Defi Has Become a Hot Spot for Leverage Again

Nov 9
In the world of cryptocurrencies, memory is proving to be incredibly short. Trading platforms are once again offering returns of 70% and greater, owing to the resurrection of an investing strategy called yield farming.

Exchanges, ranging from GMX to Binance, are providing double-digit incentives to stimulate trading after months of inactivity, less than 18 months after the failure of the algorithmic stablecoin project Terra, which set off a crisis affecting the entire sector. Once upon a time, Terra—the most audacious venture in DeFi—promised investors in its protocol nearly 20% profits.

Split Capital's founder, Zahir Ebtikar, declared, "It will always be like this." "People are powerless to change it. The cryptocurrency sector is the most FOMO-filled ever.
Massive returns—almost unheard of outside of troubled securities—were a major factor in the 2020 rise of decentralized finance, an initiative to do away with conventional middlemen like banks.

Lending bitcoin in return for interest and occasionally fees is known as profit farming, and the primary incentive is frequently units of the newly launched cryptocurrency.

In November 2021, the DeFi market reached a valuation of $179 billion, just before the FTX exchange collapsed and caused a significant withdrawal of investors from digital assets.
According to data tracker DeFiLlama, the DeFi sector is currently valued at over $44.1 billion following the October cryptocurrency market rise.

Launching an incentive program with Arbitrum DAO on Wednesday is GMX, a DeFi derivatives exchange that lets users trade Bitcoin and other cryptocurrencies with up to 50x leverage.

The decentralized autonomous organization is the driving force behind Arbitrum, a layer-2 blockchain that seeks to reduce Ethereum network congestion.

Users who participate in trading, liquidity, and other activities on the GMX version can receive annual returns from the program of up to 70%. The extra revenue will be paid with roughly $12 million, or $12 million, of Arbitrum's governance token, ARB tokens.

Demand has also increased as a result of recent increases in borrowing rates on Aave, the biggest peer-to-peer lender in DeFi, of more than 10% for stablecoins like Tether and USDC. The rise in loan activity and the rise in trading leverage demand are related.
Keone Hong, co-founder and CEO of Monad Labs, stated that "traders who need leverage need to put risky assets into lending protocols and borrow dollars against those risky assets." "They then purchase more hazardous assets with those dollars." Profitability stems from the underlying demand for leverage.

A common strategy used by cryptocurrency projects to quickly draw in new members is profit farming. It gained particular popularity during the COVID-19 pandemic's extremely low-interest rate climate, but as traditional interest rates increased and cryptocurrency values declined, that changed.

The creator and CEO of institutional asset manager DeFi Hashnote, Leo Mizuhara, claims that the GMX product only makes sense in situations where there is demand for trading cryptocurrencies, which has been the case lately.

Not only does DeFi provide incentive programs, but the biggest cryptocurrency exchange, Binance, is also pushing a "bonus" yield scheme called Project Earn. Under this initiative, users who list their USDT stablecoins on Binance can receive up to 13% in annual returns.

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