HIGH APY - does it make you EXCITED or discourage you from investing in DeFi Projects

in Project HOPE2 years ago (edited)

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INTRODUCTION

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Last year, I've been partly involved in the process of launching a few projects built on top of blockchain technology. Two of them were DeFi pancakeswap fork built on different chains (one on top of BSC - Binance Smart Chain, other one used TRON network). During that time, I've tried to learn reasons for why some of them were successful while others were total failures.

I then quickly learned that most of those projects seemed to be providing early investors with absolutely high APY (annual percentage yield) and I know that many people are excited to see huge APYs, however I have my concerns. Concerns which I would like to share with you.

Today, I would like to learn what emotions and approaches you have to similar projects. The ones which are offering very high returns for those who join early. I would obviously share my own personal view as well, which you may use as a point of reference for the discussion.

MY LINE OF THINKING

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My own experience within a few DeFi projects has taught me that pretty much all of them are offering high returns for early supporters and those who provide liquidity into the pool. I do understand the idea behind it; offering high APY is a great marketing tool, which allows to build more HYPE around the project and attract greater attention.

However, my strong impression is that it mostly attracts investors who only care about quick gains. They often do not care about the future of the project and do not think about providing long-term financial support. They will provide liquidity or stake tokens only to enjoy extremely high initial rewards and they will then dump most of it on the market. Crashing token prices.
The moment when the entire process is not profitable any more - they will just pull out the remaining of their funds and look for another opportunity.

Isn't that an impression you also may have? How many DeFi projects did we see, which followed that footpath?

Unwanted consequences

How does offering high APY affect long-term supporters? How would they potentially look at such a project? Would they be optimistic, while knowing that high initial APY = high "dumpage"? Or would they feel that they need to dump their minted tokens ASAP, before the price collapses?
What do you think?

Small real-life example

I recently had a friend, who was interested in investing 1000usd into the upcoming DeFi project. Byt then he realized that those who provide liquidity into the pool in the early stage will receive a bonus of 50k % APY within the first few days after the launch.

He told me that seeing such a huge APY made him feel uncertain about the ability of the team behind this DeFi to stabilize the price of their token. And I must admit, that I feel just like he does. I am myself also put off investing in any project, which offers high APY for initial investors. I also feel that high APY may force me to join "dumpage".

What about you? Would you feel just the way I do?

LONG TERM SUPPORTERS

In my personal view, each project in its early stage should realize the importance of focusing their strategies on long term investors and supporters, and to offer them something other than high APY. Something, which would build their trust towards long-term project survival. So early supporters would not be focusing mainly on getting high rewards and looking for ways of selling it before others would.

Instead, ensure that communication with them is working fine. Make them feel that they are part of the project. Involve them into efforts of building community around it. Give them a "sense of belonging". Make sure that they would see and appreciate efforts and transparency.

Instead of offering high APY, those projects should focus on working closer with those who want to take long-term risk and support projects in the long run. It may be a more challenging way, but one that could provide more token price stability. It may take much longer to bring investors and initial growth but it would definitely be much more steadier.
However, is it THAT BAD to grow slow?

MVP (minimum viable product)

I've learned a number of times that it's best to launch a project on a small scale, with a small following base, with only few investors, with minimum functionality.
And only then SCALE IT.
Would you agree with me on that?

SHARE YOUR FEEDBACK and your experience

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As always - I would appreciate every single valuable comment. I would like to learn your opinion, your view and I hope you can share your experience with investing in any project, which attracts investors mostly by offering high APY.

Yours, @crypto.piotr
@project.hope founder
check out our community: https://steemit.com/trending/hive-175254

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Good job! You just got yourself a 100% upvote from ACOM. Enjoy!

hii @crypto.piotr,
When we give very high apy it seems like a double edged sword , 1) We get a lot of new customer ( hight marketing like you mentioned) 2) But we usually gain an customer base thats here only for the profits and once the apy reduces they tend to Stop 🛑... supporting the project because they no longer are getting what they joined the project for.
If we leverage the boon vs bane here , in my perspective I would focus on something that gives utility to the the project and maybe add the apy feature in the future once we have a decent customer/ support .

Hi dear friend @crypto.piotr

Interesting topic you share in the community, from my perspective, people are wary of investing in DeFi projects that offer very high APY, but at the same time avoid investing in projects with very low APY.

Investors currently trust projects that offer attractive APY (neither too HIGH nor too LOW).

From my own experience, when I see a project with a super high APY, I immediately discard it and assume it is a SCAM, on the other hand, when I hear about projects with a super low APY, the first thing that comes to my mind is that it is a consolidated project, for example; PancakeSwap is a consolidated DeFi and most of the APYs in FARMS range between 7% and 20%.

Therefore, those projects with APYs outside the extremes (ideally with APYs between 100 and 150%) are the ones I investigate to find out who is behind the project, and what services it offers and if it has any burning method that stabilizes the inflation process.

Best regards, be well.

 2 years ago 

Hi @lupafilotaxia

Thank you for sharing your perspective on this topic. It's interesting what you've mentioned, that "at the same time avoid investing in projects with very low APY."

I wonder why is that? I always see huge dividents as either ponzi scheme or any other sign of unsustainable business-model. And I sometimes wonder why so many people do not see it this way.

ps. what means that project is consolidated?

Therefore, those projects with APYs outside the extremes (ideally with APYs between 100 and 150%)

100-150% doesn't sound insane. But for me it still does sound like very unlikely that price of such a token could stay at the same level. I myself would be rather keen to invest in projects offering 10-30% profit in a year time-frame.

Yours, Piotr

Hello @crypto.piotr
High APY projects can be a double-edged sword, that is very clear.
They mean a big challenge for the whole team behind the project.

Just as you say, generating a big profit margin the first days can be attractive for anyone, but it can bring investors who only think about short term profit and affect a lot the project in question, it's a great truth.

On the other hand, and it is a viable option, is that the benefits are not only focused on the short term, that's when I say it is a challenge for the team behind the project. Because they would have to look for ways (products, tools, utilities,) so that people do not want to leave with their money and profits, that they see that beyond a few months there is something more, something that makes them want to keep their money in the project for years even.

 2 years ago 

Hi @josevas217

I like how you described it as a double-edged sword. I wouldn't put it in words any better way.

Greetings @crypto.piotr
Every time a DeFi offers a high APY is synonymous of failure or very short life of the project, since the first investors do not think in the long term, but in being able to capitalize, monetize and get out of it , it is very difficult that a DeFi can stay like that. i think that if the developers would think in a long term DeFI they should not offer such exorbitant APY that only attract short term investor

Greetings, actually nowadays many investors only think about investing and making profits in the short term without evaluating how good the project can be, the high APY only capture those short term investors that in a month or less they get everything and the project falls down hurting the smaller investors.

I think it is very important to invest in DeFi projects that are more long term with long returns, as time has shown that they are the most durable projects.

Greetings @crypto.piotr ❤️💕

One of the reasons I sometimes look out for some genuine DEFI project sometime has to do with the Defi project staking. The fact is that most Defi projects are mostly found of offering staking activities and rewards during the early stage of the project which gives early users the opportunity to earn more of it's tokens. Some people do say it's a means of compensating or rewarding early investors while some people see it as a total red flag in any project.

I think what really matter mostly is the team, community and prospect behind the project. If these three factors are solid with good plan, then we can expect good result from such Defi project irrespective if they adopt staking procedures or not.

Thanks for sharing this great post with love from @hardaeborla and I hope you have a great day ahead 💕❤️💕

I read through this post and I must admit that I am really impressed by it. All your point that you outline are not bad but when it comes to cryptocurrency the unexpected can always happen. Going by the long term process building the team is always not easy especially now that almost everybody that are into cryptocurrency wants to earn, dump and make money. If you can launch your project on a small scale and it pays out, then there is nothing wrong with it.

hello @crypto.piotr,
Personally I think there is a very big difference between creating a community that uses a token and creating a token that should be used by many people.

When offering a large APY it usually attracts investors who want quick profits, but for all long term investors offering a large APY reminds us of pyramid schemes.

The success stories I know of are made up of communities that develop their token, which grows little by little as the community grows.

Creating a token that grows slowly is much better than a token whose main attraction is a high profitability.

A slow and healthy growth from my point of view is much better than a fast but fleeting growth.

 2 years ago 

It seem that we're both on the same page.

there is a very big difference between creating a community that uses a token and creating a token that should be used by many people

Wise words @trabajosdelsiglo
I couldn't agree with you more.

Hello @crypto.piotr, I have always thought that the most "bombastic" projects at some point fall and with it all their followers and investors.
Many times I have tried to be the most optimistic from the beginning of a new project where I want to participate, however it is like a "law", everything that "makes a lot of noise" turns out to be a fiasco in a certain time.
Consequently, I dare to add that, like you, small projects where their development can be directly and transparently monitored and where there are only a few investors, is when short and medium-term gains are best used and they face lower risks.

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