Yield Farming for Polkaheads
by Tamara Frankel
So you Polkaheads want to know wtf is going on in ETH boys' world?
What is Farming? Is it a scam?
REN CURVE BAL COMP AMPL SOL mStable - WTF are you ETH Heads talking about!?!?
$50/day in gas?!?! Are you ETH Heads crazy?
It all started when Synthetix implemented an SNX reward for LPs providing liquidity to sETH/ETH pool on Uniswap last year. Synthetix is a DeFi protocol on ETH that lets users issue synthetic digital assets (e.g., mint sETH to short real ETH) and, in the future, synthetic meme stonks, backed by SNX tokens at a high collateralization ratio. The term rose to popularity and became popular in DeFi culture with Degen Spartan's, a popular defi commenter on twitter, tweets about farming his SNX yield. Degen Spartan actually came up with the idea to reimplement this discarded incentive plan for the sUSD/ETH Uniswap pool to the sETH/ETH pool and Bojan Kiculovic created the pool. This also changed the paradigm of the project/investor/user dialogue with the users and investors having direct impact on the direction and liquidity bootstrapping incentives of a project.
Even then, farming yield - digital agriculture - was still a niche term within the deep early DeFi community until Compound began offering it's COMP rewards token as a rebate program to borrowers on it's platform. When COMP launched, the COMP ("cash back") rewards were worth more than the cost to borrow, so many people were incentivized to borrow from Compound to farm COMP and to set up COMP Farms. The increased demand for loans increases how much lenders can make lending their capital.
Gaming the System to Fix It
"Hello Plebs, I print tokens out of thin air"
If none of you Polkaheads understood this meme when I posted it in Polkadot Trollbox, earlier this week, Sam Bankman-Fried, the genius trader and founder of Alameda Research and FTX exchange, found a way to game BAL distribution to get awarded more than 50% of last week's rewards. Balancer uses Coin Gecko to calculate liquidity in pools; big players like FTX can create erc20 assets that appear in CG and set the price. FTX used nearly $100mm of derivitives tokens $USDTHEDGE and $USDTBEAR that they control and set the price of to reap BAL rewards. What followed was a "messy governance by discord channel" where one BAL whale rage quit and market dumped his BAL position in protest and Sam even showed up for the discussion. In some ways, we need these types of exploits to point out the weak points of these new experimental systems. What is especially clear is that a good governance solution is needed for the these types of farming rewards and DeFi sub-networks (on chain governance anyone?). It will be interesting to see how Polkadot's on chain governance improves these governance decisions.
Will there be farming in the Polkadot ecosystem?
Since Polkadot is Proof of Stake unlike ETH 1.x, there will already be a push to lock up capital for DOTs staking rewards. But, farming for shitcoins might also be a thing but it may look a bit different in the Polkadot ecosystem. First off, one must lock up Dots for a parachain - I can foresee a future where Dots holders agree to lock up their Dots for a parachain in exchange for interest payments in the parachain's native tokens - farming for parachain tokens using Dots. I think farming on Polkadot will be similar to the Edgeware lockdrop, where people locked up their ETH for a certain amount of time to receive EDG tokens, much the same way that Thorchain RUNE rewards you for locking your money in the RUNE vault and not spending it, except with Dots being locked up. Every ecosystem can be farmed, and on a farm, everyone works. Every token sitting around not doing anything should be put to work!