Short Memories in Crypto

Nowhere are memories shorter than in finance and speculation. Yield farming is back in the crypto market, meaning the “ lending of cryptocurrency which gets you interest and sometimes fees, with the kicker being new cryptocurrency is paid on top of the interest. “The real payoff comes if that coin appreciates rapidly. It’s as if banks were luring new depositors with the gift of a tulip -- during the Dutch tulip craze,” wrote Olga Kharif for Bloomberg back in 2020. 

The Sam Bankman-Fried trial should have jogged everyone’s memory of the crypto crash and the dangers of leverage. Muyao Shen reminds us that just a year and a half ago Terra algorithmic stablecoin triggered an industry-wide meltdown.   Upwards of 70% are being offered by “exchanges ranging from GMX to Binance are offering double-digit incentives as a way to jumpstart trading activity after months of stagnation.” 

“It’s always gonna be this” way, said Zaheer Ebtikar, founder of crypto fund Split Capital. “People can’t help it. [Crypto] is literally the most FOMO [fear of missing out] industry ever.” Ever? Ebtikar wasn’t around for tulipmania. Shen writes, 

GMX, a DeFi derivatives exchange that allows users to trade Bitcoin and other cryptocurrencies with up to 50 times in leverage, started an incentives program on Wednesday with Arbitrum DAO. The decentralized autonomous organization is behind Arbitrum, a so-called layer 2 blockchain that seeks to ease congestion on Ethereum network. Through the program, users can earn annual yields of up to 70% for trading, providing liquidity and other activities on a version of GMX. About 12 million, or $12 million of ARB tokens, the governance token of Arbitrum, will be used to pay the extra returns.

Okay.  The only thing I know about what is being described in that paragraph is that absolutely, positively nothing can go wrong at 50x leverage. 

“With animal spirits starting to pick back up, projects may feel that now is a good time to spend token emissions to gather some momentum,” Keone Hon co-founder and chief executive officer  at Monad Labs told Bloomberg. 

John Law thought the same thing over 300 years ago.