A whole lot has changed since yield farming became a well-known concept in crypto and DeFi but we have had enough time to evaluate both the shot and long-term effects of such revenue-generating strategies. Let's have a look.

Coin Prices and Impermanent Loss

If you are an outsider watching people farm free coins and dump them on the clueless masses it may seem easy but before you think about doing the same have a look at this.

Source

DeFi coins have been going down for a while now and yield rewards may have something to do with that. Most of the projects put too much faith in their communities thinking that they support the idea as much as the creator but this is rarely the case.

People that invest money always try to find a way to keep that investment safe and the first thing that pops to mind is to sell profits until you "got your investment back". If we all farmed Cake at almost 100% APY and dumped all of our earnings we would get our investment back in a year but the underlying tokens will grow as well since we need to put them in a liquidity pool.

Tell that to someone from tradfi and they will tell you that you are getting scammed but the math does check out, it just depends on how you look at it.

If you got in at the top when Cake hit $44 you would need a lot more than just one year to break even. If you invested $1k your underlying assets are now worth a bit over $300 so even if you endured a year in farming you would still be down badly.

If you compare this to any other DeFi token on that list you will get the same result - short-term risks outway the potential rewards.

If you add the fact that more than 50% of Uniswap liquidity providers are losing money, the image becomes even clearer. Even if you made great choices your underlying assets are probably down due to IL and price movements.

Long-Term Viability

If we put the current state of yield farming in a long-term perspective there is still very little that you have to offer to the outside world. You can't guarantee their success due to market volatility and you can't tell them to get in at the bottom because no one knows when the actual bottom is in.

Conviction is the only strategy that works. If you have invested what you can afford to lose and you believe in the long-term potential of your underlying assets there is nothing to worry about.

For example, my goal is to accumulate as many Hive tokens as possible while also being able to explore other options along the way. Having this in mind I deposit my post rewards in the Hive/Matic pool on Beeswap and stake all of the BXT tokens I get as rewards. This way I hold the only two assets I truly believe have long-term potential, accumulate an exchange token that pays Hive dividends, and just keep adding to the pile.

It's not that hard when you have extra income and you don't rely on your post rewards for survival, but if you need to spend most of them... That's a whole different story.

What's The Right Thing To Do?

If you have been following me here you know that I travel far and wide to find the best APY in town. While doing this I never invest in the token itself. I use my own long-term holdings to farm the native token and sell it immediately most of the time.

The hard reality is that most farms out there won't survive because they don't have a product that is bringing in a profit. They just accumulate LP for no specific reason and issue a random token as a reward also for no specific reason. Ponzinomics can't last forever.

Others that are doing the same as me are highly invested in OHM and OHM forks. Wonderland is probably the best one yet because the treasury is really growing at an amazing rate.

The token itself is backed by other crypto assets so you can actually determine a realistic value for it. It all makes sense until you look at the APY.

You can't really expect prices to appreciate when $1.5 billion is earning 73k APY...

Bottom line - you either find a farm that makes sense to you personally or you farm and dump constantly. Everything else is a guessing game that you will hardly ever get right.

Nothing Is Guaranteed in Crypto and In Life

Looking back at the information above it is easy to conclude that yield farming and DeFi suck but we can't forget that the whole market is in the same spot. If you want to make it in the farming business you can't get emotionally attached to your bags. Fear of missing out is always present but if there is nothing new and innovative to miss out on, why do you think that those that come after you will want to buy your bags?

Determine your winners by their intrinsic value rather than their USD value. Keep your gems and sell the shitcoins you earn along the way for even more gems. That seems to be the only recipe that makes sense considering the current market conditions and overall circumstances.

Posted Using LeoFinance ^Beta