Ryan Selkis, founder of crypto data site Messari, predicted an upcoming demise for the decentralized finance, or DeFi, space — similar to what happened with initial coin offerings, or ICOs.
"The DeFi bubble will pop sooner than people expect," Selkis tweeted on Sept. 10. "We're nearing the apex of Ponzi economics, rug pulls, and 'yield' hopping, and ETH fees are going to eat too heavily into non-whale profits."
In recent weeks, numerous DeFi projects have seemingly popped up out of nowhere, offering significant interest and loans as part of a complicated ecosystem spurring compounded gains. Some of these project, however, position themselves as legitimate to gain investments before vanishing with investors' money — known in the industry as a "rug pull."
SushiSwap served as one of the latest rug pulls, albeit, only partially so. The project's head, anonymously known as Chef Nomi, ran off with a portion of the developer fund, leaving Sam Bankman-Fried, the CEO of crypto exchange FTX, in charge of Sushi's remains.
"ICOs boomed for a while because everyone (laughably) thought there would be a coordinating utility token for every industry," Selkis said in a follow-up tweet. "DeFi is just one big pool of capital sloshing around a small group of insiders and mercenaries who will soon run out of victims to fleece."
ICOs had their time in the sun in 2017, which held a similar vibe as present-day DeFi. Projects simply built on an idea managed to raise millions of dollars in a matter of minutes.
Selkis said he is not closed to other opinions, although the current scene appears too lucrative for reality. The Messari founder also said he is not against the whole movement in general.
"Fwiw [for what it's worth], I LOVE this experimentation. Like ICOs, yield farming / incentivized liquidity provisioning is a novel innovation in capital formation. Smart people are making a killing. But I don't recommend DeFi to most people because I don't recommend high-stakes Vegas poker to fish."
Ultimately, the progress around DeFi is moving the crypto industry forward. The bumps in the road may not be pleasant, but they are also probably not abnormal.