Yes, you heard correct - DeFi Winter.
As much as you would hate to hear this, nothing lasts forever. The market cannot go up infinitely without any pullbacks. Eventually, the Wintertime will come for DeFi, similar to what 2017/18 traders experienced in the last 2 years.
The new Wild West is called DeFi. It has tons of toys to play with, from yield farming to collateralized loans to trading, however, it’s starting to get a little overheated right now. As you are likely aware, the GAS fees for interacting with the Ethereum blockchain are CRAZY high right now. Its actually getting quite ridiculous in some cases.
However, that is JUST the tip of the iceberg.
Here is the biggest problem with the current state of DeFi.
On its own, DeFi is not a fully organic economic circle yet. Let me explain.
On the lending side (this is all the yield farmer crew), these are the same people who keep on borrowing and once one of them says “its enough, I’m cashing out” the entire chain will start to slow down and eventually contract before it collapses at the same speed it has grown. And we all KNOW how fast it managed to grow.
In other words, the people that are lending right now will borrow more in order to lend the same asset again. Do you remember margin trading? Well, this is pretty much margin lending, right?
On top of all of this, you have platforms like YFI that actively hunt for the best yields for your farms and help you to manage your funds better. However, in the end, it’s all the same people involved. Remember, to interact with DeFi smart contracts today will cost you upward of $40. Which small player is going to start farming with $40 fees on both ends of the equation? It really only leaves space for the whales...
I need to be clear here because it is amazing to see what these DeFi toys are capable of but, on the other hand, we are entering a level of extreme greed right now where people in which people aren’t complaining about making money, but ARE complaining that they aren’t making enough. That is greed in action. People always want more.
This is what happens when people always want more…
A LONG ASS WINTER
All the yields you see from DeFi are dependable on other Virtual Assets - yes, VIRTUAL
This means that, once a whale big enough pulls the trigger and cashes out, the entire space will start to grind lower as it starts to temporarily head into its Winter phase - a period that can last 2-3 years even.
Yes, 2-3 years. That is temporary given what the entire DeFi space is capable of doing over the next decade or two.
So, without being entirely pessimistic, what I am trying to say is that all of this WILL collapse at one point - it is inevitable.
Did you see the big short movie? The following is a great scene within the movie that is a strong analogy as to the point I am trying to get across…
The DeFi Jenga tower will collapse in a similar fashion, and nobody will mention it until it topples over.
However, there is one particular DeFi asset that can do well during the Defi Wintertime, and that's DMM.
> DMM Enters the Chat
DMM stands for DeFi Money Market. It is a DeFi platform that allows for lending to earn interest - with a TWIST.
Typically, when you lend on Aave and Compound by making deposits, the APR you receive can vary quite widely. It all depends on where other protocols like YFI decides to put their funds to achieve the highest yield.
This creates a scenario in which farmers aren’t exactly sure how much they will get, and if they are not monitoring the situation, they might be missing out as the APR rate can vary quite quickly.
On the other hand, DMM guarantees a FIXED APR yield for its lenders - creating an opportunity for a stable income. The fixed interest rate is guaranteed at 6.25% for all deposits on the platform in DAI, USDC, and ETH.
You see, with the deposits received on the platform, DMM will then go and buy real-world income-producing assets such as vehicles. The profits gained from these assets is what allows for the stable interest rate to be achieved.
As you would expect (and rightly so!), every single asset purchased by DMM is made transparently available on the blockchain. You can take a look here yourself on the explorer.
As you scroll through the list you will notice that these are all vehicles within the $5,000-$25,000 range. This shows that they are buying cars that regular people can purchase off of them quite easily - not wasting our deposits on Ferraris that are unlikely to sell at a profit. Looking at it from that perspective, you can see how DMM can easily be scalable if they continue to buy income-producing assets that can sell to regular people at a profit.
So, can you see how all of the returns made by DMM are totally uncorrelated to the entire cryptocurrency market? It doesn’t matter if the industry goes up or down, DMM will continue to profit of their income-generating assets.
The 6.25% APR generated for its lenders does not depend on other ERC-20 tokens as you see in the DeFi space today.
Oh, they don’t want to stop at cars. It seems that they are willing to expand further into Aviation Assets as well. Maybe trains will come next to complete the trio - Planes, Trains & Automobiles. It just shows the team behind the DMM Foundation actually knows what they are doing and we can expect their guaranteed 6.25% return to prevail - even in the DeFi/crypto winter.
DMM Enters The Yield Farming Space
I know, I said that DMM is totally different than other farmer projects, but whilst that is true, it doesn't mean they can join the DeFi farming party in some way. Why shouldn’t they?
Well, as of 31st of August 2020, DMM is proposing that they enter into the DeFi Yield Farming game through the next governance vote - remember, the community makes the decisions here!
If the vote is successful, yield farming will be introduced into the DMM ecosystem in which mToken holders (people that deposited DAI, USDC, USDT, or ETH into DMM) will have the opportunity to farm for the $DMG token (The token behind DMM).
How it would work? In short, owners of the mTokens (mDai, mETH, mUSDT etc) can deposit these into Uniswap to create a secondary market, say a pool of mETH:ETH . The campaigns will run for a set period of time in which users that have deposited into the Uniswap Liquidity Pools will have the opportunity to farm $DMG.
Overall, although we are booming right now not only as the defi space but the whole crypto nation, it is time to start thinking about where to position ourselves for after the bust comes. There is always a bust after a boom - that part is inevitable. It is what we call market cycles.
There are a number of great projects in which you can position yourself but few are related to real-world assets such as DMM.
It is time to be proactive and decide what you want to do BEFORE the winter hits us all in the face.