When DeFI is close to food poisoning

When DeFI is close to food poisoning


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If you haven't followed DeFI news for 2 days, you are probably dumped! Everything is going much too fast since the release of the $ YFI, governance token of the yEarn protocol. A few days ago, I wrote a little article on the protocols that came out in the wake of the hope I could ride the wave.

But for the last few days / hours, we have been witnessing a tsunami, with dozens of protocols appearing out of nowhere. First of all we find the "fork" of $ YFI with in particular $ YFII, $ YFV, $ YFIE, $ YFL, $ YFFI

Then we find other protocols more or less inspired by already existing protocols. $ PASTA, $ TOTS, $ CREAM, $ HOTDOG, $ TEND, $ YAM, $ SHRIMP, $ TACO, $ CHOP. And since a few days a copy of Uniswap, the $ SUSHI protocol, which itself was copied by $ KIMCHI… In short, copies of copies…

But why participate in these protocols?

 

Quite simply for profit. These tokens are able to make + 100%, see + 200% in less than 24 hours.

How does it work ?

 

Not all protocols work the same. But most work in the following way. You must first be LP (Liquidity provider) in a Uniswap pool and then stack the LP tokens received in order to farm the (governance) tokens of the protocol in question. To take an example: Imagine that you were going to the bank to put your savings. In return, your banker will give you a ticket. This ticket is for the money you donated. You will have to give this same ticket to your banker when you want to get your money back. In the meantime you have heard that someone can save you a lot of money using your ticket. Benefit interests you and you let yourself be tempted. You have a meeting at 2 am in a small dark alley with a guy more than suspicious. He asks you to lend him your ticket (which represents your money in the bank) and that, in exchange, he will return your ticket to you in a few days and on top of that, will give you a nice reward. You don't quite understand how this is possible…. but why not !

The risks

 

In addition to the risks associated with a bug in the smart contracts used (as in any DeFi protocol). There are several levels of risk here. By being LP on Uniswap you are exposed to what is called "impermanent loss". You then “lend” your LP tokens (representing your participation in the Uniswap pool) to a protocol that you do not know. The developer can safely leave with the cash register. These protocols are, for the most part, unaudited. And, let's be honest, not many people are able to analyze / verify them properly. Finally you get a token that often has no “real” value and is very highly subject to speculation. The goal is generally to get them as quickly as possible in order to sell them before the price drops. This is not always the case, the $ YFI is a prime example. But not all of these tokens have the same purpose. In addition, these new tokens are often exchangeable only through Uniswap pools. You can therefore be subjected to a fairly significant slippage and find yourself unable (or with very large losses) to belly your tokens. And to top it off, the price of gas has exploded again. To participate in these protocols, you have to carry out a lot of transactions, whether to enter but also to exit. You can quickly reach over $ 200-300 in gas costs. To be profitable, it is therefore necessary to invest significant sums.

Food poisoning

 

The release of all these food tokens, which could coexist on a nice buffet, unfortunately begins to turn into indigestion. Look at what happened yesterday for the $ PIZZA and the $ HOTDOG

 

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A small thought to users who have been fooled by their greed. For information, the protocol for obtaining $ Hotdog promises simply delusional APYs (annual percentage yield) ...

 

 

 

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Take home message 


The results are simple. There is a risk of food poisoning. DYOR is more relevant than ever. Many users have made REKT (and well as it should be !!!). There hasn't been an exit scam yet (to my knowledge), but it might happen soon ...

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