After countless hours of research about DeFi protocols & why most of them failed.
I felt like I'd share with you all.
Here are the 3 critical flaws that brought DeFi protocols down in this cycle 🧵↓↓
Poor risk management, insufficient revenue and the overuse of leverage are the core reasons why DeFi is crumbling.
The dust has yet to settle, but a steady flow of details is allowing investors to piece together a picture that highlights the systemic risks of decentralized finance and poor risk management.
One of the most frequently cited reasons for DeFi protocols struggling is their inability to generate sustainable income that adds meaningful value to the platform's ecosystem.
twitter.com/josephdelong/status/1528887293490208768?s=20&t=62VcxR1LQcEF3aGGUe1psQ
A second flaw highlighted by multiple experts is the poorly designed tokenomic structure of many DeFi protocols that often have an extremely high inflation rate which was used to lure liquidity.
High rewards are nice, but if the value of the token being paid out as a reward isn’t really there, then users are basically taking a lot of risk by relinquishing control of their funds for little to no reward.
This largely ties in with DeFi's revenue generation issue, and the inability to build sustainable treasuries. High inflation increases token supply, and if token value is not maintained, liquidity leaves the ecosystem.
Overleveraged users
The overuse of leverage is another endemic DeFi problem and this flaw became crystal clear as Celsius, 3AC and other platforms invested in DeFi began to unravel last month. @magikinvestxyz has an amazing thread on this 🔽🔽
twitter.com/magikinvestxyz/status/1541849777234620416?s=20&t=XE2vjU5f8Vf-7h6XEw-2EA
@magikinvestxyz In this sense, the onus really falls on the users for being over-leveraged without a solid game plan on what to do in the eventuality of a market downturn.
@magikinvestxyz While it can be a challenge to think about these things during the height of a bull market, it should always be something in the back of a trader's mind because the cryptocurrency ecosystem is well known for its whipsaw volatility.
@magikinvestxyz In conclusion the best way to stay ahead of the game with quality information from trusted sources in DeFi . Learn from people like @alpha_pls @thedefiedge @magikinvestxyz @Route2FI
@magikinvestxyz @alpha_pls @thedefiedge @Route2FI That's a wrap!
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