Yield Farming 2023: Secrets and Dangers of DeFi | by CryptoTechJester aka MarcB | February 2023
In this article, you will learn about the untold truths of yield farming. After emerging on the crypto scene in 2020, yield farming has matured quite a bit. Let’s dive into some hidden truths and some risks to avoid when considering this type of investment.
Secret 1: PROFIT!
The Profit Source: Yield farming is staking your wealth on a site to earn tokens. But where do these profits come from? Why do you earn tokens? Essentially you are loan Your tokens for a website. The site (like Pancakeswap or Animal Farm) receives your wealth while it is being staked. In return, you will be rewarded with Farm Reward Tokens (like DOGS, PIGS, or CAKES). The site mints (creates) reward tokens when you are rewarded and you can deposit them into your wallet by harvesting. They reward you for providing liquidity to their wealth pools.
Secret 2: PROFIT!
Finding the highest APR: APR hunting is a hot topic in yield farming. There are sites that offer insane APRs, sometimes 10,000% or higher! Some of these are great opportunities, like a brand new pool on a popular site that doesn’t have a lot of liquidity yet. But some high APRs can be losing machines. That brings us to:
Secret 3: DANGER!
Avoid rug pulls: You’ve probably heard the term rug pull before. This is the case when a developer withdraws liquidity from a pool and thus permanently devalues the token in question. For example, if the developers of Pancakeswap decided to sell their entire CAKE, that would devalue CAKE forever. Anyone holding it would be stuck with a worthless coin. Beware of APRs located on sites with very low TVL (total value locked) for the whole site as this could be an indication of a soon worthless reward token. A “soft” carpet pull is when a developer stops posting news, marketing, and/or increased benefits, thereby reducing interest in the site. The rewards continue to be issued, but all that happens is the sale, so the token slowly depreciates in value.
Secret 4: PROFIT!
Note the Utility of the Reward Tokens: One of The Animal Farm’s biggest draws is the utility of the two reward tokens (DOGS & PIGS). DOGS earn PIGS and BNB and PIGS earn BUSD. This is huge because you don’t have to sell your DOGS or PIGS to make money on the site. You can continue to earn reward tokens while earning non-native (BUSD/BNB rewards).
Secret 5: DANGER!
Watch out for farm sites whose reward tokens have absolutely no use other than being a reward token and not a price control. They will surely depreciate in value over time. Countless yield farms have come and gone because reward tokens were useless. To be more specific, many are still around but offer tiny rewards as the reward tokens are worth less than 1 cent.
Main Secret 6: PROFIT!
Expert tip here! Use https://vfat.tools to view actual APRs, issuance rates, TVL, and stake amount per farm. This is a great tip as it presents everything in up to date information and shows almost all popular yield farming sites across a variety of networks. If you look at vfat.tools for Animal Farm you can see all DOGS/PIGS farms and all their information before investing. You need to connect your wallet, but I haven’t heard of anyone who has experienced any harm from doing so. They do not grant permissions for your coins.
Secret 7: DANGER!
Avoid farming with shitcoins. Shitcoins are introduced with a rapid pump, and a slow death almost always follows. Some yield farms offer very high APRs for staking these coins. And you see “profits” trickling in. But what you don’t see is that your wagered value is constantly decreasing as the token being farmed depreciates in value. By the time you realize it, you’ll only have a fraction of your original value left, and your rewarded farm tokens won’t make up for the loss. It can be tempting to see a high APR farm with an obscure coin like SHITCOIN-BNB (fake example) at 2300% APR. So you buy $500 worth of SHITCOIN and combine it with $500 BNB. And you get $60 in rewards per day for at least the first day. Then day 2 is $50 but you’re like “I’m still making money! Your $110 in rewards doesn’t make up for the $300 lost. There’s some money to be made out there, but be careful with coins you’ve never heard of. A good tip is to look at a coin on Coinmarket or Poocoin. If the chart looks like a huge downtrend, stay away!
Secret 8: PROFIT!
multipliers. Pages offer multipliers on farms. Here’s the secret: IGNORE it. Seriously, ignore it. These multiples are ALREADY factored into the posted APR. Just look at the APR and check it on vfat.tools! Sometimes sites have UI issues that display incorrect APRs. Vfat.tools always has the right values.
Secret 9: WIN/DANGER
deposit fees. Deposit fees are a common feature of farms. You are not something to avoid. Rather, be aware of them. Many sites have higher deposit fees on more stable asset farms, like USDC/BUSD farms. Just make sure you are willing to leave your assets in this farm long enough to pay back the deposit fee and then you will start receiving profits!
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