{"id":136645,"date":"2020-12-18T17:36:00","date_gmt":"2020-12-18T14:36:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/the-threats-to-defis-sustainability-and-how-to-fix-them\/"},"modified":"2020-12-18T17:36:00","modified_gmt":"2020-12-18T14:36:00","slug":"the-threats-to-defis-sustainability-and-how-to-fix-them","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/the-threats-to-defis-sustainability-and-how-to-fix-them\/","title":{"rendered":"# The threats to DeFi\u2019s sustainability \u2014 and how to fix them"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a417e23999bd\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a417e23999bd\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/the-threats-to-defis-sustainability-and-how-to-fix-them\/#Siloed_protocols\" >Siloed protocols<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/the-threats-to-defis-sustainability-and-how-to-fix-them\/#Finding_the_answers\" >Finding the answers<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># The threats to DeFi\u2019s sustainability \u2014 and how to fix them <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS9zdG9yYWdlL3VwbG9hZHMvdmlldy82ZWU3YTU1NTMzMzUxZWIzZjU5ODVkMWRjODQ5ZGNjMC5qcGc=.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-5a136f3a>\n<p dir=\"ltr\">In the space of 12 months, DeFi has become a $15 billion industry \u2014 spawning governance tokens that are now worth even more than Bitcoin.<\/p>\n<p dir=\"ltr\">But the rapid explosion of protocols has brought considerable growing pains\u2026 and concerns that the sector is not on a sustainable footing. When interest rates in conventional savings accounts stand at a fraction of a percent, while yield farming generates <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/trip-and-travel\/\" data-internallinksmanager029f6b8e52c=\"10\" title=\"Trip &amp; Travel\" target=\"_blank\" rel=\"noopener\">trip<\/a>le-digit returns, it\u2019s inevitable that questions will emerge about whether this is a bubble that\u2019s fit to burst.<\/p>\n<p dir=\"ltr\">As Ethereum co-founder Vitalik Buterin recently pointed out on a podcast with Ryan Sean Adams, such sky-high interest rates are \u201cjust a temporary promotion that was created by printing a bunch of compound tokens, and you just can\u2019t keep printing compound tokens forver.\u201d<\/p>\n<p dir=\"ltr\">SEBA, a regulated crypto bank in Switzerland, hit the nail on the head in September\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.seba.swiss\/research\/defi-what-happens-when-the-music-stops\">when it released a report<\/a> that asks this: \u201cWhat h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ens when the music stops?\u201d<\/p>\n<p dir=\"ltr\">Its analysts warned that the current yield farming trend in DeFi is not sustainable \u2014 and went on to predict that only a small handful of protocols would survive in the long-term. Indeed, Yearn.finance has already embarked on\u00a0a plethora of mergers in recent weeks designed to bolster development resources and expand its liquidity pool.<\/p>\n<p dir=\"ltr\">Although SEBA went to great lengths to stress that not all yield farming lacks merit, the company added: \u201cYield farmers made money by hopping from one protocol to another. As long as there are buyers for new protocol tokens, yield farmers can continue jumping among protocols. When buyers stop accepting the other side of the trade, this deranged activity will be arrested. Clearly, this trend is not sustainable.\u201d<\/p>\n<p dir=\"ltr\">It pointed to SushiSwap, a fork of Uniswap, as an example. Following its launch, a myriad of other food-themed forks emerged. \u201cWhen markets took a bad turn, all except SUSHI corrected by more than 99% and became almost worthless,\u201d SEBA\u2019s analysts wrote.<\/p>\n<p dir=\"ltr\">The bank ultimately drew parallels with the dizzying ICO boom seen in 2017 and 2018 \u2014 where most ambitious projects failed to stand the test of time.\u00a0\u00a0<\/p>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Siloed_protocols\"><\/span>Siloed protocols<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p dir=\"ltr\">Unfortunately, headaches in the DeFi space don\u2019t end here. This year, Ethereum has established dominance as the main blockchain where protocols are based \u2014 and according to DappRadar, this network held 96% of total transaction volume in the DeFi ecosystem in the third quarter of 2020.<\/p>\n<p dir=\"ltr\">As reported by Cointelegraph in September, this led to alarm bells being raised over Ethereum\u2019s scalability issues \u2014 with transaction fees\u00a0surging to an all-time high. Although it is hoped that Eth2 will dramatically increase the network\u2019s capacity, experts warn it could be years before the transition to proof-of-stake is complete\u2026 and by then, the industry may have had little choice but to look for alternative blockchains.<\/p>\n<p dir=\"ltr\">The research company BraveNewCoin touched upon these challenges\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/mcusercontent.com\/3bcee1ef2023cd3e45524e325\/files\/8671fb2b-9c37-451d-87c1-12d97f88b396\/BNC_Research_Identifying_Key_Non_Financial_Risks_in_DeFi_on_Ethereum_Blockchain.pdf?utm_source=Brave+New+Coin+Newsletters&amp;utm_campaign=4ed3d7a019-NEW_RESEARCH_2019_08_16_04_36_COPY_02&amp;utm_medium=email&amp;utm_term=0_d7fa8797a2-4ed3d7a019-245407865\">in a recent report,<\/a> where it identified 18 serious non-financial risks facing the DeFi sector.<\/p>\n<p dir=\"ltr\">\u201cScalability risk is also the risk that Ethereum itself will not scale properly for DeFi protocols to be able to function sustainably over time. If network activity is too high (as it has been recently) it deters smaller investors and removes the \u2018accessible\u2019 aspect of DeFi \u2014 because smaller investors are earning rewards that are less than the fees required to obtain them. Not only does scalability risk impact investors, but it also impacts protocols,\u201d BNC wrote.<\/p>\n<p dir=\"ltr\">And all of this is before we mention the countless smart contract vulnerabilities that have led to millions of dollars in capital from being sucked out of the DeFi ecosystem by malicious actors. High-profile incidents appear to happen on an almost weekly basis \u2014 affecting investor confidence and jeopardizing the industry\u2019s long-term potential.<\/p>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Finding_the_answers\"><\/span>Finding the answers<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p dir=\"ltr\">According to Unifi \u2014 which has already launched on five different blockchains \u2014 change is needed if the sector has any prospect of establishing a meaningful presence in the crypto industry into the 2020s and beyond.<\/p>\n<p dir=\"ltr\">At present, the team behind this protocol believe the space is deeply flawed. On most DeFi platforms, those who make the most rewards are those who leave a platform first and move on to the next thing \u2014 creating distrust and causing confidence to evaporate. Resultantly, the top-ranking protocols with the highest total value locked are constantly changing.<\/p>\n<p>\u201cUnifi is custom built to be an efficient, rewarding, and sustainable system. Capitalizing on the strengths of each blockchain Unifi is on, we have created a system where all chains contribute together to form a complete tokenomics model, ensuring the success of the entire protocol,\u201d Unifi CEO Juliun Brabon said.\u00a0<\/p>\n<p dir=\"ltr\"><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.unifiprotocol.com\/\">Unifi<\/a> says it isn\u2019t a clone of any existing protocol \u2014 and instead, the project says it delivers a sustainable tokenomics system that is more akin to a blockchain than a conventional DeFi protocol. This is demonstrated by their governance token, UNFI, which incorporates proof-of-stake into <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/medium.com\/unifiprotocol\/unfi-proof-of-stake-3399130ddda3\">its model<\/a>. Unifi offers loyalty rewards to liquidity providers and traders, encouraging a sense of community instead of being a race to be the first out.\u00a0<\/p>\n<p dir=\"ltr\">The protocol adds that its multi-chain approach results in an ever-increasing audience with each new blockchain supported \u2014 with Ethereum, Tron, Ontology, Harmony and the Binance Smartchain united through the use of base tokens. In the last quarter of 2020 and continuing through 2021, Unifi is set to launch on additional blockchains \u2014 and new DeFi services, such as cross-chains swaps and a lending platform, will be released.<\/p>\n<p dir=\"ltr\">In order to gain cross-industry support, Unifi says it has received investment from over 20 blockchain venture capital firms, including four major exchanges \u2014 Binance, MXC, Bibox and HBTC. Unifi\u2019s governance token, UNFI was recently featured on Binance Launchpool.<\/p>\n<p dir=\"ltr\">As 2021 begins, all eyes will be on DeFi to see whether it can maintain its current size \u2014 let alone build on the astronomical growth that was seen in 2020. Sustainability is shaping up to be crucial in making this happen, and encouraging user loyalty could be the key to success.<\/p>\n<div style=\"background-color: #f0f0f0; padding: 8px 21px; font-weight: bold; color:#253137;\">Learn more about <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.unifiprotocol.com\/\" style=\"color: #253137\">Unifi<\/a><\/div>\n<div id=\"post-content\">\n<p><span style=\"font-size: 12px; color: rgb(169, 169, 169);\"><span style=\"font-weight: 600\">Disclaimer.<\/span> Cointelegraph does not endorse any content or product on this page. 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But the rapid explosion of protocols has brought considerable growing pains\u2026 and concerns that the sector is&#8230;<\/p>\n","protected":false},"author":1,"featured_media":136646,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/s3.cointelegraph.com\/storage\/uploads\/view\/6ee7a55533351eb3f5985d1dc849dcc0.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74894,74868,74891,70934,76751],"class_list":["post-136645","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-blockchain","tag-defi","tag-ethereum","tag-regulation","tag-sustainability"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/136645","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=136645"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/136645\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/136646"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=136645"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=136645"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=136645"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}