Compound started a frenzy in mid-June when they announced the launch and distribution of Compound (COMP) token. This sparked the yield farming phenomenon, where users are earning up to 100% interest by raking in Compound (COMP) tokens. A side effect of this is that the amount of Bitcoin (BTC) that is locked in the Ethereum (ETH) network is skyrocketing, as users rush to put all of their crypto funds into DeFi platforms to reap quick profits. Ultimately, this could turn into a major positive force for the crypto market.
In the case of Compound (COMP) token, users are being rewarded tokens on a daily basis based on how much they borrow or loan. Since Compound (COMP) token has a value of roughly $200 and trading volume of hundreds of millions of dollars per day, and is therefore valuable, DeFi users are rushing to borrow and loan as much as possible to earn as much Compound (COMP) as they can.
Due to this, in just two weeks the amount of Bitcoin (BTC) deposited on Compound has skyrocketed from 170 Bitcoins (BTC) to 2,600 Bitcoins (BTC).
Further, another DeFi platform called Balancer has deployed a similar yield farming scheme, and in a couple of weeks the amount of Bitcoin (BTC) deposited has risen from 50 Bitcoins (BTC) to 1,650 Bitcoins (BTC).
This influx of Bitcoin (BTC) into DeFi platforms due to yield farming has pushed the total amount of Bitcoin (BTC) locked within the Ethereum (ETH) network up to 11,000, which is up from just 1,000 Bitcoins (BTC) at the beginning of 2020.
Notably, this is over $100 million of Bitcoin (BTC), and represents 0.06% of all the Bitcoins (BTC) that exist.
Ultimately, this yield farming frenzy is likely to accelerate since it is only in its early stages, and every DeFi platform is likely to launch their own yield farming schemes since it is such a successful strategy.
As people buy up lots of Bitcoin (BTC) to use for yield farming, it could theoretically increase the spot demand and price of Bitcoin (BTC). Therefore, the surge of Bitcoin (BTC) being deposited into DeFi platforms could pull the entire crypto market upwards if this trend continues to accelerate.
Further, yield farming has created a new and exciting use case for Bitcoin (BTC). Previously DeFi provided interest rates that were significant relative to the interest rates that banks give, generally in the 5-10% range. Even though this is significant interest in our current era, it still takes a very long time to earn significant amounts of money at those rates.
Now DeFi users can earn massive interest rates up to 100% if they aggressively mine Compound (COMP) token, especially since the token rewards are given on top of the interest rate rewards, turning DeFi into a way to earn fast money.
Therefore, instead of simply HODLING Bitcoin (BTC) and waiting for the bull run, or accruing profits from modest interest rates on DeFi, now people can buy Bitcoin (BTC) and make fast money with DeFi yield farming.
Thus, the yield farming frenzy is causing an increase in Bitcoin (BTC) demand, and this increases the chances of a crypto bull run in the coming months, especially in combination with the upward market pressure from the May block halving.