The trend of usage incentives in decentralized finance began with the distribution of Compound COMP tokens, and continued through several other platforms seeking to replicate their perceived success.
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But DeFi’s latest yield farming craze* involves yEarn, a yield aggregation platform developed by one man, Andre Cronje. Despite his warnings that the platform token, YFI, is worthless and „will not be in Uniswap,“ it was in fact included in Uniswap. As a result, a price of more than 4,000% was initiated in a single day. This caused YFI’s farming* to achieve annual returns of over 1,000%, the highest of any previous initiative.
A blocked value cycle and token price
The YFI token can be obtained simply by providing liquidity to a family of DeFi platforms developed mainly by Cronje, where yEarn.finance is the flagship product. The platform automates the process of finding the highest performance among other DeFi platforms, similar to another recently launched protocol.
YFI allows its owners to vote on system parameters for yEarn and all other platforms, which can help them keep up with the latest developments in farming and manage the protocols in general.
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Although the announcement of the incentive scheme on Friday reiterated that the token is worthless, the markets decided otherwise. Someone else listed the token at Uniswap and Crypto Trader on Saturday, allowing speculators to buy YFI while their „farmers „* can now sell it. The valuation of the token began at approximately USD 30, and reached an all-time high of USD 2,374 the next day.
Speaking to Cointelegraph, Cronje said he „has no idea“ why the price of the token behaved the way it did. „Honestly, I just wanted to distribute the voting rights, because I don’t want to manage the contracts anymore,“ he added.
One possible clue to this phenomenon is the measurement of the „total blocked value“ in a protocol, which is often the starting point for evaluating a DeFi project. YEarn went in at the weekend with a blocked value of about $8 million, but the figure shot up to more than $147 million on Monday.
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Daryl Lau, a research analyst at CoinGecko, argued that buyers of DeFi governance tokens value them according to TVL. But since in a liquidity incentive scenario that value depends on the price of the token itself, this results in „pseudo ponzinomics. A higher price leads to a higher LTV, which in turn leads to higher prices in a positive feedback cycle. But that cycle can always turn negative.
However, the more formal valuation methods still assign a value to the ability to participate in platform governance, and the token can also be burned to redeem the „revenues“ generated on all platforms in the family and. Therefore, the token must have at least some monetary value.