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Most people who have been dealing with cryptocurrencies in any position for the past few years are well aware that there are many projects out there that provide an eye-catching percentage of the year (APY) that are eye-catching these days.

In fact, many decentralized finance (DeFi) protocols built using a proof-of-stake (PoS) protocol provide unreasonable returns to their investors as a return to hold their native tokens.

However, like many deals that sound too good to be true, many of these donations are money-making programs - at least that's what most experts say. For example, YieldZard, a project that sets itself up as a company focused on developing DeFi with auto-staking protocol, claims to offer a consistent APY of 918,757% to its customers. In simple terms, if one were to invest $ 1,000 in a project, the accumulated return would be $ 9,187,570, a figure that may seem shadowy, even to the average person.

YieldZard is not such an initial project, as the offer is just an impersonation of Titano, a preliminary automated token that offers instant and advanced payments.

Is such a restoration really possible?

For a better idea of ​​whether these seemingly ridiculous returns could happen in the long run, Cointelegraph reached out to Kia Mosayeri, product manager at Balancer Labs - DeFi's automated marketing strategy using novel weight balancing novels. In his view:

“Top investors will want to look at the source of yield, sustainability and strength. Yields from real economic value, such as interest-bearing loans or trade-offs, can be more sustainable and grow than the yield from random token issuance. ”

Giving a complete overview of the issue, Ran Hammer, vice president of enterprise development for public blockchain infrastructure at Orbs, told Cointelegraph that in addition to the ability to facilitate split financial services, DeFi agreements have introduced another major innovation in the crypto ecosystem : the ability to reap the harvest from what is more or less the catch of doing nothing.

He also explained that not all crops are equally productive in design because some crops are based on "real" money, while others are the result of high yields based on Ponzi-like tokenomics. In this regard, when users act as lenders, shareholders or funders, it is very important to understand where the yield comes from. For example, computer exchange transactions, currency trading funds, payment options or insurance and interest rates are all "real profits."

However, Hammer explained that many of the proposed protocol rewards are funded by token inflation and may not be sustainable, as there is no real economic value to support these rewards. This is similar to the concept of Ponzi systems where a growing number of new customers are needed to keep tokenomics running. He added:

“Different laws stipulate evictions using different methods. It is very important to understand where the yield comes from when considering inflation. Many projects use revenue generation to generate distribution for healthy owners and implement what are healthy tokenomics, but at higher prices, should be considered in more detail. "

Speaking in a similar vein, Loor Yaffe, founder and director of blockchain software firm Jelurida, told Cointelegraph that the idea of ​​many high-yield projects is that they promise high rewards to those involved by giving higher commissions to retailers on limited exchanges and / or always mint more tokens as required to pay the yield. their stakeholders.

This strategy, Yaffe pointed out, can work as long as there are enough new buyers, which really depends on the team’s marketing capabilities. However, sometimes, there is not enough need for a token, so making more coins reduces their value quickly. "At the moment, developers often leave the project to re-emerge with the same token in the future," he said.

Top APYs are fine, but can only go so far

Narek Gevorgyan, CEO of cryptocurrency portfolio management and DeFi wallet CoinStats app, told Cointelegraph that billions of dollars are stolen from investors every year, especially because they fall victim to these types of high-profile APY pitfalls, adding:

"I mean, obviously there is no way for projects to deliver high quality APYs in the long run. and associated risks. ”

He explained that, for the first time, investors need to be aware that many profits are paid for by cryptocurrencies, and as more and more cryptocurrencies evolve, assets borrowed to acquire such absurd APYs can decrease in value over time, leading to huge losses.

Gevorgyan also noted that in some cases, when a person sets up his crypto and blockchain using the inflation model, it is good to get APYs, but when it comes to really high yields, investors should be very careful, adding:

“There is a limit to what a project can offer its investors. Those high numbers are a dangerous combination of insanity and frustration, given that even if you give a high APY, it should go down over time - that is the basic economic situation - because it becomes a matter of project survival. "

And while acknowledging that there are certain projects that can bring about relatively high returns in a sustainable manner, any consistent advertising and high-quality APY for extended periods of time should be considered with a high degree of suspicion. "However, not all fraudsters, but projects that claim to provide high APY without clear evidence of their effectiveness should be avoided," he said.

Source: cointelegraphy

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