Lately, the Yield Farming from the DeFi ecosystem became a great way to make some juicy earnings… if you know how to. Now, according to a recent survey made by the firm CoinGecko, it was revealed that at least 93% of the surveyed yield farmers have reported positive ROIs, even over 500%.
The company included in its survey 1,347 people between 25th August and 4th September. Most of them knew about cryptocurrencies and yield farming, but only 23% of respondents have participated in the last activity. At the same time, most of these yield farmers (90%) are 30-59 years old men, who seem not to be fully aware of the risks.
58% of the farmers have invested in unaudited and risky protocols, 40% can’t read smart contracts and 33% don’t know what impermanent loss is in the liquidity mining. Just in case: basically, the impermanent loss means that your tokens can lose value while they’re locked inside a DeFi protocol, providing the liquidity needed to cultivate rewards. This loss might be temporal or permanent.
On the other hand, 52% of farmers have invested less than 1,000 USD on their farming, although whose who invest more are bound to earn (or lose) even more. In any case, they could end up paying over 100 USD daily for transactions fees on Ethereum, if the tokens work in that blockchain.
Some cautions are advisable
Despite everything, the farmers have also taken certain precautions. The proportion of their portfolio put in yield farming uses to be only 10% of their total holdings, and it was observed behavior of “farm-and-dump”, where the farmers just wait till accumulating enough rewards before sell or withdraw their positions.
As indicated by CoinGecko, yield farmers could earn returns over 1,000% of Annual Percentage Yield (APY), depending on their strategies. The entire process isn’t free of risks though, but the total opposite. Besides, the high gas fees could become a threat to these protocols, despite they seem to be here to stay.
“Our opinion is that the high yield pools are not sustainable, but yield farming products are here to stay. It is now apparent that the yield farming pools introduced by Uniswap recently on 17th September have solidified the yield farming frenzy. Indeed, it is no longer merely a frenzy but has now matured significantly. However, until the high gas fee is solved, it is unlikely that retail users can enter farming without hurting their capital, and this is not taking into account other associated risks such as impermanent loss”.
It’s worth mentioning that the first phase for Ethereum 2.0 is going to be released in the next weeks. Maybe that should become a real evolution for DeFi protocols.
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