Should The Crypto Community Fully Embrace Inflation?

Should The Crypto Community Fully Embrace Inflation?

The cryptocurrency community has been mostly critical about government policies regarding fiat currencies. Many of them believe that the government should not print too much money because it hurts the society and the power of each dollar or even each cent. This is true because food prices have been increasing over time in the past few decades due to irresponsible and unavoidable fiat printing.

That’s why hard-coded digital money like Bitcoin has been embraced by the crypto community because it has deflationary elements like halving events every approximately four years. Not only that, but it’s also getting harder to mine new Bitcoins when there are more competitions and hash power. We can effectively say that Bitcoin has the opposite nature of fiat currencies.

However, in 2020 the trend has been slowly changing. Instead of new altcoins with the characteristics of Bitcoin, we are witnessing the rise of yield-farming tokens where they actually embrace inflation, and sometimes at a very uncontrollable level. The likes of SUSHI token, YFI, Curve and others have “money printing” elements built into their mechanism. While many veterans have been warning that this trend would not last, the bigger question remains the same. Should the crypto community fully embrace inflation for the sake of short term greed?

DeFi And Yield Farming

The hunger to embrace inflation can easily be attributed to the current trend of yield farming. It all started a few months ago when Compound Finance (one of the most popular DeFi protocols) introduced its concept of yield farming. The idea is that you can “farm” COMP tokens by providing liquidity to the protocol. So, if you decide to borrow DAI to Compound or if you decide to lend your DAI to Compound, you will be able to claim COMP tokens. How many? It depends on how much liquidity you provide.

COMP became extremely popular and it even stayed at above $300 when it got listed on Binance the first time. People kept providing liquidity to the protocol until something better came along. Yes, COMP has opened the can of worm and provided a red carpet for other DeFi protocols to create their own yield-farming tokens. with its native token CRV, with its YFI, Sushiswap with its SUSHI, and so many others have eventually joined the same game just to attract the attention of the so-called yield farmers. Even Uniswap, the most popular AMM decentralized exchange, eventually launched its own yield-farming token called UNI.

According to DeFiPulse, there is almost $11 billion USD locked into DeFi ecosystem. It used to be way less than hundreds of millions of dollars, but the popularity of yield-farming tokens change everything. Now people can “mint” token just by providing liquidity using other tokens.

Suddenly, Inflation Is A Great Thing For Crypto

Inflation used to be hated by the crypto community due to the fact that inflation reduces their purchasing power. USD was much stronger when you used it to buy food. And don’t get me started on developing countries’ fiat currencies. Their fate has been even worse.

And that’s why the likes of BTC has much better prospect long-term as long as it has consistent demand. Other older gen altcoins also often copied the basic fundamentals of Bitcoin.

However, as mentioned above, the yield farming trend has changed everything about cryptocurrencies. Suddenly, inflation is considered a great thing for crypto. Even ETH and other top altcoins have been enjoying a gradual rise to their price appreciation due to the popularity of the yield farming industry. Without the rise of YFI or COMP or UNI, perhaps this year’s bull market wouldn’t be this impactful.

But, here’s the more important question that nobody knows the answer to, will it last? Will crypto traders eventually embrace inflation? Will people actually HODL the cryptocurrencies with crazy inflation mechanism? Nobody knows the answer but there’s one very important hint. Trends often change in the crypto space but Bitcoin has never been dethroned. So if you want to bet on something long-term, a deflationary mechanism in Bitcoin might attract your money more.