Recently, there seems to be a reversal in the crypto world, yet as investors we should keep in mind that we often find ourselves in an echo pit. It is true that even politicians are increasingly positive about cryptocurrencies, but at the same time a small group of people is starting to express a slightly different opinion. So is the CEO of FTX, Sam Bankman-Fried.
Yield farming is fraud
The CEO of the great American exchange described in the Bloomberg-podcast Odd Lots how exactly yield farming works. It wasn’t exactly the story you’d hear from the average exchange CEO. He illustrated it with a nice example.
†Token X comes from a box that does nothing and aims to change the world. After 38 days or so, Token X should replace banks. If you put a token in the box it is an IOU (something you have a claim on). That’s the world’s dumbest ETF (Exchange Traded Fund). Anything people put in the box can be used for ‘governance’. Token X is then distributed for free to anyone who uses the box. For example, as soon as someone puts 20 million dollars in the box, the box is suddenly valuable and everyone puts money in it.”
Comments and ambiguity
It’s a special discussion, and not just because it comes from the CEO of one of the largest crypto exchanges. What Decentralized Finance (DeFi) does is actually exactly what every bank does. It’s just almost completely abstract. DeFi enables loans and other financial contracts, and so do banks. According to that reasoning, every bank is therefore part of a Ponzi fraud. Banks often issue dividends, which you could see at DeFi as the yield. In addition, the price of a bank share can rise, just like the price of a token of a DeFi protocol.
Later in the podcast, he says that a token’s value could be based on cash flow or on a token’s purpose of use. Just like a bank. A bank also has cash flow and based on that a price of a share and any dividend.
However, there is something to be said for it. It could also be that it is so poorly understood that we simply don’t know how to define it.