DeFi Yield Farming Could Be Dangerous for Ethereum 2.0
According to a report published by ConsenSys, it could be dangerous for the next version of the ETH network, Ethereum 2.0, due to the high returns from Ethereum-based decentralized finance protocols.
Burial locked in nearly $ 11 billion worth of crypto currency ‘s unit. Investors profit from the money they put into smart contracts, along with interest. Some protocols earned over 1000% earlier this summer. Even though these days are behind for now, investors still continue to gain.
The Ethereum 2.0 update is a major update expected to be implemented before the end of 2020. The ETH 2.0 update also brings the opportunity to earn ETH by staking funds available in pools. In ETH 2.0, transactions are planned to be verified in this way.
According to the ConsenSys report, if various DeFi protocols will yield higher returns than ETH 2.0, ETH holders may turn to other projects rather than keeping assets in the pool. In this case, the stake ETH required to make ETH 2.0 secure and decentralized enough may be lacking. Users must leave a minimum of 32 ETH in the pool to be included in the stake.
It is difficult to talk precisely about this, as it is not known exactly how much revenue will be generated from Ethereum 2.0. But given the advantages of both DeFi projects and the prospect of a bull run in ETH, it doesn’t make much sense to lock in assets for their investors.
How Does the Yield Farming System Work?
Yield farming system can be briefly defined as a lending protocol. In this system, users with crypto money lock their assets into a pool. If this money is not touched for a certain period, interest is earned at a specified rate. Crypto coins added to the pool are considered locked after they are added, and unfortunately, there is no possibility to access these assets for a certain period of time. For this reason, there is an important risk point at this point. If there is a decrease in the invested asset, there is no chance to intervene as it is locked in the pool. Therefore, together with the gains it brings, the risks to be taken should also be considered.