Ethereum Co-Founder Vitalik Buterin Raises Concerns on the Latest Craze Around Yield Farming in the DeFi Space

The Decentralized Finance (DeFi) space in the crypto industry has been making much noise recently with DeFi tokens like YFI, Aave, DAO and other touching sky-high prices. The major reason behind this massive DeFi token price surge is the massive bullishness around the Yield Farming protocol which is said to be the catalyst and “rocket fuel” for the DeFi market.

However, as analysts have explored more about the Yield Farming protocol, they have started to raise concerns over its governance token model and noted that it won’t be able to sustain proper decentralization in the long-run.

The Yield Farming protocol rests on the concept that it would reward investors some governance tokens for choosing their platform above others. The governance tokens give its owners the voting power to update the network. Besides, some DeFi Yield Farming protocols also offer high-interest on the governance token promising around 2000% rewards a year.

Ethereum co-founder has recently pressed the alert buzzer for the high-interest reward scheme of Yield Farming. In his tweet on Monday, August 31, Buterin wrote: “Seriously, the sheer volume of coins that needs to be printed nonstop to pay liquidity providers in these 50-100%/year yield farming regimes makes major national central banks look like they're all run by Ron Paul.”

Citing Raun Paul, Buterin was referring to the former Republican Congressman who had called for the end of Federal Reserve (the U.S. central bank) during his run as a President.

Vitalik Buterin has clearly warned against the aggressive supply inflation of these governance tokens by saying that it puts downwards pressure on the prices of “coins that are getting printed nonstop to pay the liquidity providers”.

Buterin says that the governance token and yield farming are all protocols wise value has been plucked from thin air, and provides incentives to keep investors playing. Although the Yield Farming frenzy has created much hype in the market, Buterin thinks that it won’t sustain for long.

“The thing is, I see no plausible path toward them generating cash flows. That requires building applications that generate fees,” he said. Referencing to Sushiswap, a Uniswap plus yield farming tool, Buterin further added: “And so far the only strategy toward generating long-term fees that I see is some kind of weird financial attack to grab liquidity and steal network effect from uniswap. And I'm pessimistic on that strategy”.

“I personally am steering clear of the yield farming space completely until it settles down into something more sustainable,” he added.