Produce farming: We need to reduce the risks of produce farming to attract more individuals and institutions to DeFi, says Danny Chong, co-founder of Trench.
Produce farming in decentralized finance (DFI) has long been a high-risk endeavor with high rewards. However, intense risks can also undermine investor confidence, and deter new entrants from entering the space. DeFi players should consider taking effective measures to combat this in preparation for the next wave of DeFi development.
DeFi Growth
It was 2020 when DeFi Summer officially took off. Thanks to the likes of Compound, MakerDAO, and Uniswap, who helped catapult the market, DeFi has become a significant crypto segment that is gaining the attention of the current financial market. While more engineers upgrade and strengthen the current architecture of products and protocols, we are also seeing greater participation by mainstream institutions.
Recent examples include the world’s largest asset manager, BlackRock adding crypto services, accounting firm KPMG Canada adding crypto to its balance sheet, and the Ontario Teachers Pension Plan investing in crypto investment company FTX. Not a stranger to bitcoin, Tesla announced that it has about $2 billion worth of bitcoin at the end of 2021, reaffirming its continued belief in bitcoin’s potential. From what we have seen, it is likely that financial institutions will continue to invest in digital assets throughout 2022. But while more are investing and holding crypto, are they ready to adopt DeFi?
Various solutions have emerged as an early response to high risk in produce farming. Products such as Binance Custody, a centralized finance (CEFI) platform, provide a platform that aims to meet regulatory requirements and can serve as a rite of passage for institutional types entering high-risk DeFi environments. Is. Institutions ready to dip their toes in DeFi can turn to Ave’s Arch, a licensed DeFi protocol that is compliant with AML regulations and KYC and KYB verification. Although this is just the tip of the iceberg – much more still needs to be done. In order to fully mainstream the industry, we need to take steps to ensure that the right entry points are available for the produce cultivation.
Welcome more institutions to address high-risk exposure in produce farming
Produce farming is an attractive investment strategy as it gives high return on investment to the users without minimum or high capital requirements. Through smart contracts, capital is placed in a liquidity pool and in return, liquidity providers receive a local reward. However, the yield is far from adjustment for the farming uninitiated. It is not common for platforms to meet different investment profiles, indicate risk levels, or provide guidelines on where investors should allocate their capital.
While produce farming can be considered similar to investing in many different companies, it brings greater earning potential at a faster rate than traditional companies. So how can we as an industry help reduce risk, which will, in turn, attract more individuals and institutions to DeFi?
produce farming, Protocol to introduce new revenue models to mitigate risks
According to the DeFi Lama, the total value locked (TVL) in the DeFi protocol is just under $200 billion compared to the US stock market’s total market cap of $53 trillion, indicating that DeFi is in its infancy. In comparison, its ability to grow within its own financial framework is significant.
The new value in DeFi essentially involves printing “money of the future” through token emission, which means issuing new tokens. The more these tokens are acquired by the market, the higher their value. This is similar to an equity model, whereby more value will be generated if people believe in a company or, in this case, a protocol, and what it is for. Many protocols today still rely entirely on native token emissions, but there are protocols that are attempting to make DeFi less risky. This is achieved by adopting different revenue models for more stable and consistent returns.
Some of these protocols include Anker and Trench which generate revenue by serving a validator for BNB Chain (formerly Binance Smart Chain) on top of executing yield farming strategies. By introducing alternative sources of return and revenue models, users will be less likely to jump to other protocols due to the high value for their investments on the protocol by focusing on increasing revenue. It also better protects them from the volatility of DeFi and wider financial market influence.
Both DeFi and TradFi need to converge to remain relevant
With more financial institutions adopting crypto in some form or another, we are starting to see a gradual acceptance of crypto into the mainstream. Yet most traditional finance (TradFi) still operates as a status quo in terms of its offerings to customers. Some have attempted to adopt fintech solutions that provide a more seamless banking experience to more and more customers.
However, much remains to be accomplished. In addition to providing customers with a better user experience and exposure to crypto assets, institutions should also expose users to higher yield opportunities through DeFi. As an example, users are able to deposit the UST stablecoin on the Anchor Protocol for a 19% Annual Percentage Yield (APY), as opposed to a traditional savings bank account that pays an interest rate of less than 1%. Offering the most compelling products will give institutions a competitive advantage and prevent Tradefi from becoming like the telephone companies of the financial world, unable to provide differentiated and competitive offerings.
On the other hand, the DeFi industry needs to make concerted efforts to create a new business model blended with stable and sustainable returns.
produce farming, To hope
Defy is here to stay. As new financial investors enter the market, those who have already dipped their toes will continue to venture deeper into new protocols, on-chain, layer-2 solutions and technological upgrades.
For this trajectory to be sustainable, the DeFi protocol needs to make its offerings risk-free, strengthen the underlying technology, and maximize security through audits and other measures (such as multi-sig wallets for their treasuries). , while there is a higher but manageable risk as part of TradeFi. their portfolio. As TradeFi and DeFi come together, they will bring together the mix of expertise and experience that drives progress, while being informed by ever-evolving regulations. All these will emphasize to the mainstream that DeFi is a viable and valuable option for earning sustainable returns.
About the Author
danny chong Co-founder of Trench, a decentralized yield-enhancing asset tracker that provides stable and diversified high-yield returns for users of different risk abilities. With over 16 years of experience in investment banks, Danny has previously held leading roles in trading, sales and management for the APAC region at major French banks including BNP Paribas and Société Générale.
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