CRYPTO ACADEMY WEEK 7 HOMEWORK POST FOR [@gbenga]||28-03-2021||Introduction to Defi and Yield Farming||
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What is Yield Farming?
It's a pretty broad term that refers to chasing yield in the DeFi space. Basically, allocating crypto to lending, borrowing and liquidity pool opportunities and using interoperable protocols to enhance that yield.
These are provided through a number of dApps which I am sure many of you have already heard of. dApps and platforms such as:
- Compound finance
- Maker Dao
- Uniswap
- Synthetix
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Comp Yield Farming
Compound finance is a decentralised lending platform where people are matched through smart contracts. In order to incentivise use they disbursed these Comp tokens.
This was based on the interest rate charged on the loans. People were encouraged to lend more to earn. This meant a higher interest rate could be subsidized with Comp tokens. Those who are lending would also earn COMP tokens so they were also incentivised to do it.
Those lenders would then use the funds that they had deposited as a method to take out a flash loan and earn themselves more COMP. They would also then take these flash loan funds and use them in order to generate further yield by lending again
This allowed these farmers to earn yield in excess of 100%. However, given a recent governance change, this mechanism has been adapted.
Yield farming can still be done over on instadapp where you can provide lending to other pools.
Arbitrage Yields
Given that there are different lending protocols and markets, you can "arbitrage" out the relative yield difference between these pools and use that in order to earn those governance tokens.
This includes on platforms such as Aave, MakerDao, Compound etc. You can see a full overview of the different rates on the lend / borrow side over on sites such as Defirate which break things down quite well.
Synthetix Yield Farming
You can provide liqudity to pools of Synthetix's Synthetic tokens over at Curve Finance. These are either for the sUSD stablecoin pool (with USDC, USDT, DAI) or to the synthetic Bitcoin pool.
This will require you to sned your sUSD, WBTC or renBTC over to a curve finance pool. You will then earn liquidity pool tokens and rewards from balancer pool and Curve when they go live.
The benefit of using these Bitcoin tokens over USD backed tokens is that you don't have to give up your upside on the Bitcoin in order to earn yield on your Bitcoin.
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Risks
There are risks from yield farming and these come from smart contract vulnerabilities. There have been a number of cases where this has already happened.
A few months ago you had that flashloan attack that took advantage of bZx, fulcrum and a few other protocols.
A few days ago you had an attack on one of the Balancer pools. This was quite a sophisticated attack that again used flash loans to take out a considerable position of wETH to trade against the Statera investment token.
You also have the edge risks that come from black swan events which can lead to liquidations in pools and vaults. This happened in the MakerDao vaults back in April.
thankyou
Thanks for being a part of my class and for participating in this week's assignment. I hope you learned from the class as the aim of the school is to teach and allow people to learn alongside
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