There is a veritable goldrush going on in the Defi space? A rush that has seen some early participants earning lucrative returns on their crypto. These are not miners, founders, investors or traders. They are farmers yield farmers to be exact, people who have found the most lucrative lending and borrowing opportunities around, some of which have been able to generate in excess of 100% yield. The question is though, is it all tapped out and are you too late to the party? My name is Mr Crypt and in this article I will answer just that. I'll also go over exactly what yield farming and liquidity mining is, take you through some of the protocols, look at the potential risks and share some of my own hot tips for you to tap. So be sure to stick around if you want to maximize. Your defy crop. A quick few things my friends. Nope, not a financial advisor. I'm sorry to disappoint you, but the only info I'm qualified to provide is educational information, so please consult your financial advisor (which i am not and have no desires to be)before diving into the Defi waters, All set sweet , Let's hit the fields.
What is Yield Farming ?
So what the hell is yield farming? Well, it's basically a pretty broad term that refers to chasing yield in the DFI space, basically allocating crypto to lending, borrowing and liquidity pool opportunities and using interoperable protocols to enhance that yield. Defi short for decentralized finance. Has opened up a whole range of opportunities for people like me and you to actively participate. Unlike in centralized finance in the defi space, users interact with each other through the use of smart contracts. There has been a mad rush to build defi applications that are able to replicate many of the same services available. Through traditional finance, these include lending and borrowing, portfolio management, trading and a whole host of other functions. These are provided through a number of gaps, which I'm sure many of you have already heard of daaps and platforms such as Compound Finance Maker DAO, Uni swap and synthetics to name but a few. Here are two things that you'll want to take away from this. Firstly, you'll have noticed that compound finance is now the most valuable daap. It overtook maker dao recently. You'll also notice just how much money has been locked into these smart contracts in the past. Two weeks we've added over 600 million to reach an all time high of over 1 billion. Who would have thought that Defi would have made such a comeback after that crash we had in March? So what gives? Why has there been such a pronounced swing towards defi? Well, it's because of all those lucrative earning opportunities that I mentioned earlier. There are a number of ways that you can generate that generous yield with the crypto. That you've got in your wallets. For those who hold cryptocurrency in general, this is akin to earning staking returns on a proof of stake blockchain. Why just Huddle coins when you can also earn a strong income and return on top of capital gains. This opportunity has also been hot for those who prefer not to risk capital in a volatile cryptocurrency. Many of the yield, farming opportunities can be taken advantage of with stable coins. This means that you could actually be earning yourself interest rates of over 10% on USD. Try getting that at your local chase branch and this is just plain vanilla decentralized crypto lending providing funds to a lending pool and earning interest. That was not enough for those industrious yield farmers. They want to make hay while the defi sun is shining, and this is where we've seen some of these insane APY numbers. One of the most telling is the 100% plus that early yield farmers have been able to earn on compound finance. How they managed to do this was pretty ingenious. But I want to spend a bit of time looking through it.
Yield Farming Platform -:
For those of you that do not know what compound finance is, it's a decentralized lending platform. Lenders will offer up their cryptocurrency to the lending pool, and then borrowers will come along and borrow said crypto, the compound finance platform will use smart contracts to make sure that the pool is always liquid and over collateralized. If you hop on over to the market at compound finance right now, you'll see just what it looks like.
You have over $1 billion supplied by the lenders and you have over $400 million that has been lent out. This effectively means a collateral ratio of 250%, so over collateralized. Those lenders will get interest for lending their funds to the pool. This will get paid by the borrowers. Nothing really genius here. Something that is genius, however, was the introduction of the COMP tokens and how they incentivized people to borrow. This was because the more that you borrowed on compound finance, you would earn comp tokens. This token distribution was a function of the interest rate on the loans taken out. The higher the interest rate, the more comp as rewards.This therefore made the borrowing much cheaper than it actually was. Think of this as akin to cash back rewards you get on your credit card. The more that you spend, the more points that you can get back and redeem on other things. In the case of the COMP tokens, they were actually more valuable than the cost of the borrowing, so it only made sense to increase that borrowing and according to basic economics in the lending markets, the more demand there is to lend, the higher the interest rate has to go in order to account for it. But that high interest rate did not deter people. They were all in it for those comp tokens. Oh yes, you also have to consider that these comp tokens were handed to the lenders as an additional incentive. Not only were they getting these really high interest rates from the borrowers, but they were also earning valuable comp tokens. Still with me so far. OK, here's the kicker. These lenders are able to use flash loans on the funds that they've deposited to lend more crypto, given that they're lending, they will earn comp. They'll also take this money that they have borrowed and use it to lend again and in the process. Yep, you guessed it, earn more comp. Now I know that was a mouthful, but I thought it was important to go through the steps that these yield farmers go through to hack the system. Of course, you'll no doubt wondering whether you can still take advantage of this.
Earn Stable Coin(COMP Token) by Yield Farming?
Well, unfortunately not to the same extent many people in the compound community were of the view that the interest rate comp function allowed farmers, to gain the protocol and earn those outsized yields. Long story short, these distributions will not be determined by the interest rate, but rather by total volume in USD supplied to the platform a good outcome for the long term health of the protocol, if you ask me. However, this does not mean that you can't take part in the compound ecosystem and earn yourself some comp tokens. Indeed, there are other earning opportunities that have more recently opened up on markets such as bat, for example. Now, given the popularity of this comp, farming other platforms have begun to offer the functionality to take advantage of it. And maximize yield potential. One of these is InstDaap. This is actually a pretty neat tool that allows you to monitor and manage all of your defi interactions, all from one dashboard. It integrates with all of these protocols, and you can connect with all of them directly from the daap. So for example, you can manage your compound finance, borrowing and or lending while at the same time. Facilitating swaps with other protocols like Dyd X. Here we have the dashboard where you can create an account and monitor your defi movements from If you want to use instadaap then you'll have to connect your wallet and make an account. I'm using meta mask so I'll just need to approve this transaction. Give it a bit of time to confirm and once done, you'll need to deposit assets from your wallet. The feature that we're most interested in is this DEFI assets tab. Over here you can manage your compound and make a down lending. When I click on compound, I'm taken to my dashboard for managing that. Here you can see all of the lending markets that you can take advantage of on compound finance. As mentioned, the BAT market currently has the highest rates for borrowers and lenders. Fair warning with non stable coin lending you do have price risks. So don't forget that anyways, once you've found the lending pool that you would like to contribute liquidity to. You can deposit the funds that you would like to use there, then once that is done you can head on over to this maximize mining tab over here. You can see exactly what this operation will do here, assuming that I had die as collateral, this operation would borrow usdc, swap that from war dye, and then deposit that again. This is akin to leveraging a position, except I'm leveraging in order to earn more off the comp distribution. Of course, you can also do this with other tokens. Including the non stable coin lending pools.
"Arbritrage" Yields -:
There is one more twist to the potential comp farming strategy, though, and that is the potential to arbitrage relative yield between the lending markets on different platforms. So what the hell do I mean by that? Well, you often have yield discrepancies on the lend or borrow side of different protocols. This would allow someone to borrow on another platform like aave , Dydx , fulcrum and then supply on the likes of compound. This meant that not only could the farmers have earned their juicy comp tokens, but they would also have been able to pump those yield numbers. By taking advantage of these yield miss pricings, if you were looking for a site that could give you a high level overview of what the rates on different protocols and across different markets, be sure to check out DeFi Rate. It's a pretty comprehensive defi aggregator anyways, that's an overview of the compound craze, but there are a number of opportunities. About that for our humble farmer. So let's take a look at some of them.
Liquidity Mining vs Yield Farming (APY in yield farming ) -:
Compound finance is but only one example of similar protocols that offer token based incentives to partake in the protocol. There are a number of other protocols that offer incentives when you provide liquidity to their trading pools. Quick recap on liquidity pools. These are basically pools of tokens that are used in order to facilitate the exchange between two tokens, this is where you, the user, can provide your tokens to the protocol so that other users can swap between two different ERC 20 pairs. I covered this in a bit more detail on my article and uni swap if you wanted to learn more about it. So anyways, just like how compound finance may want to incentivize users to lend or borrow platforms like Ren synthetics or Curve offer token incentives to provide liquidity to these pools. These are in the form of liquidity pool or LP tokens that can be minted and staked over on these platforms. So let's take a look at another example, shall we? This is to provide stable coin liquidity over at the susd curve pool for those who don't know what susd is, it's synthetic USD that is minted. On the synthetics platform. Anyways, if you head on over to curve finance, you can see this particular pool over here at the bottom. What it requires is providing stable coins to the pool, USD die Usdc or usdt in order to earn those weekly rewards. These should generally be provided in equal proportion, although that is not required. Once you've provided liquidity to the pool, you can manage your LP tokens and rewards over at synthetics through their winter DAP. Now that is assuming that you want to provide stable coins and lock in the USD value of your holdings. However, this crypto guy doesn't think too much of dirty dollars anyway.
Yield Farming Risks -:
So Is Yield Farming Worth Investing ?
OK folks, this is getting long so I need to start wrapping things up. To be honest there is so so much more to cover so I'll definitely have to come back and look at some more opportunities in the future. I wanted to leave you with a few final thoughts as well as one more liquidity mining tip. You may want to explore. Firstly, for those I've watched my previous aricles, they will know how bullish I am on the DEFI space. The immense potential of this sector is no doubt alluring. Hence I was intrigued by the opportunities that presented themselves in the form of yield farming. It was a crazy behind compound is anything to go by. One can be sure that there are other opportunities lying about. Some of these I'm actively taking part in myself. Of course, there is a slight part of me that wonders whether this is akin to the ICO fad. Could this be another example of excessive hopium and FOMO driving some crazy valuations? Will the markets move on to the next shiny thing in DEFI next year and lead to a desertion of the yield farming Fields ? Or worse yet, could one of the pools that I'm supplying liquidity to suffer from a vulnerability that sees it being drained? Yes, these are all possibilities, and because of this, I'm not betting the farm on it. I've only invested as much as I'm willing to lose. It only makes up a small portion of my crypto allocation and I won't allocate more to any particular pool if the liquidity or governance tokens that are earned end up worthless in a year. Well, it's not really like an ICO. I did not have to pay for them. So I encourage you to view the yield farming space through the same lens, and now it's time for another tip. I'm looking at potentially providing liquidity to M stable currency. They have just announced that they will be distributing their proprietary MTA tokens as reward for those providing the liquidity and stable is basically a stable coin aggregator which allows users to trade between different stable coins at 0 slippage. Mvusd are the tokenized stable coins in the ecosystem that allows you to partake in the protocol. I've linked to all the information below, but the crux of it is that if you mint MUSD supply a pool. Then you must and usdc over on balancer and position yourself to earn a portion of the 50,000 MTA that will eventually be distributed as rewards. Of course, it's important to point out that this is still in beta and is very risky.That's it folks. Thanks for sticking with me. I know it's been quite a lot to take in, but now I need to hear from you. Are you tending any fields? Any views on the DFI space? I'd love to hear your thoughts in the comments. Also if you like this post then help a brother out please share this article to as many people as you can and also help them grow. Much more interesting posts are pushing its way up through the soil.
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