Higher DeFi interest rates are associated with unstated risks, Ethereum co-founder
- Ethereum co-founder Vitalik Buterin said that high-interest rates on DeFi protocols come with unstated risk.
- Buterin had earlier warned about the dangers associated with DeFi, noting that protocols have a non-zero chance of failure.
- Compound recently overtook MakerDAO to become the leading DeFi in the space.
The co-founder of Ethereum, Vitalik Buterin, recently said that interest rates on DeFi protocols that are prominently higher than those in traditional markets come with unstated risks. Buterin took to Twitter to discuss the high yields and interest rates associated with DeFi protocols.
Decentralized finance should not be about optimizing yield. Rather, we should be solidifying and improving a few important core building blocks: synthetic tokens for fiat and a few other major assets (aka stablecoins), oracles (for prediction markets etc), DEXes, privacy....
— vitalik.eth (@VitalikButerin) June 20, 2020
Buterin highlighted that higher interest rates on DeFi protocols are “inherently either temporary arbitrage opportunities” or come with unstated risks attached. At Tel Aviv’s Ethereal conference last year, Buterin had warned about the dangers associated with DeFi, noting that protocols have a non-zero chance of failure.
According to DeFi Rate, the lending interest rates on the Nuo protocol for USDC have a 30-day average percentage of 10.25. Aave, a popular protocol, averages 4.28% for USDC lending while Compound offers 4.12% on its USDC deposits. On the other hand, legacy financial institutions offer much lower interest rates. Meanwhile, research by Money Rates revealed that Marcus (a borrowing instrument by Goldman Sachs) offers a 2.15% average annual percentage yield on its 5-year deposits as of the first quarter of 2020.
Compound overtakes MakerDAO
The biggest news in the DeFi space is the fact that Compound (COMP) has overtaken MakerDAO to become the largest DeFi project. This has already been covered by FXStreet, which you can read here.
Robert Leshner, CEO and Founder of Compound, has recently tweeted a series of tweets explaining why this sudden rise of Compound is anything but an “overnight success story.”
In 2017, we had a vision for a decentralized money markets.
— Leshner (@rleshner) June 19, 2020
This wouldn't have been possible without the @ethereum Foundation, @Consensys, and countless builders developing Ethereum into a full ecosystem that was usable, and viable to deploy smart contracts on.
Thank you.
Author
Rajarshi Mitra
Independent Analyst
Rajarshi entered the blockchain space in 2016. He is a blockchain researcher who has worked for Blockgeeks and has done research work for several ICOs. He gets regularly invited to give talks on the blockchain technology and cryptocurrencies.
