DeFi Risks Part 1

Check out the DeFi Pulse link, look at the rates for different cryptos, compare them to the rates I mentioned in the video, and comment why you think they are different. Then comment on at least 2 other posts so we can all learn from each other.

https://defipulse.com/

A primary reason of why one protocol can pay more than another is mainly due to supply and demand differences.

If a protocol has very little supply of a given token to lend, they have the opportunity to increase the interest rate offered to entice people to provide funds.

When enough people have contributed their tokens to the protocol to be lent out, the interest rate paid to suppliers will be adjusted accordingly, and is moved to incentivize borrowers to use the protocol.

On a higher level, these movements happen constantly, and this is why there are differences in the protocol.

Now, when you look at new protocols offering high yields, this is generally because there is such little supply, because people are less willing to contribute their tokens to something that isn’t battle-tested.
There is a greater risk of smart contract exploits.
If anything goes wrong, there’s a good chance you won’t be getting your supplied tokens back, sorry mate. :tipping_hand_woman:

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I think all the rates are different because each protocol and smart contracts are still subject to supply and demand and those change with people being able to trust these protocols causing more demand for it effecting the yield rate. I think this will change when people become more financially educated or educated just in general

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Yes the more risky the more reason people need to be incentivized giving out higher yields is a good way to do that great point jak

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The different yields are due to the different supply/demand for liquidity, lending and borrowing on each protocol.

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Good explanation jak.

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The different interest rates are based on supply and demand. The more trusted protocols have more supply, therefore does not need as high of an interest rate to incentivize lenders.

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I believe the different income rates in Defi Pulse have to do with supply and demand, where they fluctuate from time to time based on lending and borrowing practices from investors.

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APY’s are different due to supply and demand,
some people may also trust one smart contract over another due to many different reasons

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Incentives drive liquidity. When there are newer, less liquid protocols offering higher yields on stable coins, we often see those pools being farmed. Saturation happens when the protocols get too much liquidity and recently Cex coins like BUSD have been getting less APY. (2.72%) aave
Today Maker Dao DAI has the best supply rate. (5.38%) aave

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I think the rates are different with different cryptos is because some cryptos are more valuable then others and making their rates higher or lower will affect which coins people want to buy, lend or stake.

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Depends if is all supply and demand free of project founder involvement and general liquidity and activity of the users.

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The different interest rates are based on supply and demand. The more trusted protocols have more supply, the newer ones have less supply, so can pay a higher rate. However newer protocols carry quite a few risks

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You mentioned in the video that APR for Aave v2 was 2.91%, Compound was 2.44% and SY/SX 2.23%.

Now the percentages are Aave v2 5.38%, Compound 2.58% and SY/SX <0.01%.

I believe the reason for Aave and Compound APR changing is because there are more borrowers than lenders in Aave v2 than before, and vice-versa in Compound. Though SY/SX being under 0.01% is quite shocking, quick search on google could not reveal why it is so low now.

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The trust is a good point

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Project founder involvement is also a good and unique point which wasnt mentioned in the video.

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Different interest rates are based on supply and demand.
More risky protocols has less supply, so they have to pay a higher rate to compensate.

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From Legacy to DeFi

I have two probable reasons on my mind regarding why on the DeFi ecosystem better rates are offered. The first one being accessibility to a mayor liquidity market without the need to go throw Legacy procedures and the second being availability 24 hours a day an 7 days of the week.
This two reasons are consider by myself as big incentives/catalysts for DeFi adoption

The use of lending protocols its primarily in the ETH Network. (**at the time of the writing).

And I will like to introduce a new term, at least for myself, which will be Protocol Wars (PoWa).
By Protocol Wars (PoWa), I mean this "The ability of a protocol to compete against other protocols in the same area, generating benefits for the users ".

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I think you touch one of the core components for understanding financial issues regarding “Supply vs. Demand” topic. I like how you explain it @jak, Congrats!

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I think Jeni the reason it is very low APR is because the “DY/DX” protocol specialty is towards decentralize trading exchange (Perpetual trading and Leverage). I jump to this conclusion due to the DEX having high volumes, BUT You can appreciate higher volumes on MakerDao

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