Degen Farming and Yield Farms with over 1,000% APY

Let’s ape together into DeFi madness.

Decentralized Finance is great — no central governance means people can invent and create whatever their imagination allows them to. And they do! DeFi apps been popping up in great quantities, even though it seems like we’re entering a crypto bear market in general. In this text I’m going to cover yield farming, degenerate farming and how to start if you’re brave/stupid enough to do it.

The concept behind yield farming is simple: provide liquidity for a part of tokens, to receive a small reward each time someone makes a trade on this pair. You can go to the likes of Uniswap (ETH), Sushiswap (multiple blockchains), PancakeSwap (BNB) or QuickSwap (Polygon), click on Liquidity and add two tokens in equal proportion when it comes to value, for example $250 and 0.1ETH, if ETH trades for $2,500 that moment.

You’ll be awarded fees on transactions between ETH and USD (insert one of stable coins here: USDC, DAI, USDT, etc), but that’s not all. You’ll also receive a liquidity pool token (LP token) that notes what’s your share of the liquidity pool among all liquidity provided. You can now take this LP token and stake it on one of the yield farms. Staking here means depositing in a smart contract governed by a particular farm. Doing that will give you additional yield from the farm and that’s what yield farming really is: staking LP tokens.

The one thing you notice pretty quickly is: yield farming incentives are pretty high! Screenshoot above shows APR of 55% for CAKE-BNB pair, PancakeSwap native token and Binance native token, which is extraordinarily high in the normal world. However, it’s this high for a reason.

Yield farming can lead to losing 100% of the capital. The main reason for that is ending up with tokens which are less popular and less liquid. This is also why degenerate yield farms exist.

I consider a degen farm any yield farm that gives participants more than 100% APY really. You could of course argue that 100% is still relatively safe, that 500% is the moment you should be careful, but really it’s hard to give a precise limit.

Degen farming is farming for degenerates that are willing to lose it all or double the money in a couple of days. How it usually works is a new farm is announced with a native token, let’s call it DEGEN, that trades for example for 1 USDC in the beginning (=$1). The DEGEN yield farm pays over 2,000% yearly for you staking LP tokens of DEGEN-USDC — and you receive it in DEGEN tokens. So people buy DEGEN token to put it in the pool on xxxSwap and then stake LP token on DEGEN farm. What happens in the initial phase is the price of DEGEN goes up, as the demand rises. Moreover the first movers staking DEGEN-USDC LP already receive their free DEGENs harvested from the farm and start to cash out, selling earned DEGENs, which after 2–3 days can basically amount to the amount of DEGENs they bought in the first place. They already have a profit of 2x-10x with DEGEN tokens moving up and moreover staking rewards, so they take out liquidity from the farm and start selling all their DEGEN tokens. This causes the price of DEGEN to stop rising, other people notice and start panic selling, and then in a couple of hours DEGEN farm implodes, leaving DEGEN worth basically $0.

Usually it takes about a week for the whole scenario to happen. And this is the optimistic scenario — you can get rugged by the developers who sold all their tokens before even the yield farming started. So yeah, it’s pretty risky.

If you’re not scared of losing absolutely everything and want to have a glimpse at this wild west of DeFis, then head to RugDoc. RugDoc is a site built out of passion for DeFis and yield farming that audits smart contract code of new farms, trying to analyse potential risks. However even a farm with low risk at RugDoc, means that you have basically 1–2 weeks before the farm implode. It’s rare for the farm to survive more. That’s where we come to Iron Finance

Iron Finance was the fastest-growing DeFi, living both on Binance Smart Chain and Polygon (Ethereum layer 2 blockchain). At one point it carried more than $2 BILLION dollars in locked valued, and the very next day, it imploded, the value of TITAN, the native token of Iron going from $60 to almost zero. Why?

Without going into the whole discussion, you can read their postmortem here, it seems the main reason was the smart contracts mechanism not working properly. IRON was supposed to be an algorithmic stable coin, semi-pegged to USDC (so basically worth $1 always), which issued or burned TITAN tokens to stabilise its price. TITAN was supposed to have a total supply at 1 billion but it grew to 27,805 billion, which was noted by whales and caused a panic selling, driving everything down. $2 billion dollars basically disappeared within a day.

If you want to watch more in-depth analysis, see this video:

Anyway, this is all to say, that yield farming is risky, degen yield farming is on the verge of stupid and brave.

This post was definitely not a financial advice. It’s meant primarily for information and documenting the great space we’re building all together — decentralized apps and smart contracts all the way!

As a final word, here’s my NFT depicting TITAN FALL:

Hope you enjoyed my text on degen yield farming!

I plan to visit more blockchain topics, so stay tuned. You can also visit:

Happy experimenting!

Source: https://pchojecki.medium.com/degen-farming-and-yield-farms-with-over-1-000-apy-594dff5670ae?source=rss——-8—————–cryptocurrency