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## The historical record is clear, hundreds of defi projects with synthetic profits have died, and the few defi projects with organic profits are alive and well
- The Summer of 2022 is often called DeFi Summer because  the financial sector called  decentralized finance grew 1000x from investments in the millions, to investments in the billions.  It was the most explosive growth of any financial sector, every, in the history of finance.
- However, if one looks at the hundreds of defi projects which focused on profits generated by trading so called **liquidity pairs**, the facts are clear. Hundreds of defi projects with synthetic profits are dead and the few projects with organic profits are alive, growing and profitable. 
- I make this statement as an observation, and  I claim no special wisdom.  I am like a man who witnessed a the same type of car accident, repeatedly, who merely reports what happened. 
- I believe the reason lies in the difference between the source of profits; synthetic profits versus organic profits. 
- Please focus not on the names, but on the outcome. Because that is really what matters, and let me share with you,  a hard and expensive lesson.
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https://img.inleo.io/DQmTGEfcMMJnjLzwz3D8zDtPY68xixUFJcuSGDx3qVhk1uR/efe067bf34c854e862548c0cd1bafe26.webp 
[source](https://finance.yahoo.com/news/rise-fall-decentralized-finance-152200277.html)
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## Organic Profits versus Synthetic.
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- As I write this there are three decentralized exchanges which started during the famous defi summer in 2022, and they are doing well financially. They are Uniswap, PanCakeSwap and Sushiswap, all of which generate Organic Profits.
- Additionally, each of these exchanges were  connected to 50-100 DeFi Projects which generated Synthetic Profits. And 99 percent of those Synthetic Profit Defi projects are closed, and the value of their project token has fallen to zero.  The Founders of those projects have scattered to the wind, and many of the investors are left holding bags of hundreds and sometimes thousands of worthless tokens.
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### Organic Profits
- Uniswap, PanCakeSwap and Sushiswap all have liquidity pools, and each of these three rewards investors with transaction fees, which are paid on swaps or trading activity on the exchange. This is Organic Profits earned from trading and trading fees, which are small at 0.05%, but when daily trading volumes are in the millions of dollars, these profits are significant.
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### Synthetic Profits
- Practically every dead defi project, which number in the hundreds and they all  share one core characteristic. They paid the liquidity providers, or investors, not in organic profits derived from transaction fees, but from Synthetic Profits, in the form of  reward tokens, which were minted daily. 
- These are not organic profits like transactions fees. These are synthetic profits or something manufactured. And these profits only exist as long as you mint tokens, and the tokens are only valuable while there are buyers coming into the market to buy tokens. 
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### Organic Profits equal transaction fees...
-  And are paid in the same token, which anyone transacting on the blockchain pays. Organic Profit tokens are the transaction fee token on the blockchain. They are not the token of that particular defi project. 
- So all transactions on Ethereum are paid in Ether, like all transactions on Binance Smart Chain are paid in BNB token, and on Polygon/Matic, all transactions are paid for in Matic. Those are Organic Profits and that's what investors on Uniswap, Pancakeswap and Sushiswap are paid in, real, organic profits.  These are tokens like Ether, BNB and Matic.

### Synthetic defi liquidity provider rewards...
-...are minted daily and have no purpose other then to reward people who deposit tokens into trading pairs. These tokens have no utility beyond their defi project and ultimately no value, and history shows us that all their prices went to zero.
- Many people lost a lot of money in these synthetic token projects.
- I suggest we focus on the lessons, not the losses. 
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## What did we learn?
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- First,  Synthetic profit projects  are unsustainable, and the same synthetic tokens which give the project  life, will eventually kill it.  

Synthetic token rewards are inflationary and like all inflation, it can be used as a force for good, but unless it is kept within low limits it devalues the currency and destroys the economy. 

Realize, that dozens of teams of smart men and women have tried and failed to make these projects profitable and sustainable over the longterm. They all failed and most projects are closed.
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- Second, organic profit projects usually pay transaction fees in a utility token, which is used to pay for all transactions, on the blockchain. 
- This is a core characteristic of a sustainable project, which can generate income in a useful and valuable token for a long period of time. 
- Examples of this are projects which pay  Ether, like Uniswap, BNB like Pancakeswap and and Matic, like Sushiswap. 
- These three exchanges pay organic profits, not synthetic profits.
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## The Future
- I don't own a crystal ball, to read the future. 
- I just know what didn't work, and what worked, and what is still working. 
- So that's where I intend to put my money. 
- Do Your Own Research, it's your money, you worked hard for it, make your own decisions and take responsibility for them. 
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Posted Using [InLeo Alpha](https://inleo.io/@shortsegments/defi-project-profitability-and-sustainability-depends-on-whether-they-generate-synthetic-profits-or-organic-profits-)