Despite collapsing yields on borrowed crypto in the current bear market, some investors are in it for the long haul.
Inflated annual returns of 25,000% are not uncommon for seasoned crypto investors who make money farming or staking crypto tokens.
However, the current crypto winter has seen much of these returns evaporate, although exact amounts are difficult to pin down. It’s unclear if investors will get their crypto back from crypto banks and apps that have been hit hard by the recent market downturn.
But it also depends on whether the crypto institutions involved are established players or experimental startups. A 55-year-old law enforcement official, Craig Bowman, who lends stablecoin USDC, is confident that the token will maintain its peg to the US dollar because Circle, the issuer of USDC, is vetted and backed by collateral.
The veteran trader believes that even if his investments can offer him a 9% return, that’s still better than 0.5% at a traditional bank.
Two basic ways to lend money and earn interest
Yield farming is often responsible for high yields. It has been criticized by notable names in the field, including FTX CEO Sam Bankman-Fried in an interview on the Bloomberg Odd Lots podcast.
It is about giving the crypto institution a mainstream cryptocurrency in exchange for a “governance token” that grants the holder voting rights and a certain stake in the platform. The institution then lends the depositor’s mainstream cryptocurrency for a fee.
The governance token can be sold on another crypto exchange, and as more people use the platform, the value of the governance token will increase. Your original crypto will be returned after a while.
When staking, the number of coins staked increases the chance of being selected to protect a network from a 51% attack. To their dismay, TerraUSD investors found that staked tokens could not be withdrawn.
Crypto winter bites DeFi loans
New York resident Nhat Nguyen entered the distribution space about eight months ago lending Avalanche. She lost $2,000 when the market crashed but continues to try to earn a return by lending some stablecoins.
After quitting Wall Street positions at JPMorgan and Goldman Sachs, Nguyen now works at a crypto firm and is confident that others will continue to build despite the inevitable loss of some crypto companies. In other words, this shock is not the end.
Others are not so optimistic. Lukas Levert, 25, who invested $25,000 to lend out various coins, says he’s withdrawing amid the significant sell-off.
He will return when the market calms down again. Levert’s choice underscores how deeply interconnected the crypto ecosystem is.
The collapse of stablecoin TerraUSD, the suspension of withdrawals by lender Celsius, and the mass layoffs of Coinbase, BlockFi, and BitPanda have cut deep into decentralized finance niches.
According to DeFiPulse, the total value locked in decentralized protocols, including interest-bearing accounts, has fallen 60% since January to roughly $39 billion.
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