Why Does Crypto Offer Such High Yields: A Comprehensive Guide Pt.1

Why Does Crypto Offer Such High Yields?

  1. High demand for USD
  2. Facilitating Leverage
  3. Liquidity Provision
  4. Early User incentives
  5. Farm and Dump schemes

High Demand For USD

Aave on Polygon offers 23.75% for depositing USDT

Leverage

Perpetual future funding rates on different exchanges. If someone had shorted ETH on DYDX for the last 30 days and held the equivalent amount of ETH, they would have earned >3.50% a per month on their position.

Liquidity Provision

Curve offers yields on stablecoin pools

Early User Incentives

  1. Attract initial users and liquidity to start the network
  2. Distributes ownership of the protocol to make it more community owned and decentralized
Matic’s TVL soars to 1B TVL after their liquidity mining program

Farm and Dump Schemes

  • Lack of innovation, such as forking a project without adding any new features.
  • Lack of vesting (token lock-up) for founders. Most legitimate projects lock up the token supply for founders and investors to align their incentives with the long term value of the project or token. Without a lock up period, the founding team can sell their tokens for an early profit and abandon the project
  • Hyperinflationary tokens, sometimes with unlimited supply cap. Inflation of token supply siphons away value from all holders of that token. Extremely inflationary tokens are “designed to go to zero”.
  • No long term plan. Without long term development and support, protocols will eventually die out and the associated token will be worthless.
These are two separate projects, but the story of their token price is similar. Initial hype and marketing boost the initial price, but the price continually drops from there.

Are these high yields sustainable?

Conclusion

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The first concentrated liquidity market maker on Solana

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