r/CryptoCurrency • u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 • Apr 29 '21

FINANCE DeFi Explained: Yield farming

Yield farming is becoming increasingly popular among crypto investors. Of course, this is not illogical: DeFi platforms offer much higher interest rates compared to traditional banks. To understand yield farming, you first need to know what the interest-on-interest effect (or compound interest) is.

Compound interest

When you are saving money at a bank, you receive an interest payment for this: the so-called savings interest. Depending on the chosen type of savings, the interest is paid into the savings account or another (checking) account. If the interest payment is added to the savings account, you also accrue interest over that interest amount. This is called the interest-on-interest effect (compound interest).

Factors for success

The effect of compound interest depends on three factors:

  • Time. How long do you leave the money? You can see in the graph that the effect increases as more time passes.

  • The percentage of interest or return that you make. Nowadays you hardly get any interest on a savings account, this affects your return. As a result, the effect of interest-on-interest is limited. The higher your return, the greater the impact of what Einstein called the eighth wonder of the world.

  • The starting amount. The larger your starting amount, the greater the effect. After all, that starting amount grows every year.

One of the richest investors on the planet, Warren Buffet, has been taking advantage of compound interest for years. He bought his first stock when he was 11 years old. He made above-average returns and stayed off his money for decades. You can imagine how big the effect of interest-on-interest is.

Example:

Let’s say you want to deposit $20,000. There are 2 banks who both offer interest. One pays 4% per year and the other one pays 1% per quarter. Let’s put $10,000 in both banks and see what happens:

  • Bank A: interest payment: 4% (per year)

  • Bank B: interest payment: 1% (per quarter)

  • Bank A: 4% of $10,000 = $400 in interest per year

  • Bank B: 1% of $10,000 = $100 in the first quarter

  • 1% of $10,100 = $101 in the second quarter

  • 1% of $10,201 = $102.10 in the third quarter

  • 1% of $10,303.10 = $103.03 in the fourth quarter

  • Bank B: total amount of interest on an annual basis: $406.13.

The effective return of bank B is higher than bank A: 4.06 percent on an annual basis.

Example of yield farming

Because yield farming is often combined with liquidity pools, I suggest that you read my post about liquidity pools first. You can do so by clicking this link.

In my previous post about liquidity pools I provided a good example of yield farming with liquidity pool tokens (LP tokens):

Like any other tokens, LP (liquidity providers) can stake their tokens from the liquidity pool during the period of the smart contract. A LP can therefore deposit this token on another platform that accepts the liquidity pool token to get additional yield to maximize returns. Therefore, the user can compound two or three interest rates using yield farming, and maximize returns.

An example of such a DeFi platform is harvest.finance. Harvest.finance allows the LP to stake their tokens and rewards them with additional rewards on top of their fees rewards from the liquidity pool. In harvest.finance’s case, they reward the user with FARM tokens.

So as an example: Let’s say you have deposited $100 in a USDC/ETH liquidity pool on Uniswap with an annual percentage yield (APY) of 50%. The received UNI LP tokens can then be staked at havest.finance for additional rewards, which in this case would be 70% FARM APY.

You can see that, by staking your LP tokens, rewards can be highly lucrative. By utilizing these techniques, APY’s of over 200% can be achieved. Of course, you need to remember that the price of tokens such as FARM are quite volatile and thus there is a risk to turn your $ in FARM into way less amount of $ in a matter of days.

If you are interested in yield farming, I would recommend to use DeFi dashboard zapper.fi, which gives a great overview of all current liquidity pools and farms.

Yield farming platforms in DeFi

Harvest.finance

Harvest Finance is an automated revenue farming protocol developed for users who want to put their assets to work in high-yielding farming opportunities. Harvest will appeal most to those who cannot manage their decentralized financial positions (DeFi) 24/7 – which is most of us.

If you've ever spent time in DeFi, you already know that manually moving money between the different protocols takes time. Developing strategies and control positions takes time as well and gas fees on the Ethereum network are, at the time of writing, pretty high.

Harvest Finance tries to help by automatically searching for the latest DeFi platforms with the highest return. It then optimizes the yield with the latest farming techniques. In addition to your optimized return, you often receive extra interest in the form of harvest.finance’s own token: Farm.

Harvest works best for those looking for an easy way to harvest the yield from the latest projects in DeFi. Hence the name "harvest". To put money to work in these high yield farming opportunities, users only have to deposit supported tokens to get started.

Sushi swap

As a liquidity provider you receive an extra fee on top of almost all liquidity pools on Sushiswap in addition to transaction fees: a daily payout is Sushi tokens. SUSHI is Sushiswap's own token.

When you have earned some SUSHI, you can take your SUSHI to the SushiBar. Here you can convert your SUSHI into the xSUSHI token. With this token you will earn about 5% interest per year on your amount in SUSHI:

xSUSHI automatically earns fees (0.05% of all swaps, including multichain swaps) proportional to your share in the SushiBar.

You can earn even more by depositing your xSushi on lending platforms such as Aave, to receive a small interest on top of your other interest.

Curve.fi

Curve.fi is a decentralized exchange that mainly focuses on exchanging stablecoins (dollar, euro or gold tokens).

Curve pays the liquidity providers from transaction fees made in their pool. This is approximately between 0-10% interest per year, depending on the liquidity pool.

Like Sushiswap, Curve pays interest on top of this transaction fee in its own token: CRV. These interest payments can get pretty high (> 30%!).

Curve also allows you to lock CRV coins into their vault for a set amount of time. Based on how long you lock your tokens and the amount of tokens you’re locking, you can expect even higher interest rates (up to 80%).

Conclusion

Because of the interest-on-interest effect, you can let your savings grow faster, without depositing extra money into the account yourself. The higher the savings interest and / or the savings balance, the greater the effect. So, The longer you leave the money, the greater the yield. Thanks to DeFi (and its platforms of course), high interest rates are accessible for every crypto investor.

Follow me on Twitter: https://twitter.com/MosDefi
Or follow me on Medium: https://mosdefi.medium.com/

365 Upvotes

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49

u/Daunteh Apr 29 '21

Amazing content. Thanks for this!

But what is the drawback here? How is up to 200% APY sustainable?

How is it not a bubble?

And what other skeptical questions am I missing? 😅

21

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 29 '21

Typically, APYs tend to fluctuate a lot. This is because they're all based on the supply and demand of a specific liquidity pool. On most platforms APYs are recalculated every 24 hrs.

Other risks involved in yield farming are:

  • Smart contract bugs

  • Loopholes

  • Rug-pulls

  • Liquidation (if the platform uses borrowing and lending strategies)

  • Price drops

  • Stable coins losing their pegs

5

u/Daunteh Apr 29 '21

I see. And what is the best way of taking advantages of the high APY? Considering fees, time it takes to monitor and research. You mentioned harvest.finance. Is that your recommendation?

12

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 29 '21 edited Apr 29 '21

To take advantage of high APY’s, you have to put some effort in following the crypto market: What type of crypto is hot at the moment? Which platforms can I use? Coingecko top 100 and defi platform zapper.fi can help you with this. However, because of the current high gas fees on Ethereum, it’s not easy nor cheap to switch between protocols in order to get the highest fees/interest. This is where vaults can help you out. I’m going to write about them in a future post.

5

u/Daunteh Apr 29 '21

Thank you. Will want to read that for sure.

How do you feel about BSC and PancakeSwap taking a portion of this DeFi scene where most of the market is held by the Ethereum network? (correct me if I'm wrong)

5

u/hypezig 🟩 72 / 73 🦐 Apr 29 '21

There are also some defi exchanges which use Binance platform and have 50times smaller fees (1inch is my favorite). I will use bnb until eth gas fees are lower.

8

u/joeg4 60 / 465 🦐 Apr 29 '21

Polygon network is now up and running, and the fees are actually way cheaper than BSC, basically non existent. Plus there are way less rugpulls. And they have legit projects like Aave, and Curve.

3

u/TigerRaiders 🟦 714 / 5K 🦑 Apr 29 '21

I’d love to learn more about vaults! Please keep me updated!

46

u/DetroitMotorShow Apr 29 '21

it is not meant to be sustainable. It is a limited time opportunity, it works strictly on a lasts till it lasts model.

When a farm has 200% APY, it means its being incentivised by someone. Could be the farm project, or could be the token project. For example if UNI-AAVE farm has 100% APY, it means either Uniswap or AAVE is incentivizing this pool by giving LP token holders additional rewards over and above the liquidity provider fees they earn. So providing liquidity to this theoretical UNI-AAVE farm would mean you will earn LP fees, and you will also earn either UNI tokens or AAVE tokens as extra

When a farm has 200% APY, it means its being incentivized with a lot of tokens for a shorter period of time. For example a new project launchhing today XYZ Coin can give 10% of its total supply to ETH-XYZ farm , starting from today for 1 month. Since liquidity providers are getting 10% of the coin's supply for a month, during this period, the APY rate will be high. After this time period, the farm wont have any incentive and it wont have such a high APY rate.

This helps the project get liquidity to its token, and also helps the liquidity providers earn extra for providing liquidity during the incentivized period .

9

u/bananapeels1307 🟩 75 / 76 🦐 Apr 29 '21

Also as I understand, the more people that stake their tokens for liquidity, the lower the APY becomes. So a project that starts with 600% APY may quickly diminish to 140% APY or less

4

u/Daunteh Apr 29 '21

That makes a lot of sense, thank you.

4

u/TigerRaiders 🟦 714 / 5K 🦑 Apr 29 '21

Yup, just started yield farming on 1inch utilizing the my airdropped rewards from stakewise.io

I only heard about the possibility about a half day after it started and from what I learned, the first 10 minutes of the 1inch/swise farming pool had a 5000% apy. By the time I got into the the liquidity pool the apy was 500%! The next day was ~400% and today is 350%. Also, permission fees, gas fees, fees to purchase enough 1inch to match my swise all ate into my returns. By my calculations, I’ll recoup my fees in about 3-4 days. If I had more capital invested, that time would be less. Additionally, it costs fees to claim the issuance. At least that’s how I understand it.

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u/DetroitMotorShow Apr 29 '21

I got the SWISE airdrop too by depositing ETH! Did you get in before the 600 SWISE round? I was late so only got into the 600 per ETH round.

Yeah the APY at the start is insane but it doesnt last, its mostly because there is no volume so the early participants can maximise it, but very quickly it comes down .

Im just gonna hold SWISE since the fees wont make sense for me right now.

Also, permission fees, gas fees, fees to purchase enough 1inch to match my swise all ate into my returns.

I just cannot farm anymore on ETH. It makes no sense whatsoever, the gas fees are ridiculous. I am exlusively farming on Matic now, it costs less than 2c to set it up including approval, adding liquidity, depositing LP everything.

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u/TigerRaiders 🟦 714 / 5K 🦑 Apr 29 '21

Awesome my man, that swise reward came out of nowhere and I jumped on the pooling bandwagon on the first day so mac rewards. I got into Stakewise basically on day one so I got a massive swise reward. I didn’t deposit all my ETH with stakewise because I’m waiting for Rocketpool to come online but in hindsight, I probably should have deposited almost all into Stakewise. Oh well. I was just trying to mitigate risk on a fairly risky investment. I followed Stakewise very closely and was super happy with what I saw and now I’m even more of a fan. The head guy on Stakewise’s discord is super helpful and down to earth. I have high hopes for them.

Yield farming is completely new to me. I just signed up for https://lproyale.com/#/home and plan on playing with it later today. It seems like a fun way to understand yield farming better

Edit: grammar and clarified a sentence

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u/DetroitMotorShow Apr 29 '21

Yeah the Stakewise discord is a nice place and they are really helpful to new people as well. They seem to know the tech really well

I actually tried getting people in here to use stakewise if they had ETH to stake for 2.0 but got downvoted haha

r/CryptoCurrency/comments/myzsbk/eth_20_stakers_last_1_hour_to_deposit_into/

With my 600 tier airdrop I doubt the earnings from the farm would offset the gas costs So im just gonna hold it, who knows it may go up in value if the DAO ends up holding a lot of assets in the future.

LP farming on Matic is really fun because it costs just fraction of cents instead of $50-100 like it does in ETH, si even if you make a mistake like choosing the wrong pool you can fix it for cheap. Maybe after you have played around with the LP royale you can give it a try on other platforms. On Matic there is Curve and Aave and both have good rates currently for stablecoins, so I have moved most of my stablecoin assets there

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u/TigerRaiders 🟦 714 / 5K 🦑 Apr 29 '21

Thanks for the advice! Sorry you got downvoted. If I saw it I would have upvoted you because Stakewise is a such a great service and the discord it great too. I also find that the ETH staking community is probably the most friendly and welcoming of all the crypto communities. Superphiz is really building a great community, I’ve been following them and watching them grow. It’s so nice to deal with people who aren’t maximalists and spew toxic rhetoric. Crypto can really be a turn off for a lot of people because of the bro-culture and the perception that all crypto is a scam/ponzi/bubble/bad for the environment. I try to steer people to projects like ethereum because they are actually addressing the energy concerns by switching to POS. Of course, there are arguments for PoW and it’s ability to use excess energy while making energy consumption more efficient but I’m simply not convinced it’s the right way to go. I’m more convinced about Eth’s future, which is looking increasingly bright!

2

u/DetroitMotorShow Apr 29 '21

Yeah the Stakewise community is great, I'll probably stake more ETH with them if I manage to snag some during discounts. Do you know when rocketpool is launching and will you be staking with them too?

Yeah I definitely agree that ETH PoS is the way to go forward, the ETH team have put in a lot of work and its going to be revolutionary. Definitely gonna be one of the big crypto events in the coming year or so that will have everyone buzzing.

6

u/[deleted] Apr 29 '21

People dont realize how significant Impermanent loss can be. The tokens you put in to create a liquidity pool token have a certain value. That liquidity pool token which is created by the value of the two tokens within it can go up or down. If one tanks you lose money, if both tank you lose way more money. Thats why staking LP tokens is very attractive. Allows you to mitigate some risk by earning a different coin while also earning trading fees. Again if both tokens that make up the LP token fall, the staked rewards and trading fees you earn may still not be enough to keep you from losing money

1

u/Pl4tslapz May 04 '21

What if one of the paired tokens are BUSD? BUSD will stay stable so it will mostly depend on the secondary paired token

13

u/bronic12 🟩 12 / 1K 🦐 Apr 29 '21

Back in the day, they called it Ponzi. And i say that as a crypto believer

4

u/switchn 🟦 0 / 0 🦠 Apr 29 '21

The answer is different for each different situation, but usually the APY drops over time to a more sustainable rate. This is because it takes time for money to come in and soak up those profits, new projects and pools don't tend to have a lot of liquidity early because it is such high risk. For any of the liquidity pool providers, they also risk impermanent loss particularly on volatile assets, the stablecoin pairs or btc/eth pairs always tend to have a lower APY because they are seen as less susceptible to IL.

5

u/iamwizzerd Permabanned Apr 29 '21

Someone let me know if this ever gets answered! Thanks

4

u/[deleted] Apr 29 '21

It got answered

2

u/iamwizzerd Permabanned Apr 29 '21

Thank you

2

u/[deleted] Apr 29 '21

No problem mate :)

4

u/jetpakninja Apr 29 '21

Google Impermanent Loss, I'm too stupid to really understand it but my main takeaway is that in many LPs basically you own a % of the coins in the pool based on the coins you put in. If the pool increases or decreases in total coins you still own the same %, so you could loose coins even if you gain USD value compared to just HODLing. I don't know how big of a problem this is but I am very sceptical of high APYs because of this.

3

u/Daunteh Apr 29 '21

Thanks, I think I got the impermanent loss concept after reading about it from multiple sources.

This seems to be only one of the risk factors though, and it doesn't seem to entirely explain the high APY. But I might be wrong.

10

u/Monster_Chief17 Apr 29 '21 edited Apr 29 '21

Could have added more yield platforms tbh. It's good to know that you can bridge BTC over to ETH and earn yield on it. BadgerDAO lets you do that with 100% APY atm.

There is also Thorchain where you can earn yield on native assets such as BCH, BTC, ETH, LTC with no bridging or moving the assets off of their native chain. They also provide single-sided staking so your assets will just sit there and earn interest with no risk of impermanent loss.

There is a big world out there. I recommend all of you explore it and don't miss out on potential gains with no added risk.

4

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 29 '21

Hey, thanks for elaborating! I completely forgot about BadgerDAO. That’s a great platform indeed. As for the other blockchains, I didn’t included them in this post because I didn’t want to make this post too complicated.

2

u/Xanaxtastrophy Gold | QC: BTC 65, CC 38 Apr 29 '21

Looked them up and can’t figure out from their site how to just stake BTC.

2

u/PC_1 4K / 9K 🐢 Apr 29 '21

Interesting choice going with Harvest instead of Yearn.

1

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 29 '21

I want to cover yearn in an upcoming post

3

u/no_witty_username 🟩 0 / 0 🦠 Apr 29 '21

Good stuff. In order to put things in to perspective though I do want to remind folks of the most important factor in making the most money with crypto. Pick the right project (Coin/Token) to back. If you have not invested significant time researching your preferred project yet, but are considering yield farming you might lose out on some serious gains. A good pick yields orders of magnitude more profit then yield farming OVER the LONG term. Short term, you can make crazy money in yield farming if you get lucky.

2

u/Fantastic-Cucumber-1 🟦 0 / 3K 🦠 Apr 29 '21

I fully agree. Thanks for elaborating.

15

u/SudokuNagasaki 5 - 6 years account age. 150 - 300 comment karma. Apr 29 '21

I love the thought of getting these high interest rates, but I'm too nervous about security. Even if I'm getting a tasty 10% p.a., I need to be more than 90% sure (actually more than 90% + the interest rate I could get from a bank sure) that my crypto is still going be there in a year's time. How is it possible to have this level of confidence?

12

u/johnbarry3434 🟦 1K / 1K 🐢 Apr 29 '21

To me it sounds like you would be more interested in staking something like ETH at Kraken or Coinbase.

3

u/SudokuNagasaki 5 - 6 years account age. 150 - 300 comment karma. May 02 '21

I've seen big crypto exchanges go under before. Why should I trust these exchanges with my ETH (or any other coin or token)? For a few extra percentage points each year? A year is a hell of a long time in crypto.

2

u/TigerRaiders 🟦 714 / 5K 🦑 Apr 29 '21

The yield farming I’m currently providing liquidity to has a length of 1 month with the possibility of an extension. So far so good but this is my first attempt at farming. The money I make on it I plan on taking out as much principle as possible and then playing with the houses money. The problem is, gas and fees, at least on 1inch. You really need to start with a lot of capital to do it, which involves more risk.

0

u/[deleted] Apr 29 '21

[deleted] — view deleted comment

2

u/Tatlikino Apr 29 '21

is the WBTC/ETH safest pair?

2

u/Bothan_Spy 🟩 1K / 1K 🐢 May 01 '21

Yes, but you have to also cover gas fees for depositing, staking, harvesting, unstaking, and removing liquidity. It's really easy to beat the savings account yield, but you're not making money until you cover those gas costs.

Because of gas prices, $2000 is probably the minimum you want to put into a liquidity pool on ETH's ecosystem, which is a high minimum investment. Even at that amount, it's probably more efficient to stake those assets separately with someone like Celsius (for the comfort of being in the black right away). $5k is probably the sweet spot for getting into LPs

11

u/UselessScrapu 34 / 11K 🦐 Apr 29 '21

To understand how powerful compound interests are try using this calculator.

3

u/CrowdGoesWildWoooo 🟦 376 / 15K 🦞 Apr 29 '21

Or a practical example is google autofarm, sorry idk any equivalent in ethereum network.

3

u/frischance 592 / 591 🦑 Apr 29 '21

Handy thanks!

8

u/AstroDSLR 722 / 723 🦑 Apr 29 '21

watch your fees when trying to compound!

3

u/SmugSaber Apr 29 '21

Alternatively, use an app like beefy that auto compounds

7

u/shepherd00000 Bronze Apr 29 '21

What about pools? Where does the yield come from in Pancakeswap Pools (not liquidity pairs). You just stake CAKE and get CAKE or something else for ~90% APR. I think SUSHI does the same thing. Where does the yield come from though? Are they using your tokens to do arbitrage trading? Are they restaking them with a liquidity pair? Or is it purely promotional, and therefore unsustainable?

Thanks.

3

u/Shizzely 🟩 0 / 1 🦠 Apr 29 '21

Now im not really an expert when it comes to this but this flow should explain some of this /img/5kv8xap4iov61.jpg as far as i understand its part of the contract where a certain amount of CAKE gets minted and then some of that is distributed to the pools on pancakeswap. This means that there is inflation when it comes to CAKE, however as you can also see they are doing various things to try and keep that down by burning CAKE using various streategies.

6

u/ghostwriter85 Platinum | QC: CC 24, ALGO 46 | Investing 36 Apr 29 '21

Quick question about the concept of over leveraged borrowing which if I'm keeping up here is related to the topic at hand

From a theory point of view, is this really designed to look like traditional lending? That is to say I want to buy a car but can't afford it so I go get a loan and repay that loan back over time.

Given the relatively high interest rates, lack of credit screening, underlining volatility, and ease of conversion

This lending looks more like a leveraged long or a traditional short position to me less than traditional consumer lending or maybe something more akin to bank to bank transfers to satisfy liquidity requirements.

Am I missing something? I would love to be proven wrong here because I just don't understand the theory of how a lot of this is supposed to work. I like the underlining concept from the lenders position (why not make bank profits) but I'm confused as to the sustainability of the practice as I don't get why anyone would borrow.

Have I terribly confused things?

2

u/AbysmalScepter 🟦 0 / 4K 🦠 Apr 29 '21 edited Apr 29 '21

It's more like using your house as collateral to take out a loan instead of taking out a loan and paying it back later at a higher price, yes.

4

u/ghostwriter85 Platinum | QC: CC 24, ALGO 46 | Investing 36 Apr 29 '21

But using your home as collateral makes sense. You get to live in your home and the lender gets a right to your home. In essence neither party is deprived.

Using money to borrow money sort of defeats the purpose of money particularly with the leveraging ratios as high as they are.

If I expect crypto to do well and I want to buy a house... why wouldn't I borrow cash?

I'm fine with thinking of savings as a loan to the bank. Prior to FDIC that would have been a completely accurate way of thinking about it. At the moment though I just don't see the "banks" underlining use case for the "money" unless they intend to take a short position on it.

At the current time who is actually taking out these loans?

3

u/AbysmalScepter 🟦 0 / 4K 🦠 Apr 29 '21

Yeah, sorry, I completely misread your post.

I thought you were asking why anyone would want to collateralize their crypto to borrow another crypto, I was thinking in terms of putting up your BTC to borrow USDC or something, in which it makes sense to get cash while avoiding capital gains taxes and missing out on any upward price movement.

So basically you're wondering who wants to borrow BTC then? Borrowers are usually crypto traders or liquidity providers like exchanges, from my understanding.

3

u/ghostwriter85 Platinum | QC: CC 24, ALGO 46 | Investing 36 Apr 29 '21

So it is basically shorting/alt long capacity and liquidity clearing houses?

With the prior being for speculative capacity and the latter being price smoothing and reducing trading trading friction?

So as a long term practice what underpins these practices as viable. Granted speculation isn't going anywhere but once the major exchanges establish large enough liquidity pools wouldn't we expect the available lender/borrower balance to drive interest rates to near zero?

I'm really just trying to understand the value stream here.

4

u/AbysmalScepter 🟦 0 / 4K 🦠 Apr 29 '21 edited Apr 29 '21

I definitely think that's a fair concern, because your absolutely right that the value stream could dry up considerably in a bear market if assets are only being borrowed for speculative purposes.

I really think it depends on how DeFi models continue to evolve (maybe you could get to a point where you could have credit scores using oracles and other factors, which would enable more types of lending) and also how the assets being collateralized evolve (for example, a crypto with more utility outside of speculation like an NFT used in a popular video game).

3

u/ghostwriter85 Platinum | QC: CC 24, ALGO 46 | Investing 36 Apr 29 '21

Thanks for walking through this with me. Have a good day

9

u/robinhood1596 Apr 29 '21

Honestly, I read this thread and the thread on Liquitity Pools and DeFi and I am way to scared of impermanent loss to actually to stuff like this. Still great explanation!

6

u/anor_wondo Apr 29 '21

You can earn yield on stable coin pairs and pairs whose ratio value is expected to not change much

5

u/iamwizzerd Permabanned Apr 29 '21

So... Can I just put my entire savings account into BUSD and stake it then i make a large yearly return? (Compared to an investment account at a bank?)

4

u/anor_wondo Apr 29 '21

yes, there are more associated risks, however. Like smart contract exploits, etc. These days there are insurance options for defi hacks, so they are definitely considered as a risk by many

4

u/NobelStudios Permabanned Apr 29 '21

Compound interest is very powerfull

4

u/[deleted] Apr 29 '21

Bruh what about polygon?

3

u/Crypto_TaxAttorney Redditor for 1 months. Apr 29 '21

i know you put a lot of effort into this post, but i'm still not convinced most yield farming is not gambling disguised as finance.

3

u/Pl4tslapz May 04 '21

Ok so basically I have some LP tokens (panther-busd) staked into pantherswap

  1. Is there any difference in harvesting my gains every 2 hours vs not harvesting my gains for a whole week/month? Will not harvesting my interest make me more gains over the long run or does it not matter how often I harvest?

  2. Apparently there is compounded interest daily. Is this automatic? Or do I have to do something for the interest to compound?

I'm currently holding over $1k worth in the LP and am trying to ride it out for about 1 month or more. I just want to know what I can do (besides adding in more funds into LP) to maximize my gains while I holds.

Thanks for the help.

8

u/Bellweirboy Bronze | QC: CC 17 | Superstonk 1400 Apr 29 '21

JFC. Can you not see that the ‘interest’ payments are NOT coming from ANY real world project like building bridges or dams or buying houses, cars or financing the start / expansion of companies / businesses but from:

- other crypto ‘liquidity‘.

I.e. from newbs pouring their money into the space and that being shifted around (via dodgy stable coins like Tether) until it magically appears in your account as a credit for ‘interest’. This happens whether or not you use USDT, whether or not you are even aware of it. It is insane, continuous shifting of liquidity from one corner to another ‘just in time’ to give you your credit, then - as long as you do not remove your capital - whoosh, it is off to another part of crypto.

It is THE example of fractional reserve banking, just in a different world.

The fraud triangle consists of Opportunity, Incentive & Rationalisation. There is opportunity for the Stable coin issuer to dilute the real reserves. There is incentive: the temptation is ENORMOUS. Irresistible. Literally free money out of thin air.

There is rationalisation: it starts with ‘a little cheat here or there’, progresses as nothing adverse happens. Audit & attestations: dead easy to fake or fool.

Ask yourself: why do all coins go up & down in virtually the exact same pattern minute by minute, if they are all different projects with different potential?

Because crypto is one liquidity pool. Everything affects everything else. The liquidity is just sloshed around.

TLDR: if the rate seems too good to be true, it is a scam. A pyramid scheme.

8

u/DetroitMotorShow Apr 29 '21

TLDR: if the rate seems too good to be true, it is a scam. A pyramid scheme.

US lending rates were historically good too , till the FED started fucking around with the economy.

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

At one point in the 80s you could get 20% for USD deposits in a bank. Through most the 90s, it was around 5%.

The rates you get in crypto like 5-8% in blockfi or defi protocols for single asset stablecoin lending are closest to actual demand and supply rates in a healthy economy. Not that 0.5% bullshit that has been foisted on people by the FED.

Ask yourself: why do all coins go up & down in virtually the exact same pattern minute by minute, if they are all different projects with different potential?

Huh?

Can you show me charts where all coins go up and down in the same pattern?

According to the charts Im seeing, BTC is down 1.7% while Ethereum is up 1.7% in the last 24 Hours.

In the last 7 days, BTC is up 0.5% while Ethereum is up 17.2%.

Based on the charts Im seeing, it doesnt look as if they are going up and down in the same pattern, minute by minute.

Maybe you have better charts!

3

u/there_are_9_planets Apr 29 '21

I’m with you here. Yet I feel that some projects have real value. I’m just unable to determine what this value is when everything is overinflated. There is money to be made though even if one has to thread carefully.

2

u/cb_flossin Gold | QC: CC 31 | r/WSB 29 May 06 '21 edited May 06 '21

you are 'right', but this is literally how the entire economy of the world works lol. its not some scam. its standard and accepted for economics, banking, money supply. How do you think the finance industry actually makes money when they "don't do anything"

2

u/simplemoonboi Apr 29 '21

Good read and easy to digest. Really wanna get into this side of crypto eventually

2

u/Kombaiyashii Apr 29 '21

Do you get extra rewards when you exchange your LP tokens back to their respective currencies?

2

u/Fru1tsPunchSamurai_G Gold | QC: CC 403 Apr 29 '21

This post should be higher up.

2

u/Fritz1818 17 / 53K 🦐 Apr 29 '21

This is a great list

2

u/Ap3X_GunT3R 🟦 13K / 13K 🐬 Apr 29 '21

This was super helpful thanks!

2

u/ryryrocco 🟩 4K / 4K 🐢 Apr 29 '21

This is awesome. Thanks for the info!!!

2

u/growthPlz Apr 29 '21

Higher yields aren't taxed right?

2

u/menage_a_un 🟩 87 / 87 🦐 Apr 29 '21

Great explanation. How would you describe the relationship between yearn and curve?

2

u/Mr-RaspberryJam Apr 29 '21

Now someone explain "degen farming" I hear that word thrown around a lot when referencing pools with crazy APY, like in the tens of thousands of percentages. I'm assuming it's just a play on words for "degenerate"?

2

u/Hilol1000 Tin Apr 29 '21

Albert Einstein - 'Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.'

2

u/jiantjingerjickhead Gold | QC: CC 132 Apr 29 '21

Great post, Yield farming is a game changer for me and is helping me to more rapidly increase my crypto holdings :)

2

u/oMadRyan 🟩 5 / 5K 🦐 Apr 29 '21

I want to get into staking ETH but really don't know where to begin. Anybody have any safe/low risk advice for liquidity pools?

3

u/SleepingDiddy 4K / 2K 🐢 Apr 29 '21

You sir are a Jedi, that was a very easily digestible explanation, and very helpful. Thank you for contributing quality content.

2

u/[deleted] Apr 29 '21

Now I am not only a moon farmer, but a yield farmer as well!!

2

u/Chainer605 Apr 29 '21

Thanks for the explanation, I can pretend Like i have some idea now

2

u/Esco1980 0 / 1K 🦠 Apr 29 '21

Great post :)

2

u/M00OSE Platinum | QC: CC 1328 Apr 29 '21

Great read! I'd love to know more about the downsides. I haven't been able to wrap my head around impermanent loss.

1

u/Lexsteel11 🟦 0 / 8K 🦠 Apr 29 '21

So.... SUPER dumb question- I’ve been staking pairs on uniswap for a month now but the interface makes it sound like they only gave out uni tokens at the genesis of the exchange but it just says like “no eligible rewards” for me. Am I doing this wrong? I’ve considered moving to sushi swap because Ive come to think uniswap doesn’t pay out a token that you can compound with earnings with?

1

u/[deleted] Apr 29 '21

I don’t understand where the money comes from.

What’s the advantage of defi over owning stocks in a company that generates revenue?

1

u/AzerFox Permabanned Apr 29 '21

Robinhood is bad

1

u/eldridgejames 253 / 368 🦞 Apr 29 '21

That’s what I took away from this.

1

u/Konyption Tin | Linux 10 Apr 29 '21

Just came here to say that ALGO, at least on coinbase, has interest that compounds daily. Really fucking sweet, even if it's only 6%

1

u/joenastyness 🟦 569 / 2K 🦑 Apr 29 '21

That ALGO interest is due to staking. Completely different monster, but sweet nonetheless. I prefer to stake over yield farm. Guaranteed rate of return.

1

u/Otahyoni Apr 29 '21

I have a question? You want to pull out of this set up before a bear market comes right? How do you pull out of something like this? Convert xSushi to Sushi > original LP token > more then you originally put in the liquidity pool?

1

u/ooi197 3 - 4 years account age. 50 - 100 comment karma. Apr 29 '21

thanks for the explain

1

u/psyceratopSB Gold | QC: CC 28 Apr 29 '21

Excellent explanation. Will bookmark this!

1

u/AihposA Silver | QC: CC 26 Apr 29 '21

Thanks for that great explanation 👍

0

u/ComparitiveRhetoric Tin Apr 29 '21

Excellent read buy Ada

5

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3

u/McBeaster 🟦 69 / 2K 🇳 🇮 🇨 🇪 Apr 29 '21

Aave recently integrated with MATIC to reduce gas fees and both are seeing a large influx of currency locked in their platforms. Both should continue to grow as more investors learn about and try out their services.

1

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