A few days ago, I talked about what yield farming is. We discussed methods like liquidity provision, lending/borrowing, staking etc. to farm for free crypto rewards. This time, we’re back with another method of yield farming. I didn’t include it in the previous blogpost because this is basically gambling and nothing else. In essence, it is a very well executed, tech backed, Pyramid Scheme. So, in today’s blogpost, we talk about what are Degen yield farms, what’s their modus operandi and what are they key things you should keep in mind if you decide to take a punt at all (NOT recommended though).
What is Degen Yield Farm?
Before we start, let’s quickly recap what a yield farming is. Yield farming is nothing but a technique to earn free crypto as interest, by depositing your tokens in a protocol. While there are comparatively safer methods to yield farm (discussed here), Degen yield farming is extremely risky. Degen stands for degenerate. These farms are so high risk and high reward that they can give 4-5% interest per hour for the first few hours of launch and 2-3% per week after a first few weeks of launch.
How Does a Degen Yield Farm Works?
All degenerate farms work on a somewhat similar model. They have something called as a farm token. This farm token is the native token of the particular farm. All interests are paid in the form of this token only. The creators of the farm sets the price for this token by providing liquidity for it.
When I came up with my own cryptocurrency: PandaToken, I had to decide what price point should it be traded initially. Since I was doing it just for fun, I did it for dirt cheap prices. What I am trying to say here is that the creator of a token (farm token) has the power to decide the initial price.
If they plan to sell token or $1, they would deposit 1 token and 1USDT in the liquidity pool. If they wish to sell it for $10, they would deposit $10 for every token in the liquidity pool OR $10000 for 1000 tokens. You get the idea.
Please note that these farm tokens are deflationary. Which means that creators can print as much of it as they want. One thing that you must check is the liquidity locked in the pool. If the amount locked is very small, there is an even bigger chance of this being a sham. Why? Because that would mean even the owners of the project don’t believe in it. Also, low liquidity means extreme volatility. One could fluctuate the prices of token even with small purchases.
Every time a degen yield farm is released, it starts with a pre-sale. This is where people pay to buy this native farm token and then deposit it in the yield farm to earn high APR. One could also deposit other tokens here but the highest interest is always given on the native token. Once again, you will be paid interest in this useless farm token.
Later when the farm is launched and trading starts, these people rush to sell this native token. Why? Because nobody wants to hold a deflationary farm token. They want to swap it for USDT, ETH or something else that they believe in.
Since this token can be printed as much as they want, the price always falls in the end. There are farmers who understand this game and would sell their holdings for something valuable like ETH, BNB etc. So the actual merit lies in selling your farm tokens ASAP. These farmers are also big investors in this pool. So when they start selling, price drops are steep and inevitable.
How Do Degen Yield Farms Make Money?
As I always say, if you are able to answer this question, it would make your investment decisions much easier. Where does the money come from? So if you are being paid such high APRs, let’s understand where that money is coming from and how do the creators of this farm earn anything out of it?
Turns out if you deposit anything other than the native token of the farm in the liquidity pool, you are charged a 4% fee for that. This means, if you deposited $100 worth of ETH in this pool, you’d be charged $4 immediately.
As I mentioned above, this is a pyramid scheme of cryptoverse. So you are being paid from 4% of someone who entered this Degen game after you did.
Now you may ask that 4% is quite low. But when you think about it, decent Degen yield farms have a total value from about $100,000 to $4,000,000 locked in it. In essence 4% can turn out to be a lot when you think about the number of people who are planning to YOLO their money.
How to Find Degen Yield Farms:
While I still won’t recommend investing in these farms, but if you are still looking out for some which are comparatively less riskier, here are two ways to research:
A. Rug Doc
As an individual, you could go to rugdoc.io and find all the farms listed on their site. The creators of the site actually go through smart contracts and curate a list of farms sorted by the risk factor. You could filter out the ones which are audited/KYC compliant etc.
VFat is yet another powerful tool to help you out if you are unable to access the website of the liquidity pool that you’re investing in. At times, due to some attacks or manipulation, you are unable to interact with the website and hence cannot unlock your funds or swap them.
VFat keeps a track of the smart contracts in these farms and helps you interact with them through backend. The website you are viewing, is just the front end part. The entire backend is being run in smart contracts. With front end gone out of the picture, VFat could still help you get the required job done.
If it is still not enough, I’ll do this one more time. Please DON’T invest in these farms. There is no get rich quick scheme. So if you are just relying on best entry and exit points for making money from an investment, you are just gambling. HOPE is NOT an investment strategy!
But if you still wish to go ahead and give it a shot, a famous yield farm is Polywhale. And at all if you do that, do share your profits/losses.
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Until next time..