumulate assets (yield farming/mining)?
I'm using Compound to accumulate assets.
How do you perceive the Yield Farming trend?
The DeFi market is seeing rapid growth in users and volume, especially the lending/borrowing segment. A new trend has appeared — “yield farming”- lending out tokens on DeFi lending protocols or becoming a part of a market-making pool to earn a high rate of return, often many times higher than the typical commercial bank savings account.
What can we expect this year regarding the DeFi/Yield Farming area?
Decentralized Finance (DeFi) has become a significant and highly valued movement in the blockchain community over the last few years. According to the DeFi pulse, the Total Value Locked (TVL) in DeFi projects passed $1 billion for the first time in February, but following the bitcoin crash, the value pulled back the next month. However, in the past month, DeFi TVL has beaten the previous record and now equals $1.67 billion. While this is a relatively modest amount by both the conventional financial sector and the crypto market standards, it clearly shows that the market sees the potential of the DeFi sector, and 2021 is going to be even better than 2020.
6
UX Researcher and Designer
Do you use DeFi products to accumulate assets (yield farming/mining)?
I really like the xDai STAKE service, the service seeks to solve the scalability problems of the applications in the Ethereum network and therefore the fees are much more reasonable than they’re at the moment.
How do you perceive the Yield Farming trend?
Regarding yield farming, I consider that the level of risk is much higher than the one I prefer to take, it is a technology that has proven to have a very important added value but at the same time, there is a great desire to bring in new users. In my experience, this doesn’t bring anything good. As was the case with SushiSwap when its "chef" decided to keep the funds of its users, so later he would have said that he was going to return them. This kind of thing may be acceptable to some, but personally, it fills me with doubts.
What can we expect this year regarding the DeFi/Yield Farming area?
Undoubtedly, in the coming years, all the ideas that seek to decentralize traditional services will take a major role, the figure of the bank will begin to be less and less important in people's lives and individual sovereignty will flourish with the new generations. The DeFi sector will continue its growth, and it will surely come up with many very good projects as well as many scams as well.
7
Research and Development
Do you use DeFi products to accumulate assets (yield farming/mining)?
I am actually using DeFi products for a while now, started with the NewDex over the EOS blockchain, and I am extremely happy, due to the fact that the actual funds don't leave your EOS wallet in order to become profitable, they simply get put into a smart contract that runs as it should.
How do you perceive the Yield Farming trend?
Regarding the yield Farming I have only started doing so a couple of days ago over at DeFiBOX on EOS blockchain, and it’s so far so good, easy to use, and visible profits from day 2. I think it’s a very good tool, but you have to watch out for the threads coming with it, and always be as secure as possible.
What can we expect this year regarding the DeFi/Yield Farming area?
2021 will be a good year for DeFi products if a good marketing plan is put in place. New users will only appear if they only find out that DeFi and Yield Farming exist and how successful they can be if used right!
8
Software Engineer and Head Ambassador for Central Europe at Polkadot
Do you use DeFi products to accumulate assets (yield farming/mining)?
With the DeFi I experiment, I use it only in order to get to know how to use it and how it works. I do not see DeFi now as a mature market ready for keeping more money.
How do you perceive the Yield Farming trend?
I observe the market, in my free time I play with Aave - quite well written technical documentation.
What can we expect this year regarding the DeFi/Yield Farming area?
As I wrote in the beginning, I do not think that DeFi protocols are mature but good to use every major protocol at least once to see how it works, and just see what the future will look like.
9
Senior Tax Consultant
Do you use DeFi products to accumulate assets (yield farming/mining)?
I haven't participated in farming or mining since I was skeptical about losing money on those platforms.
How do you perceive the Yield Farming trend?
I think it's risky but a good opportunity for many people to earn more easy money, but as well an opportunity to lose money, that’s why it’s so important to understand the technology before putting anything in it.
What can we expect this year regarding the DeFi/Yield Farming area?
Building up trust in DeFi and yield farming in order to make more people participate in it. All the time we hear about some hacks, or someone forgetting their passwords, impermanent loss. I think that the majority of people have no idea how to use this technology that’s why they’re losing money.
10
Blockchain Enthusiasts and a certified cryptocurrency trader
Do you use DeFi products to accumulate assets (yield farming/mining)?
Yes I use DEFI products to accumulate assets. It is very profitable except for the few hacks on some of the products. when compared to HODL it is more profitable because it is an indirect way of HODL. You lock up your token for some APY or Farm another token while still holding the parent Token, even if the price drops you already have some APY or some LP tokens to claim.
How do you perceive the Yield Farming trend?
It has come to replace our traditional investments and their APYs but the thing is The DEFI APYs are unstable, you do not tend to get the full APY because as people Join the APY reduces, and that makes it unstable to an extent. But for farming, that has come to stay, and also it is a decentralized IEO because it is done with or on a notable blockchain.
What can we expect this year regarding the DeFi/Yield Farming area?
This year will be another boom but more partnerships will come into the space and I mean DEFI + NFT partnerships. Moreover, more yield farming will now be on cross-chain because GAS fees are already becoming a problem. So, I am seeing a large expansion into Binance Smart Chain and for that to be fully maximized it has to be a DEFI minting NFT through Yield farming. Mark my words: it is an era of cross-chain.
Summary
As we can clearly see there’s still a really long way to go. In order for DeFi and Yield Farming to uncover its real potential, they have to first overcome some key challenges such as high fees, issues with smart contracts, market volatility, user error, or even lack of insurance on loans and potential failure of the price mechanism.
But don’t get fooled by these threads, there are still many good things that DeFi has created such as ownership, transparency, autonomy, and accessibility - and all of these things will stay forever with us.
Ultimately, the year ahead will be one of growth across the board for blockchain and DeFi assets. While the pandemic slowed progress globally, it also shone a bright light on the functional utility and opportunity for digital currencies. This will translate into continued innovation for the sector in 2021.
Feel free to send us any comments, questions, reports, or bright ideas. Let's talk on Facebook Community Group.
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Please Do Your Own Research always! We are not financial advisors, any information provided in this article is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we present is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.
