Editor's Note: This article comes fromChain reference (ID: lianneican), Author: Internal Reference Jun, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Chain reference (ID: lianneican)

Chain reference (ID: lianneican)

text

However, what I never expected was that in just three months from the sharp rise in June to the sharp fall in September, DeFi fell from the boiling point of the midsummer carnival to the freezing point like a roller coaster. The bubble was also punctured by myself.

As more and more DeFi projects appear in the sun, after the test of time and users, many projects have been thundered one after another. More and more people have returned from madness to rationality, and even from pursuit to doubt. What happened to DeFi? ? Does DeFi have a future... This 180-degree change has been staged countless times in the digital currency market and even in the field of traditional financial investment.

What Mr. Internal Reference wants to say is that DeFi is not guilty at all. What is wrong is the unscrupulousness of some project parties and the ignorance and greed of investors.

secondary title

DeFi From Summer Party to Bubble Burst

In 2020, DeFi, which is considered a "new financial revolution movement", has grown at an alarming rate and has become the most attractive story in the entire blockchain industry. In 2018, the market value of DeFi stayed at US$6 million. In January 2020, the total market value of DeFi was less than US$700 million. In April, the total market value reached US$2 billion. By mid-August, this figure had soared to US$10 billion.

DeFi is a relatively broad concept, including: currency issuance, currency trading, lending, asset trading, investment and financing, etc. Especially in June, when Compound started "liquidity mining", DeFi ushered in its own "summer time". Since September, the heat of the entire cryptocurrency market has been dominated by liquidity mining. As a new investment model, liquidity mining has been sought after by investors for its low risk and high returns.

The "liquidity mining" that single-handedly brought DeFi into flames has delivered rich stories one after another to the circle, making the DeFi circle almost crazy.

Since the advent of COMP, Curve, YFI, YFII, YAM, GRAPE, SUSHUI... All kinds of liquidity mining tutorials and analysis articles have filled the entire circle of friends. Farmers driven by FOMO mentality seem to feel that sleep is a waste time thing.

However, with the intensification of DeFi mining, the problems are becoming more and more obvious. DeFi’s liquidity mining has a high threshold for users with small funds, and the participation process is relatively complicated. Many users have bought counterfeit coins, lost coins by mistake, and transferred to the wrong address. Even if the mining is successful, the user finds out after calculations that the income may barely cover the transfer transaction fee, which is a waste of work. What's more serious is that, however, this kind of innovation, which was originally full of decentralized financial revolution, has slowly begun to taste bad, and the profit-seeking sentiment has covered up the expanding bubble and risks.

Since the beginning of autumn in September, with the plunge of Sushiswap, multiple DeFi projects have run away, which kicked off the prelude to the plunge of DeFi.

The overnight success of SushiSwap once again interprets the madness of "one day of DeFi, one year of the currency circle". Many people entered the market one after another to make a fortune. The performance of Sushiswap at the beginning was indeed surprising. It rose from less than US$1 to US$12 that day, and some exchanges skyrocketed to US$15. However, what was even more unexpected was that the price fell in half on the second day, and immediately after the anonymous founder of SushiSwap, Chef Nomi, dumped the tokens, the price dropped to a minimum of around US$1.5.

The SUSHI incident seemed to overturn the first domino, triggering a shocking decline in DeFi.

MoonSwap is a dex project in the Conflux ecosystem. Its platform currency first uniswap and then skyrocketed, then fell, and fell by more than 70% within 1 day. The mining of "Kimchi" KIMCHI is very similar to SUSHI, and it is also a glorious project. Compared with the current price from the highest point, it has dropped by more than 95%.

Curve is a well-known DeFi project, and its price fell by more than 90% within a month. YFV is the iconic liquid mining product after yfi and yfii, and it has fallen by more than 50%, but among all the rapidly plummeting DeFi tokens, the rate of decline has been much slower...

The smart chain of the exchange did not spare leeks. Previously, some investors broke the news that the Bakery bread project plummeted, and the price of the bread token BAKE kept falling within a few hours. Many users took over BAKE at a price of around 12BUSD to mine the second pool, resulting in more 90% loss.

The big drop makes people want to cry without tears, and running away makes people even more heartbroken.

It took less than ten days for the founder of "Sushi" SUSHI to complete tens of millions of cash out of the copied code, and instantly became a rich man. The "Emerald" EMD project took even less time, successfully running away in less than 24 hours. EMD, the first Defi project of EOS, was really a malicious project and ran away in less than a day. A total of nearly $2.5 million in assets has been transferred so far.

Skyrocketing and plummeting, plagiarizing codes, mining to take over, misappropriating money and running away... one after another, the bull market started because of DeFi, but it will also end with the exhaustion of DeFi potential. If DeFi wants to make great progress in the future, it must have the determination to "break the wrist of a strong man", gradually get rid of the dependence on "concept hype", and truly base itself on the value of DeFi itself, rather than the current "copy and paste" of code, issuing coins "Drumming and Passing Flowers".

secondary title

The investment risks of the three major levels of DeFi need to be recognized clearly

There has never been a shortage of hot spots in the blockchain field, but what is lacking is concentration. In recent years, hot spots such as 1CO, fork, TPS speculation, FOMO3D, STO, transaction mining, 1EO, DeFi and so on have emerged one after another. But no matter what the concept is, the launch of each token cannot be truly verified for value at an irrational stage. The high price is not the real value, and there are too many bubbles. DeFi is no exception.

The bull market will not keep rising, but the crazy surge before the big correction will indeed make people lost, and there is a feeling of turning beans into gold. If you enter blindly at this time, you will easily become a catcher. At this time, investors will directly face risks at three levels: one is the risk at the technical level, the other is the risk at the human level, and the third is the risk of being harvested by capital.

As far as the DeFi field is concerned, there are four major risks in the DeFi protocol.

Smart contract risks: DeFi smart contracts are easily exploited by hackers. For example, bZx, Curve, and Lendf.me were hacked this year. The explosive growth of the DeFi industry has led to a large amount of capital being injected into nascent protocols, and attackers can easily find loopholes in these immature protocols;

System design risk: Many DeFi protocols have not been in operation for a long time, but they provide a large number of incentives, such as Balancer. With just a simple loophole, FTX can obtain more than 50% of the income;

Liquidation risk: The encrypted collateral in the DeFi protocol is vulnerable to market fluctuations, and there is a risk of debt positions being under-collateralized during market fluctuations, which in turn induces a liquidation mechanism and causes users to suffer further losses;

Bubble risk: The price dynamics of some underlying network tokens (such as COMP) will be reflexive, because the expected future price is usually related to the degree of network popularity and application, and network usage is affected by the future price of network incentive tokens Influence.

These technical risks make it hard for investors to guard against, and even cause unexpected losses to investment funds. Even if investors want to understand, it will be difficult for people to start because of the limitations of technical barriers.

For example, the emerald scam is mainly due to our underestimation of risks. Liquidity mining is still the biggest hotspot in the currency circle. From ETH, to wave field, to EOS, and even the domestic chain and the public chain of the platform currency, each chain The gameplay will have different ways of expression, but scams are often hidden in it, and it is difficult to identify.

To sum it up carefully, there are three kinds of people who are most likely to be harvested: the first is people who don't do research. Entering the market blindly, whether you lose or make money depends on luck; the second type of people are people who like to follow suit. Like to follow others, do not research projects, do not participate in the community, love to chase ups and downs, this kind of people are the most; the third type of people are long-term currency holders who don't know why. This kind of person is extremely easy to be PUAed by some people, waiting for false promises. Such people often lose the most, and even lose everything.

A very important reason why DeFi can continue to be hot is that prices are rising and are in a positive cycle. DeFi magnifies data through repeated mortgages, which makes many people believe that it is a real trend. In some projects, relying on the rapid rise of tokens, investors continue to increase leverage investment and obtain high returns. However, due to the existence of the law of the same source of profit and loss, if the cake does not grow bigger, it will not create ten times or one hundred times the utility , Who will lose money in the end? You can imagine.

As ordinary investors, in the face of all kinds of scams that emerge one after another, perhaps learning how to survive in the currency circle, seeing through various scams and preventing being harvested is the most important thing.

secondary title

Return to reason, choose DeFi first to choose a platform

For investors, digital currency investment is still in its infancy, and many infrastructures are not yet sound. This is even more so with DeFi.

Entrusting investors with huge funds to the code, the security of the code is the lifeline of DeFi. It is a completely irresponsible attitude to dare to go online to manage hundreds of millions or even billions of funds without code auditing one after another. Even if these projects are used as a social experiment, they should also set a fund management scale , but we don't see this behavior.

DeFi Lego is a complete innovation, which has excited many geeks who want to subvert traditional finance. But the question is also before us, whether this deep integration will bring greater risks. When a group of rigorous project parties are carefully building the DeFi ecosystem, the few projects that are eager for quick success may become the rat shit that ruined a good pot of porridge. Therefore, an aggressive attitude and a rigorous style of work are a very important part of controlling industry risks.

Therefore, one must be cautious and cautious before deciding to invest in digital currency. We should pay more attention to what role the issued Token plays in the entire economic model, what functions it has, and what value it creates. If it is not designed from the perspective of long-term value, many Tokens will still be reduced to garbage in the end. A large amount of mortgage or transaction data is just an illusion of liquidity, and those who enter the market later can only be reduced to takers.

In order to avoid or reduce investment risks, ordinary investors can grasp the following points to reduce investment risks.

First of all, learn to read the project white paper. The white paper includes information such as the project's market positioning, sales proposition, comparison with competitors, project team, token application scenarios, and project progress. This is very helpful for the analysis of encrypted projects. The white paper can be used as an important reference for investment.

But also remind everyone that the white paper is not the holy grail of the authenticity of the project, and it is entirely possible for fraudulent companies to create a convincing white paper.

Secondly, it is necessary to know as much as possible the information of the founding team of the project, especially the background information of the core members. Developers and management teams are a critical part of the success of any token project, which is why you should have a solid understanding of the project's founding team. Find out if anyone has worked on a well-known project, or is a well-known member of the blockchain space. Apart from that, their qualifications and experience should also be important considerations.

But this is difficult for ordinary investors. Due to the sensitivity of digital currency, the founding members of many projects are either abroad or hidden. The best way to get in touch with them is on social media or program groups. So a lot of information is difficult to be truly transparent.

Finally, if the above two points cannot be achieved, then ordinary investors must choose a leading exchange with good reputation when investing in digital currency. For example, Huobi, which did not follow the trend to hype the "smart chain" hotspot, has done a good job in this regard. They have extremely strict regulations on the currency listing process. For things that we personally cannot do and have thresholds, the platform will provide some solutions. Solve and review, which greatly reduces the risk of investment.