XTZ Could Face Increasing Pressure From Yield Farming Incentives

XTZ could face increased pressure from the yield farming incentives despite being the coin that drew massive inflows of investor capital because of the lucrative monthly rewards thanks to its staking mechanism that generates major support among users as we reported in the Tezos price news.

Although the stable five percent annual yield could seem attractive, the advent of decentralized finance stole the thunder from the staking tokens. the yield farmers can collect incentives on multiple popular protocols with 100 percent annual yields. One economist believes that XTZ could face increased pressure from yield farmers incentives as the yield farming continues to grow.

After rallying earlier this month, the strong uptrend of Tezos showed signs of faltering and the cryptocurrency plunged from the recent high of $5.00 to the recent lows of under $3.50. At the time of writing, XTZ is trading nearly eight percent at a current price of $3.55. Despite the signs of short-term weakness, it is important to note that the cryptocurrency is trading up significantly from the yearly lows of $1.25. Most of the technical strength came as a result of the parabolic uptrend that led it from the October 2019 lows to $0.75 to $3.60 in February.

$XTZ is not the slow $LINK cousin. One is a protocol token, the other an oracle token. $XTZ is getting murdered for a good reason: its staking appeal has collapsed with the emergence of yield farming.

— Alex (@classicmacro) August 20, 2020

The combination of investor hype the fact that there was an XTZ staking pool on Coinbase last year, boosted this movement which helped it form a strong investor base which contributed to the recent uptrend. The hype around the token could falter but its staking mechanism is growing less attractive by the day as Defi yield farming opportunities rise. The current annual yield on XTZ staking sits at 5.49 percent and those that are baking their coins can earn a total of 6.17% per year.

While rebuking the claims of Tezos being “Chainlink’s slow cousin” which will soon see a huge rally, Alex Kruger explained that he believes XTZ will be killed by the collapsing staking appeal:

 “XTZ is not the slow LINK cousin. One is a protocol token, the other an oracle token. XTZ is getting murdered for a good reason: its staking appeal has collapsed with the emergence of yield farming.”

Unless the Defi sector sees a huge decline in popularity which will send the farming profitability crashing lower, the investors will continue exiting staking-based tokens positions.