The total value locked in decentralized finance (DeFi) projects is hovering around $62 billion as of mid-August, down from a peak of over $250 billion in December 2021. Capital is fleeing the crypto space amid war, soaring inflation and whatever other surprises 2022 may still have in store for us.
However, unlike previous crypto bull runs, it was not just retail interest that drew in this capital in the first place. Rather, major institutional players, which have recently opened up to crypto, quickly developed an appetite for the yields DeFi is known for. But now that winter is upon us, the pitfalls of high-yield platforms have become more apparent.
Value can’t come out of thin air
In some sense, value is always somewhat subjective, defined by one’s personal considerations and goals. A photo from a family collection means more to a member of that family than to a random outsider. Accordingly, a farmer would be quite willing to pay for a shipment of seeds, as those are crucial for their business, but a city dweller would likely prefer to pay up for the end product.
Still, even the simple examples above show how value often relies on real-world circumstances and processes. In the case of the farmer, it is also quite quantifiable, thanks to the free market bringing entire industries, governments and consumers together into a sophisticated and — more or less — functional system. Value defined in money creates value defined in the yield, whether it’s crops or fruits, and the great economic life cycle continues as these products make their way through the market.
“Yield” is a word dear to the blockchain industry, especially its DeFi sector, which has seen its total value locked shed billions of dollars in value since May amid the ongoing bear run. Still a largely nascent industry, crypto as a whole does not have nearly as much exposure to the real-world economy, especially when it comes to anything beyond speculative trading. And as lucrative as DeFi’s…
