ZoneBitcoin EditorialBoth the first generation cryptocurrencies had miners who, through the use of computing power, managed to mine coins. Likewise, the generations of tokens that succeeded them know farmers who sow and harvest coins, resulting from their plowing work.
Yes, in the crypto world, we like metaphors 😉
Since then, the emergence of Yield farming (yield agriculture in French), you regularly hear about these DeFi projects with names that make you hungry. We also tell you about big profits with a big cake to share if you agree to become a yield farmer…
As much as in real life, (independent) farmers are not known for earning crazy amounts of money, in the world of DeFi, they have the opportunity to earn a lot.
In the end, does everyone succeed? Not so sure. Even if we mean big blows here and there, it turns out that the vast majority do not eat even a piece of the cake but only a few crumbs...
We will see here how we can better understand the farming protocols to select those which are the most reliable and the most efficient.
Do DeFi Yield Farmers grow consumable products 🌾?
First of all, we must remind you that if there are so many DeFi protocols that appear like hotcakes, it is mainly because they are mostly copies. They are clones of clones even for some of the DeFi protocols considered today, and a posteriori, as being "traditional".
The goal of these clones was to make them more efficient and cheaper, initially.
Most nevertheless attempt to make corrections and improvements. Yes, otherwise it wouldn't be as fun and thrilling to follow.
Simply change the token name and theme to create a new one. This is why we have seen dozens of projects appear one after the other; Sushiswap, KIMCHI Finance, Spaghetti Money, Pizza Finance, Hotdog, burgerswap. It started like that with the famous food tokens…It was indigestible and since then we have moved on to other “healthier” farms.
All the mentioned protocols attract a lot of farmers because we are promised huge profits. Benefits without making too much effort of course.
This explains such enthusiasm for these protocols. And, everyone is looking to become a DeFI farmer. A profitable farmer if possible 😉
Now, with hindsight, we realized that after the frenzy, reality set in. It turned out that most traditional DeFi services and their clones have 4 big problems:
- Profits are very fluctuating with pump and dump schemes, APY rates which reduce over time or the price of rewards tokens which decrease…
- The problems of flaws and bugs have been very important for many projects
- The parameters of project governance are not always “democratic” and egalitarian.
- Some projects turned out to be scams created so that the founders could line their pockets.
However, as you know, when we promise incredible profits, we whet appetites and greed. In fact, driven by so many profiles, DeFi farmers have invested millions of dollars in liquidity pools. Some made profits while most gained almost nothing or even lost everything if they had the misfortune of investing in faulty protocols.
It still remains a new world and the land must be cleared to see more clearly and to be able to sow good seeds. However, the market is constantly evolving and some are bringing real progress to this sector.
So, are DeFi yield farmers doomed to farming non-fertile land?
Not at all, there is always hope and certain projects give us real reasons to support yield farming in general.
What are the different types of DeFi yield farming?
Now let's take a look at the most productive and profitable yield farmers in DeFi. We will also see how these farmers can increase their yields.
The classic farmers of classic DeFi projects
In this form of yield farming, we find the very first generation of DeFi services. This is why they are categorized as so-called "traditional" DeFi services. Among these projects, we can cite the pioneers Maker, Compound or Uniswap which opened the door to second generation projects.
These projects work with the deposit of users who will then become liquidity providers (deposits). Liquidity Provider). Therefore, depending on what they invest, they receive a proportional amount of LP token. These tokens remain in the pool and will generate profits with a stable or variable APY rate depending on the project.
In fact, such classic DeFi protocols are reliable and offer a large amount of liquidity. We can think of Uniswap for example which has exceeded the threshold of one billion dollars in volume in its pools.
So, if farmers choose these projects, it is because they are considered "stable" and reliable. They generate profits but these remain limited. Uniswap shares only 0,3% of transaction fees between users. We can also take into account that ETH gas fees are sometimes disconcerting because they are so high, coupled with very volatile token prices (and not always upwards). All this means that yield farmers of classic protocols are not that profitable.
This is what leads to a large migration of them towards other projects, which are supposed to be more profitable.
Farmers connected to clone projects
There, it is the farmers who will seek the returns in clone DeFi projects such as Sushiswap, Burgerswap or other similar projects. These platforms which have opted for food themes indirectly show that farmers really manage to cultivate something concrete: food.
The idea to remember is that there is work that will bring you something concrete to sink your teeth into. Ideal for feeding the appetite of our farmers who have starved with traditional protocols.
These projects are called clones because they literally copy the original DeFi protocols and often offer the same pools with the same prices.
So what's the difference with classic protocols, you ask?
Well, the big difference is that these clone projects offer native tokens as additional rewards to liquidity providers. Among these native tokens, we find the famous SUSHI, PIZZA and YUM for example.
So, are these projects profitable?
In absolute terms, yes, it is profitable, especially since some of these tokens are exploding in terms of price. But, we still have to escape the numerous bugs and security vulnerabilities. We remember with pain the crash of YamFinance and Kimchi, to name but a few more well-known ones.
Likewise, many of these projects also lack audit issues. We can also recall the first case of admitted theft with chef Nomi who had siphoned off a good part of the tokens (more than $13 million). Even if Chef Nomi regretted his action, he showed us that we are not immune to scams. History has shown us that such crooks are still around as with the example of Wonderland lately….
Despite this and with promises of crazy returns, the project attracts more and more investors.
These farmers are profit-seeking and willing to take risks. This reminds us of what we already know in classic finance. The more profitable an investment strategy is, the greater its risk, as a general rule.
Many people in the cryptosphere criticize this type of project and these type of farmers who encourage this type of project. This type of farmer is criticized for poisoning the land with fertilizers just to make big profits. After the harvest, we find ourselves with simply barren land….
The of people who farm know what they are doing. And it's those who have this degenerate mindset who are the most successful in fact...You really have to keep that in mind for the most daring among you.
The wisest farmers…
Here, we are the opposite of the DeFi yield farmers that we have just seen. These wiser farmers are looking for profits, of course, but while also seeking to invest in interesting and innovative projects. Generally, these more reliable projects offer less attractive returns, or at least in the short term but stable in the long term.
With the craze for clone protocols, these interesting projects are less "visible". In fact, there are fewer projects of this kind.
We can think of a platform like beefy for example which is a farm yield aggregator on several networks.
Now, you are probably wondering how to recognize a good protocol from a faulty one. No?
Let's see this more closely.
How to recognize a serious DeFi project?
If you are looking for a serious and reliable DeFi protocol and you too want to ride a tractor but work rich land, for you and future generations, then here is what you should consider.
For those who have experienced the madness of ICOs, the criteria are more or less the same…
- Has the project received an audit? Clone projects are not immune to major security breaches and computer errors. It is important, even essential, that the platform has obtained an audit of its code. A neutral and independent audit that everyone can consult. This is, for example, what the Spaceswap protocol did according to the rules with a complete audit that can be consulted here.
- Who is behind the project? Who are the founders? There are no strict rules and many founders prefer to remain anonymous. Anonymity is not a problem in itself. That said, some projects due to their complexity require established teams. An about or team page in the best case with real profiles can still be a sign that we are dealing with founders who are serious about their projects. Reliable people who are not likely to sneak away with part of the pie, as was the case with the famous chef Nomi and the vampire attacks on Sushiwap...
- Check the business model of the platform. What is the distribution of winnings? How are profits distributed? Are APY rates reasonable? What are the fees? In short, is the platform profitable? Is the token inflationary and are there internal defense mechanisms?
- Are there any additional and interesting features?
If you are presented with a DeFi protocol that meets all of these validated criteria, there is a good chance that it is a reliable project that will make you a happy, if not profitable, farmer.
Our Final Word on Yield Farmers in DeFi
In fact, we often draw a parallel between the frenzy of projects ICO of the time with the new Defi projects with themes from the food sector.
Lots of rush, lots of hype, few winners and lots of losers 🌾🌾.
After that, the market will naturally (and normally) regulate itself and the best projects will gain visibility while the others will fall into oblivion. That's the optimistic version of it.
—>Read the article: But, what is DeFi Degens; Is it doomed to disappear?
Yield farmers are divided between those who want to hedge the risks they take and those who seek lower and more stable returns. So it depends on each farmer's greed for yield. We will see in the future what type of DeFi farmers will be predominant. This could impact the trend and nature of future projects.
That said, what we can tell you here to conclude is that it is still preferable to opt for reliable and solid platforms. In our opinion, it is better to win a little but win in the long term rather than winning the jackpot once only to lose everything afterwards with a Rug Pull For example….
Otherwise, on CeFi sites, you have platforms like Youhodler which earn you interest passively on Stablecoins for example; You can then use your earnings to use them in farming and thus "bet" with less risk. This is one option among others.
Disclaimer: This content is for informational purposes and does not constitute financial advice. We strongly advise our readers to conduct their own independent research before committing to any investment.
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