Report: Is the boom in yield farming sustainable?
source|CoinGecko
source|
Author | Erina Azmi
The cryptocurrency space has been developing at an incredible pace, and the new growth area in the last 90 days is Yield Farming.
Yield Farming refers to users putting assets into different DeFi protocols to obtain the best returns. By adopting different strategies with different levels of risk, "farmers" can potentially earn up to 1000% Annualized Yield (APY).COMPYield farming rises as Compound launches for platform lendersBAL)、Yearn.Finance (YFI)、Curve.Finance (CRVLiquidity mining incentives. Since then, many other DeFi protocols have also adopted the yield farming strategy, such as Balancer (SUSHI) and SushiSwap (
) etc.According to our data,Total market capitalization of yield farming tokens
It reached $3.5 billion, of which YFI accounted for 25% as of September 21. According to DeFiPulse statistics, the total lock-up volume of DeFi has exceeded 9 billion, an increase of three times compared with July this year.
However, yield farming is not as simple as it seems. Only DeFi veterans know how to profit properly, as this game requires close monitoring and constant adjustment of strategies.
CoinGecko hopes to have a deeper understanding of yield farming through the following three aspects:
Is the boom in yield farming sustainable?
Are the "farmers" aware of the associated risks and benefits?
What is the biggest pain point for retail investors who want to become "farmers"?
Therefore, we surveyed 1,347 respondents in August and came up with four key findings:
23% of respondents have participated in yield farming in the past 60 days, indicating that this is still a niche group, but it is spreading
Each yield-farming token of "Farmer" accounts for less than 10% of its token holdings
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Download the Yield Farming survey report.
Key finding #1: 23% of respondents have participated in yield farming in the past 60 days, indicating that this is still a niche group, but the trend is spreading
In the survey, we found that the farming community is still a minority among cryptocurrency users, only 312 out of 1012 respondents participated in it, and other users just heard about it. The farming group interviewed is mainly composed of men aged 30-59.
This result is expected, given the relatively large male population in the cryptocurrency field. Furthermore, users need to have a certain cryptocurrency background and experience to participate in yield farming.
However, although the yield farming boom started about 3 months ago, and the number of "farmers" is relatively considerable, this profit-making opportunity is only for experienced DeFi players.
Key takeaway: Yield farming is a niche game for those who are familiar with financial yield and have been working in the crypto industry for a while. They are familiar with existing and new DeFi protocols, and formulate efficient liquidity mining strategies.
Key Finding #2: Each yield-farming token for “farmers” accounts for less than 10% of its token holdingsETHIn order to understand the diverse investment portfolios of the "cultivators", we dug deeper into the coins they currently hold. They are usually experienced players in the crypto space, and in their portfolioBTCAccounted for 83%,
Accounting for 74%, there are also some other DeFi tokens.LINKIt is worth noting that the DeFi tokens obtained through yield farming liquidity mining account for less than 10% of the farmer's total assets. For example, while Chainlink's token
It can only be mined in the Yearn library through the Yearn protocol, but most people mainly buy it on the exchange, not by providing liquidity - its APY is much lower than some other liquidity mining projects.
Key Takeaway: A small percentage of their portfolios are yield farming tokens, which could indicate that these tokens are being locked up in smart contracts of different liquidity mining projects. On the other hand, we found that the “farmers” would sell after mining a large amount of tokens in the pool, which indicates that yield farming tokens are not held for them for a long time.
Key Finding #3: 52% of "farmers" invested less than $1,000 in capital, and high gas fees became one of the biggest concerns
In order to understand the behavior of "farmers" when participating in yield farming, we asked the following questions:
What is their average gas fee per transaction?
When they first participated in liquidity mining, how much was the first investment?
Do they use leverage when doing yield farming?
Are they paying off in yield farming?
We found that more than half of the "cultivators" invested more than $1,000 in liquidity mining, and most of them did not use leverage. The reason for this is unclear, whether it's because farmers don't want to take extra risk (many yield farming agreements are unaudited, and they don't know how to read contracts themselves).
However, those "farmers" who invested less than $1,000 may not have gained as much profit, because in liquidity mining, in addition to other related risks such as impermanent losses, the relationship between the fund pool and the agreement Continuous interaction will generate expensive gas fees.
Regardless, the “farmers” in this survey reported a return on investment (ROI) of up to 500%. This result is not surprising as many new pools currently have APYs over 1000%. We believe that the high yields offered by liquidity mining are unsustainable, as the risks involved are high, and the surge in gas fees will act as a barrier for farmers to enter and exit liquidity mining.
Key Takeaway: High gas fees may deter retail investors from participating, and their ROI may not be as high as that of farmers who invest more than $1000.
Key finding #4: A large proportion of “farmers” do not understand smart contracts, despite claiming to understand the associated risks
What shocked us is that a large number of "farmers" can't understand smart contracts (40%), and don't even know what impermanent loss is (33%), which means they don't know their real return on investment, And they are extreme adventurers who want to get high returns.
Perhaps this is why 49% of "farmers" are generally wary of unaudited smart contracts and rely on smart contract auditors to check the security of contracts. However, audit firms have said time and time again that audits do not guarantee that contracts are secure and that farmers should take precautions wherever possible.
Key takeaway: Farmers should do their research when doing liquidity mining in any pool. Because there are more counterfeit liquidity mining projects on the market, these projects are likely to bring them greater risks, such as code loopholes or scams.
The following is a summary of the key takeaways from the survey report:
Key takeaway #1: Yield farming is a niche game for those who are familiar with financial yield and have been in the crypto industry for a while. They are familiar with existing and new DeFi protocols, and develop efficient farming strategies.
Key Takeaway #2: A small percentage of their portfolios are yield farming tokens, which could indicate that these tokens are being locked up in smart contracts of different liquidity mining projects. On the other hand, we found that farmers will sell after mining a large amount of tokens in the pool, which shows that yield farming tokens are not held for them for a long time.
Key Takeaway #4: Farmers should do their research when liquidity mining on any pool. Because there are more counterfeit liquidity mining projects on the market, these projects are likely to bring them greater risks, such as code loopholes or scams.
in conclusion
in conclusion
Back to the original goal of our investigation:
Is the boom in yield farming sustainable?
Are the "farmers" aware of the associated risks and benefits?
What is the biggest pain point for retail investors who want to become "farmers"?
Our view is that high-yield liquidity pools are not sustainable, but yield farming products should continue to develop. It is now clear that the yield farming pool introduced by Uniswap on September 17 has stabilized the liquidity mining boom. In fact, it is not just a fad, but a model that has matured a lot.
However, until the exorbitant gas fees come down, it will be difficult for retail investors to participate in liquidity mining without damaging their capital, let alone other related risks such as impermanent losses.
Disclaimer: ECN's translation work aims to deliver high-quality information and learning resources for the Chinese Ethereum community. The copyright of the article belongs to the original author. Reprints must indicate the source of the original text and ethereum.cn. For long-term reprints, please contact ethereumcn@gmail.com Authorize.
Disclaimer: ECN's translation work aims to deliver high-quality information and learning resources for the Chinese Ethereum community. The copyright of the article belongs to the original author. Reprints must indicate the source of the original text and ethereum.cn. For long-term reprints, please contact ethereumcn@gmail.com Authorize.
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