The last year has been an extremely bumpy ride in the crypto market. We began 2022 with hopes and dreams that prices were about to soar higher. There were even talks about it being a Bitcoin super cycle. As we all know, it was all downhill from there. Not only did crypto need to contend against difficult macro factors, but there were also countless “self-inflicted” mistakes that caused the market to go lower than many of us thought possible. If there is one thing that last year taught us in the cryptocurrency market, it is that anything can happen, and we need to be ready for all possible outcomes.
Even with everything that happened last year, it appears that the crypto market is finally beginning to recover. Bitcoin went from $15.5k to $23k, and Ethereum went from $800 to $1.6k. The sentiment in the market is beginning to change as a result. While just a few weeks ago, people on the internet were claiming that Bitcoin would never reach its all-time high price again. That the cryptocurrency market was finished. Now, it is different. No one is claiming that we will make new highs this year, but there are many predictions of a continued recovery. And that is a stark contrast to how the market was feeling just a few weeks ago.
With all of that said, there is no denying that people in the market have changed from everything that they experienced last year. In fact, many likely have either PTSD from it, or just want to remove that memory from their brains. Recently there is a single word that people in crypto will begin groaning in disgust when heard. Automatically associating this word with everything that took place last year, and assuming that this next project is definitely a scam or fraud as well.
This new taboo word in crypto is “yield.”
Just reading that word likely gave you a certain feeling. It all began last year during the hype phase of Luna and UST. People were staking their UST for nearly 20%. As we eventually learned, this was an interest rate that wasn’t sustainable, and eventually the Luna/UST peg was broken resulting in thousands and millions of people losing money.
This was the first domino in the yield game that fell down, but it wouldn’t be the last. The contagion eventually spread to Celsius, Vauld, Voyager, Midas, BlockFi, FTX, and more. If you were unlucky, it’s likely that you lost some of your crypto on one of these services or protocols. If you were extremely unlucky, you may have lost your crypto on more than one of them.
Most people would be reasonable and acknowledge most of the problems with yield talked about above were caused by humans and that nothing was wrong with the crypto itself. Companies took your money and lent or spent it on high-risk-yielding opportunities that blew up in their face, and then couldn’t pay everyone back. This is a story as old as time, and one of the reasons why people are so excited about DeFi as a result. After all, it is supposed to remove the element of human greed and mistakes from the equation.
However, that doesn’t mean there aren’t still risks with earning yield on DeFi. Examples of this were exposed last year as well. Many people bridged their Bitcoin over to Solana to participate in DeFi and earn a yield with their BTC. But, after the FTX situation took place, there was a rush on the exits from these positions to get back their BTC. However, due to liquidity, solBTC had dropped nearly 50% in value. Many people learned a valuable lesson that solBTC wasn’t actually Bitcoin.
A similar situation happened to Ethereum staked on Lido. During the 3AC insolvency crisis the value of ETH: ETH2 dropped significantly. Due to the market panic, there was a rush to the exits and these companies were forced to sell at significant losses. There is always risk when bridging, participating in DeFi, and especially when lending out crypto to 3rd party services.
The crypto market is full of people who are trying to change their lives financially as quickly as possible. This greed gives us the motivation to keep working hard toward our goals but also can be our downfall. Even with the downfall of UST, Justin Sun soon after launched his own algorithmic stablecoin on Tron that also gave out high-interest rates. Which also has become de-pegged multiple times since its launch.
While we all are feeling risk-averse to yield at the moment and are skeptical at the mere mention of the word. It’s important to know that there are still great ways to earn a yield in crypto. My favorite is through staking. You can stake and earn great rates for Ethereum, Polkadot, Cosmos, and countless other blockchains. Be careful about liquid staking, which is yield that presents much more risk. In crypto, there are dangers all around us, and we need to always be on the lookout for them to protect our portfolios. But it is also extremely important to always keep an open mind so that we don’t miss the next great opportunity that comes our way.
How about you? How do you currently feel about earning “yield” in crypto?
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