Tales from a Yield Farmer

An insider view on the experience of yield farming, is it worth it and should you be joining in the hype?

Techno Agriculture

Everyone’s seen the crazy high APRs being quoted, there seems to be a frenzy of activity going on in the farmer landscape. The question on everyone’s mind:

Is it worth it?

To sum it up, it really depends on who you are and how much capital you have to play. A rough rule of thumb that I think about this now:

  • $0 - $100: Sorry, but gas prices will probably result in you losing funds

  • $100 - $1,000: This will be a neat little experiment but you’ll be even lucky to break even

  • $1,000 - $10,000: You have some margin of hope collecting minor profits or breaking even

  • $10,000 - $100,000+: This is the range that actually makes sense and becomes a somewhat profitable activity.

If the above seems a little crazy for you, here’s an experience I had:



A quick breakdown of the cost to even get started mining:

  • Depositing $USDC = $2-3

  • Opening leveraged position = $8-$10

  • Collecting harvest (claiming $COMP) = $5-10 per transaction

  • Selling $COMP for $USDC = $10-$15 in transaction fees.

  • Unwinding leveraged stable coins position = $50


Summing up the numbers, it’s very reasonable to think I spent over $100 in transaction fees over the course of 2-3 days. Some of these transactions were definitely more expensive using InstaDapp since you have to deposit everything to a smart contract wallet and then pay for extra added overhead. If you do this without a contract wallet you can probably reduce a lot of these costs but gas prices are still going to average 30gwei - 50gwei.

If there’s one thing that we should all learn: DeFi is not about banking the unbanked, it’s about creating a new class of techno financiers that breed in more complexity than the normal personal will be able to comprehend.

I was playing with enough that for the initial 4-5 days it was pretty worth it but beyond that, yield farmers starting leveraging $BAT to extract the most $COMP rewards pushing stable coin lenders/borrowers out of the picture altogether. So what did I do next?

Well, change strategies.


Entering $BAL

The fun part about yield farming in DeFi is that there’s multiple ways to skin the same cat. In the above example, transaction costs were definitely higher due to me using leverage to use USDC as collateral to borrow USDT a couple of times. Anyways, let’s check out predictions.exchange for what the latest stats are on Balancer.

#3 on the list is a pretty interesting combo, cUSDT and cUSDC returning 90%+ APR. So basically what this means:

  1. You can deposit USDC and USDT to Compound to get cUSDC and cUSDT

  2. These will start accruing interest and earn you $COMP tokens, not that much right now but maybe in 1-2 months from now when leverage $BAT holders move to the latest thing you’ll have a good shot

  3. Use the cUSDT and cUSDC to provide liquidity on Balancer and claim a sweet share of those $BAL rewards

What works well about this strategy is that you can be comfortable holding this position for a considerable time period since stable coin interest should be decent for the next few months and $COMP and $BAL will accrue value in the long term given the strong teams and continued momentum from both teams. For those that are have $100k+ to play around with, switching more frequently makes more sense given how small $10 is against $100k.

Now of course these APRs aren’t going to stay there forever and probably going to be pushed down. However the question is how will the assets locked up affect price. My current hypothesis for $BAL is one of the two:

  1. At a seed price of $0.60 and the current price of $20, the increase in assets has already been priced in and regardless of how much gets locked up the market won’t push the price higher

  2. The current price was pure speculation of people wanting to get in a DeFi token super early and when the current wave of $COMP newcomers move over to $BAL we’ll see a similar frenzy on a similar scale. For this the market cap of $BAL will have to overtake $COMP which doesn’t make sense, but nothing really does at this stage anyways.


Verdict

Yield Farmers are going to start getting more sophisticated about the strategies employed to maximise returns while taking on different baskets of risk. Everyone’s initial theory of $COMP losing all it’s assets locked up when mining may not actually happen for the simple reason that cTokens can be re-used in other yield farming programs. This isn’t really the outcome that any of us would have predicted but I see it being more plausible simply based on my own experience and that completely moving out of Compound means I stop receiving $COMP which may have a greater value than it does today in 5 years from now.

However, as we start stacking more primitives we’re going to reach a point which I’m afraid we’ve already arrived at:


Contract risk is very very high at the moment. So many building blocks are being used that I think most of us aren’t fully sure what’s happening when you send your funds to get a new set of funds. With the new era of composability, the number of moving legos is going to increase since the incentive is there for developers to leverage other pieces of code. Is something going to blow up? Probably.