Why Ethereum’s Yield Farming May Be The Most Exciting Thing In Crypto Right Now
As the world of cryptocurrencies evolves, Ethereum (ETH) investors are beginning to take notice of the power of yields and their potential impact on the crypto space. Yields, in essence, are the payments investors receive for holding cryptocurrencies, and they can come in many shapes and forms.
How ETH Yields Could Revolutionize The Space
One of the most important things to understand about yields is that they exist on a risk curve. This means that the percentage of yield paid out to investors is a function of supply and demand, as well as the perceived risk associated with the cryptocurrency in question.
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For example, a cryptocurrency with a limited supply and high demand is likely to have a higher yield than one with a larger supply and lower demand. Similarly, a cryptocurrency that is perceived as less risky is likely to have a higher yield than one that is perceived as more risky.
According to the crypto analyst and researcher Adam Cochran, this is where the potential of cryptocurrencies really shines through.
Adam Cochran (adamscochran.eth)@adamscochranMay 15, 2023
I think most people in crypto don't fully understand or appreciate yields and what it can mean for the crypto space at large – as it's one of the things that gets me incredibly bullish on the space.
And it's part of why I think ETH still has a 20x+ in its future.
By creating non-dilutive yields through the use of fees, cryptocurrencies can offer investors a way to earn passive income without the risk of inflation. This is particularly important in a world where traditional investments like savings accounts and bonds offer little to no yield.
One cryptocurrency that is particularly well-positioned to take advantage of the power of yields is Ethereum. With its growing ecosystem of decentralized applications and smart contracts, ETH has the potential to generate significant fees for investors through its use as a platform for decentralized finance (DeFi) applications, according to Cochran.
For example, ETH staking currently offers yields in the 5%-7% range, while Synthtetix (SNX) staking can generate yields of up to 24% in external fees. Similarly, Curve (CRV) staking can generate yields of up to 15% in crvUSD fees. This means that billions of dollars in capital are now able to generate yields of more than 3% annual percentage yield (APY), which is a significant opportunity for investors.
This is particularly important in a world where traditional investment opportunities like savings accounts and bonds offer little to no yield. As more investors become aware of the potential of cryptocurrencies to generate high yields with acceptable levels of risk, this can likely drive more interest and investment in the space.
From HODLing To Yielding
In its recent post, Adam Cochran emphasized the importance of focusing on asset productivity and real yield in the cryptocurrency space. Despite the current narrative that fundamentals don’t matter and memes and rhetoric dominate the market, Cochran believes that one day, the true value of assets will become apparent.
According to Cochran, those who already possess assets have the advantage, as they stand to gain significant capital gains in addition to the 2% APY on the face value of the asset. This is particularly relevant in the cryptocurrency space, where prices can be extremely volatile and subject to sudden fluctuations.
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Furthermore, Cochran predicts that as funds of increasing size start to realize the long-term potential of the cryptocurrency space, they will begin to invest heavily.
This influx of capital will fundamentally change the finance industry, and those who have acquired a significant number of coins before this shift will reap the benefits.
Featured image from Unsplash, chart from TradingView.com