- As DeFi projects providing extreme returns are constantly entering the market, many believe folks need to prepare to avoid these frauds.
- Those who are aware of the crypto sphere, know that there are projects offering juicy returns to lure folks.
- Even though several schemes sound too good to be true, they are nothing more than frauds that grab the money and disappear.
Feasible Returns?
Product manager of Balancer Labs, a DeFi AMM protocol, Kia Mosayeri stated that Sophisticated investors will want to know where the yield comes from, how long it will last, and how large it will be.
He further added that a return derived from genuine commercial benefit, such as interest paid on borrowed funds or percentage fees paid for trading, would be more long-term and scalable than an income derived through arbitrary token emissions.
Apart from the role in facilitating decentralized financial facilities, Ran Hammer, vice president of business growth for public blockchain resources at Orbs, told a news website that DeFi protocols have presented another new advancement to the virtual currency ecosystem: the capacity to receive a yield on what is more or less passive holding.
Higher APY Traps
CoinStats CEO Narek Gevorgyan stated to a news agency that every year, vast sums are stolen from investors, mostly because they fall victim to high-APY schemes.
It is self-evident that projects cannot deliver such high APYs over long periods of time. I’ve seen a lot of projects with absurd interest rates, including those that go way over 100% APY and even 1,000% APY.
Investors are attracted to large numbers, but they frequently ignore the flaws and hazards that come with them.
He went on to say that investors should be aware that the majority of returns are paid in cryptocurrencies, and because most virtual currencies are volatile, the assets leased to earn such ridiculous APYs might lose value over time, resulting in significant temporary losses.
Education And Market Maturity Is The Core
EOS Network Foundation VC, Zack Gall stated that investors should consider eye-popping APRs only as a marketing ploy to attract new customers whenever they come across them.
As a result, investors must educate themselves in order to either stay away from such projects, be realistic, or plan for an early exit strategy if they do crash.
He added that due to the enormous dilution that must occur to the core incentive token, inflation-driven returns cannot be sustained continuously.
Projects must find a balance between enticing end-users who are looking for minimal costs and motivating token holders who want to maximize their profits. The only way to keep both going is to have a large user base that can earn a lot of money.
Source: https://www.thecoinrepublic.com/2022/06/05/can-education-contain-frauds-and-escalated-apy-projects/