What Is The Main Risk Associated With A Cryptocurrency Hot Wallet?
Cryptocurrency wallets play a crucial role in the digital finance ecosystem, allowing users to store, send, and receive cryptocurrencies....
Heavyweight cryptocurrency figure and co-founder of Ethereum Vitalik Buterin has warned users of the bullish sentiment behind decentralised finance (DeFi) tokens, saying that it is naive.
Offering his opinion on Twitter, Buterin compares the number of cryptocurrency tokens created in the DeFi sector to the Federal Reserve’s money-printing:
Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they’re all run by Ron Paul.
— vitalik.eth (@VitalikButerin) August 31, 2020
The DeFi market at the moment is gaining major interest at the moment, with tokens like Chainlink seeing massive increases. Yield farming, which provides liquidity to earn interest in the form of the cryptocurrency tokens, has led to the sparked attention towards the DeFi sector. Buterin notes that this aggressive surge in supply of tokens will put pressure on the prices of the token, devaluing them overtime.
Unlike Bitcoin which has a limited supply available, the tokens might struggle to sustain any demand if the market becomes oversaturated with tokens and undersaturated with investors.
Buterin’s approach similar to Robert Kiyosaki
Buterin’s qualms with the influx of token supply are similar to that of Rich Dad, Poor Dad author Robert Kiyosaki, who is averse to the constant printing of federal dollars. Both agree that the immediate pitfall of oversupplying is the loss of value which leads to inflation. The risk is that if there is an oversupply and a lack of demand, the cryptocurrency tokens in the DeFi sector will have their time in spotlight briefly before burning out. This might damage the cryptocurrency market overall, as it could scare off investors who opt for DeFi tokens before any of the leading cryptocurrencies
DeFi tokens as equity in startups
Investor David Lach responded to Buterin, offering a different angle for the DeFi cryptocurrency tokens, saying:
“If you see those printed coins as new cryptocurrencies (like BTC, ETH etc.) then yes, it’s insane. But if you see them as equity in new crypto startups/projects that generate cash-flows, it’s not that crazy. There will always be new startups with real potential in crypto.”