Governance tokens experiencing extreme volatility! How to correctly participate in the DeFi battlefield? Is it better to mine or buy tokens?

The total value locked (TVL) in DeFi has surged from $600 million at the beginning of the year to $8.5 billion currently. With the introduction of governance token COMP by lending protocol Compound, which integrated the concept of liquidity mining into the DeFi space, the market has gone wild. Numerous DeFi projects that seem similar have emerged, and even Sushiswap, which aims to attract liquidity from other platforms, has been created. How should one participate in these highly volatile and risky DeFi tokens? Larry Cermak, Research Director at The Block, has shared his personal insights.

Participate in Mining, Don't Buy!

Larry shared various opinions on Twitter, expressing surprise at investors still buying the latest food-themed DeFi yield farming tokens in the market. He wonders what kind of investors these buyers are and what mindset they hold. He believes that investors are trying to chase the 1% chance of a massive surge in these projects while also following the 99% chance of a crash. Larry emphasizes:

Reminding you that such situations (interest rates, token surges) cannot last forever, the best approach is to farm coins (provide liquidity) and continue to sell to lock in profits. Too many projects emerge one after another, then most investors suffer losses due to speculative tokens, and finally, the market demand exhausts, and mining rates collapse as well.

Larry mentioned his comments at the end of July, where he believed that the high interest rates in DeFi were unsustainable. Fast forward to the present, he finds it incredible how DeFi has developed at such a rapid pace but still believes this situation cannot be sustained for long.

Did Larry Also Buy YFI Tokens?

Indeed, Larry's lengthy discussion on DeFi tokens these past two days began with a tweet where he admitted to buying YFI tweet. On September 14th, he stated:

I bought YFI at $800, sold a few days later at $3,000, then bought back at $6,000 to ride the hype of being listed on Binance, sold at $12,000. Now I can't stand it going up, so I hold a reasonable position again.

Larry emphasizes that he bought in at $33,000 and even if YFI goes to zero, he wouldn't feel a bit of heartache as holding it is just to avoid the annoyance of seeing it constantly rise. However, Larry admits that his purchase of YFI has caused the crypto community to see a contradiction with his argument of not buying DeFi governance tokens, to which Larry responded:

YFI has a fixed total supply and cannot be obtained through liquidity mining. Holding it would feel better about facing its future rise, which is entirely different from buying unaudited projects that collapse two days later.

Additionally, some netizens have different opinions, believing that whenever someone says DeFi is about to end, more innovative projects emerge. Therefore, as long as one or two interesting projects are launched each month, such as the recent popular Pickle Finance (PICKLE), DeFi will continue to develop.

Larry responded, "I still have serious doubts about this, but let's see how the next few months unfold."