If anyone thought speculation in precious metals markets was getting out of control, crypto traders have taken this frenzy to new levels.
In DeFi, yield producers claim annualized returns of up to 80% APR on tokenized gold.
If this trade seems reckless and inadvisable, it is. Building a deal to achieve returns 22 times those of a US Treasury obviously creates unstable risks to dizzying heights.
Spot gold and silver are volatile enough on their own, even before adding tokenization, protocol risks, and a daisy chain of trust with offshore third parties.
The volatility of gold implied in options contracts is over 24 and that of silver is over a staggering 65.
And while this volatility has rewarded recent bullish investors recently – gold is up 69% since the start of 2024 and silver is up 129% over the same period – over the previous 12 months, gold has lost 32% and silver 52%.
Successive annual losses have reduced investors’ savings by several decades in a few months. In 1980, for example, silver lost three-quarters of its value in three months.
Read more: Trump-linked USD1 stablecoin hits 99% APR on Binance Chain
Dizzying Risks in Crypto Gold Yield Farms
Achieving an 80% APR Requires Confidence ParBitwhat is financially attractive Parreala market exchange backed by venture capital Solana blockchain, which has a pool for the XAUT token requiring trust in Attached and that of Tether anonymous custodian(s) of Swiss gold vaults.
The liquidity pool also requires trust in USDTa stablecoin with an assortment of unaudited assets.
Additionally, payments are intraday variabletherefore reaching an APR of 80% is not guaranteed for the whole year. In fact, it could evaporate within days or even hours.
Additionally, the yield farm is inherently exploited and transmits liquidation And fleeting loss risks for users. This also requires payment of fees in GROUND and other tokens to third-party DEXs.
Finally, the payment of interest is not made in cash but rather in cash. Solana-bridged version of Tether’s tokenized gold tokenXAUT.
To install XAUT on Solana, of course, users must trust Legacy mesh And LayerZero for bridging.
Add up all the entities and dozens, if not hundreds, of trust assumptions per entity, and the allure of this 80% APR claim certainly fades.
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