One question people have to ask themselves is whether yield farming is sustainable. Based on some rates currently being provided, that seems unlikely. Offering up to nearly 10% per hour is rather worrisome.
The Current State of Yield Farming
It is evident that everyone in DeFi wants the highest returns possible. When those returns nearly hit double-digits per hour a very worrisome situation is created. At the time of writing, Solarite-Pylon $BASED yield farming rewards 9.93% hourly, or over 87,000% annually. Very high figures, not entirely that different from masternodes eventually turning into a scam.
Unfortunately, this is not an isolated incident either. While the other figures are much lower, there are still some odd numbers thrown around. Earning over 1% of one’s investment hourly almost seems like a Ponzi scheme. While rates fluctuate, these numbers are still pretty high.
Even when dipping below 0.4% hourly, farmers still earn over 3,000% annually. That is an unsustainable business model by definition. Thankfully, most projects cut back on rewards after a time. At the same time, offering such rates in the beginning isn’t necessarily ideal either.
All of this makes yield farming seem borderline scammy. High returns are often associated with nefarious projects in the cryptocurrency industry. DeFi yield farming, judging by just the rates, heading into the same territory. Even if the projects are legitimate, these rates will raise a lot of eyebrows and questions.
Normalized Rates Won’t Work Either
Now that the current situation has been in place for a while, it will become nearly impossible to reverse course. Any project offering more normalized rates will be overlooked. After all, if project A offers over 1,000% annually, no one will begin yield farming for half that return or less.
This has created a fairly big problem in the DeFi scene. While it is designed to help crypto holders put their assets to work, the current level of “interest” rates is unsustainable. If projects keep one-upping one another, we will soon see rates of over 100,000% annually. That is not what yield farming should be about.