The Meme of Yield Farming
Yield farming is all the rage these days -
"plant" some tokens, add a bit of water, kick back relax and "harvest" your crops when they are ready.
This recent hype of yield farming was kicked off by COMP mainly because (1) the yields were mind-blowingly amazing, and (2) you can earn those crazy yields even while using a fuckton of capital. Triple digit APY using 7-8 figures balances without gettting throttled? Pass me the hoe, bitch. IT'S TIME TO FARM.
But before you get too excited about bringing your hoe out into the fields and start ploughing hard, it is worth it to consider, "where does all this value come from?".
The value has to come from somewhere.
If you remember shitcoin masternodes from an era long ago, you'd remember that you can get 235,908% annual returns just from building and maintaining one. You'd send those trash straight to Cryptopia and blast down through the order books. Who gave a shit? It's free money anyway!
Well why was that so? Answer: the value of the masternode's ROI came only from inflation. All non-masternode holders were being inflated away like crazy to subsidizer those masternodes in the network.
Fast forward now to mid 2020.
The magic innovation of COMP is that the value of it does not come from meaningless inflation. It instead actually comes from the expectation that thte coins will be worth something in the future.
But why didn't masternode coins also have this expectation? Simple. Almost all masternode coins were just copy past nonsense with no impactful innovation.
Compound on the other hand, has a protocol that has had no major hacks, invested by prominent funds (a`16z, Paradigm, Polychain, etc) is actually used quite widely throughout the DeFi ecosystem and has a very straightforward business model - matching lenders and borrowers.
These COMP tokens being given out to yield farmers are actually the net present value of the potential of what these tokens might be worth in the future, and there is an actual product and serious money backing that idea. And that is what gives it value. The hope that one day future rent extraction will be voted into the tokens and everyone can retire rich, being fractional owners of the world's most decentralized lending and borrowing platform.
But I am not here today to shill you COMP. Instead, I have something else on my mind...
Synthetix (SNX) is actually the OG in yield farming. They launched their liquidity incentives mid 2019 and are currently running 6 different incentive programmes!
So you can stake their token (SNX) and mint some of their child token (sUSD, a stablecoin) and use that stablecointo partixipate in their incentive programmes to earn even more tokens.
Hate the idea? Hate the project? This it's stupid? Dump the tokens later. It's your perogative. You are getting paid to provuide liquidity, what you do with your reward after that is up to you.
But look at their latest liquidity incentive. A triple liquidity pool using Curve that has renBTC wBTC and sBTC, that will reward yield farmers with Curve LP fees, CRV governance tokens, REN incentives, SNX incentives, and BAL governance tokens. 5 types of yield packed in 1 single strategy!
Just like the example of COMP, the SNX tokens that yield farmers receive are projected to be worth something in the future since it's a share of a project, which actually exists, has users, and is continually pushing updates. So it is not just mindless inflation.
I haven't even started on the actual fundamentals and TAM of the project yet, but of course I'm bullish and biased, so probably best not to hear that from.
My shill today is to check out the different SNX liquidity incentives and perhaps pick one that suits your fancy (retains your long exposure, easy hedged, etc) and slowly see if you like the experience so far. You might be surprised when you find out what the project is actually doing and how lose they are to acheiving that.
Have a good day, farmers.