The DeFi Bubble: How Unsustainable Rewards Led to Protocol Failures
The DeFi Bubble: How Unsustainable Rewards Led to Protocol Failures! In the world of decentralized finance (DeFi), 2020 and 2021 marked a period of explosive growth. Billions of dollars poured into DeFi protocols offering users a chance to earn high yields on their crypto assets. Terms like “yield farming” and “liquidity mining” became commonplace, and dozens of new projects were launched every week. But as quickly as the hype surged, many protocols collapsed. Why? The answer lies in one of the most fundamental economic principles: unsustainable incentives . This article explains how overly generous rewards, poor tokenomics, and speculative behavior inflated the DeFi bubble—and why many protocols ultimately failed. What Sparked the DeFi Boom? The DeFi boom was fueled by innovations that allowed users to: Lend and borrow assets without banks. Trade tokens on decentralized exchanges (DEXs) like Uniswap. Earn returns by providing liquidity to protocols. To attract users, protocols offered...