In a recent podcast, the Ethereum co-founder revealed he thinks that yield farming in the DeFi space is “unsustainable”

Vitalik Buterin, co-founder of Ethereum, suggests that the current DeFi hype surrounding the COMP token is basically a promotional tool, and that ultimately, it is unsustainable.

Recently, Buterin joined the Bankless podcast; hosted by Ryan Sean Adams the founder of Mythos Capital, to discuss the past, present, and future of Ethereum.

One of the topics mentioned was the recent yield farming happening in the DeFi space, which Buterin described as people pouring all of their assets into returns for high-interest rates.

He claimed that “the reality is that these interest rates do not reflect on anything that is remotely sustainable. It’s just a temporary promotion that was created by printing a bunch of compound tokens, and you can’t just keep printing compound tokens forever.”

Buterin also predicted that after this craze, DeFi will not be giving “double digits interest rate of any kind” in the long run, but that it will converge with the natural interest rate of the traditional financial system.

As reported by Forbes, many experts share this view, wherein the growth in the DeFi space is unsustainable, with the bubble expected to pop at some point.

DeFi is still valuable

DeFi apps are Decentralised Financial services – with many built upon the Ethereum blockchain. Their purpose is to replicate traditional financial instruments, but without many of the shortcomings, such as replacing unnecessary intermediaries, avoiding human errors and cutting costs through the use of smart contracts.

DeFi is an extremely useful tool for the unbanked as the only thing needed is an internet connection. During the podcast, Buterin affirmed that the use of DeFi is not only “valuable” but also “essential”.

However, he did hold some projects in high regard, such as stablecoins and decentralised exchanges like Uniswap, deeming them “extremely valuable”.

As for the near future, to improve the DeFi economy, Buterin hoped that by using synthetic assets it would break the grasp the US dollar has on stablecoins.

He stated:

“I hope that we can see synthetic assets representing things other than dollars, major stock indices, a couple of other fiat currencies would be really nice to have. Prediction markets (…) in DeFi would be really nice to see.”

While Buterin may be correct about some excess interest in DeFi, the question of interest rates is more complex. The current negative interest rate environment is a direct result of trillions of dollars in direct central bank intervention, and may not reflect economic fundamentals at all.