DeFi

The demise of high APY DAOs show they aren’t the future of money

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Who desires 3,000,000% APY? The reply is everybody, and that’s exactly the attraction of excessive APY DAOs.

However not too long ago, Reddit person rayjaywolf identified that the majority (important) excessive APY DAOs are 90%+ down from their all-time highs. In keeping with the figures, the most important loser is R U Beneficiant, down 99.8% from its $2,041 ATH.

“All of the excessive APY providing crypto DAO’s that launched about 2-3 months in the past are actually both lifeless, have been rug pulled or exhibiting no signal of restoration.”

Table of high APY DAOs
Supply: reddit.com

A glance on CoinGecko reveals it’s worse than rayjaywolf claims. In keeping with the monitoring platform, R U Beneficiant is down 99.9% from its $2,803 ATH.

As ever, in cryptocurrency particularly, lofty claims ought to at all times be taken with a wholesome dose of warning and skepticism.

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How do excessive APY DAOs supply such excessive APYs?

Though there are variations on the theme, excessive APY DAOs typically comply with the mould of mathematical sorcery to create a floating-supply foreign money monitoring the greenback. This they name an algorithmic stablecoin.

These function by rebasing the token provide, that means the availability will increase (or decreases) consistent with person exercise. In flip, this course of is backed by a treasury system that holds reserve belongings and permits “bonding.” This refers to a course of the place customers can promote belongings (like DAI) to the treasury and obtain discounted tokens in return.

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Excessive APYs are attainable by means of the worth discrepancy between the token’s market worth and the treasury’s discounted worth.

The ultimate piece is staking, the place the asset provide is locked as much as safe utility and act as a further incentive for demand. In keeping with sport principle, the excessive APY staking aspect will entice extra new customers, who hold the cycle going.

Throw in an nameless crew, and that’s the blueprint for a way excessive APY DAOs function.

Is the Ponzi scheme unraveling?

Proponents of excessive APY DAOs would argue that fiat cash is a shared delusion enabling worth alternate. How they function is not any completely different from what central banks do day in, time out.

However as seen with the latest Wonderland debacle, wherein a senior workers member was outed as one of many co-founders of disgraced alternate QuadrigaCX, investor confidence is all the things.

Commenting on OlympusDAO (arguably essentially the most well-known excessive APY DAO,) the CIO at Selini Capital, Jordi Alexander, floats the concept the venture’s complexity and unorthodox mechanics are behind its demise.

Alexander provides that he doesn’t suppose it was a rip-off from the off, solely an experiment that got here unstuck on the unsustainability of paying 1000’s of % APY.

“I don’t suppose it was ever an outright rip-off, I believe they believed that the sport principle mechanic could lead on it to continue to grow ceaselessly and possibly grow to be an actual important a part of the monetary system.”

Nonetheless, the likes of OlympusDAO and Wonderland are nonetheless going, and degen buyers would say one of the best time to purchase is when everybody desires out.

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