Can you believe we are 10 issues in already? Before you know it, we will be celebrating 100. Meanwhile I am fast approaching on 500 issues on the Empire Community Newsletter. If I am being honest, still getting the flow down with managing both letters and then also shooting video. This has all been great because its forcing me to address systems issues and optimize for better flow which I hope to have pretty panned out over the next month or so.
In this issue, I wanted to actually do the first BullRun Forever Guide, and walk you into the world of yield farming. Understand this is just a primer, I will probably have to write a much larger piece with resources out on Medium as surely I will run out of room. The issue with yield farming is that its highly misleading and most people really have no idea what they are signing up for.
In This Issue:
Yield Farming 101
IL (Impermanent loss)
Networks
Buying tokens
Getting LPs
Staking LPs into vaults/farms
Resources & Sponsors
Congrats To This Weeks Winner!
This weeks winner of the $100 cash bonus on PrimeXBT is SAVE! The next giveaway will be done on Monday of next week, with the winner being declared on Wednesday!
Yield Farming 101
Yield farming is simply putting up your coins (aka liquidity) in exchange for network rewards that are paid out throughout the day. You have a daily APR and a yearly APY rate that most farms give you, as well as you have single asset farms and multiple asset farms ( multiple asset farms are mostly paired with a stable coin 50/50). Now this is usually where people like to get caught up in the insanely high APYs, but on a mainnet like ETH, you must take approval/staking/harvesting/compounding fees into considering besides any IL.
The simplest way to look at this is that you want to farm projects you believe in, and unfortunately getting in at the beginning also matters. Its really misleading that yield farming is sold as this sort of set and forget, because in fact the bellcurve gets worse the longer you hold.
Its also worth noting that I am not talking about Staking your asset, like Celsius, or Blockfolio that just give you a lower APY to provide liquidity and stake up your asset.
You don’t want to be buying into either side of an asset at the peak or highs of said asset, furthermore you have to really decide from a portfolio standpoint if holding stablecoins to farm is worth it in a bull market and to what percentage of overall port. These are questions I feel don’t get answered enough and/or people really start to change up their portfolio planning from day-to-day based on what they see others doing.
IL (Impermanent Loss)
This is by far the most important topic we could cover when it comes to yield farming which is the question, can I earn more by just holding the asset vs farming the asset. That is the simplest answer I can give you for Impermanent loss (silly name).
Exp: This is a real life example by the way and it happened to me and others in the community. sBDO came roaring out on the BSC mainnet (Binance Smart Chain) basically ETH competitor for Binance ecosystem. I put up BUSD (basically USD peg) and sBDO to get CAKE LP (liquidity provider token) and locked that up for a daily ARP. When sBDO went from $3k to $5k, to $7k and finally $8k it all worked because I was getting cake rewards and increasing LP. Then out of no where, it took a sht and went from $8k to now currently sitting at $450.
That is by far the best example I could give you on IL and yield farming risk in general. There is no set and forget, you will have to babysit. To figure out loss on that, you have to figure out the loss you took on sBDO value minus any gain from CAKE which by the way went from about $6 at the start to $40 at the end. That is still an insanely large loss, keep in mind.
All of these projects are experiments and tell you right on the site to use at your own risk because the pegs and the tech behind it is still very new and its far from its best form.
Here is a very good and quite technical explanation of yield farming.
Now there is an upside to this, more and more networks are launching everyday and right now a big topic is fees, so networks like Matic mainnet, BSC and SOL are really tackling that and more importantly the risk of IL is a very popular topic and in fact there are networks testing out solutions to that right now. The networks that I know right now are the following:
Bancor (Impermanent loss insurance), read about adding liquidity here
Rune/Thorchain, insures LPs against IL and has some of the cheapest fees out there on native asset pools
I want to wrap up by saying that if the volatility of an asset is high enough relative to its average rate of return, LPs on Uniswap will do better than HODLers over time, even when the only incoming trades are arbs.
This is due to a phenomenon known as volatility harvesting: under certain conditions, it is possible to outperform any static portfolio of two assets by periodically rebalancing them. In this case, to “rebalance” means to make trades such that the proportion of total portfolio value held in each asset returns to a fixed allocation, such as 50/50. More on this here.
Networks
We went very deep and technical there, lets take a step back and look at the networks that currently have yield farming on them.
ETH Mainnet
On the ETH network you have swap sites, that allow you to quickly swap assets, some allowing you to borrow money, yield farm, provide liquidity etc. The biggest players are…
Swap & Pool Sites:
Other LP sites:
Yearn Finance (YFI)
Bancor, Rune etc.
Most projects will offer yield farming on their website, if that is what the protocol was created for. ETH is the primary mainnet that Metamask was created for and most coins can be sent via ERC20 aka ETH network, keep in mind you will pay higher gas fees.
BSC Mainnet
I actually think BSC has grown the fastest (I mean builders want access to that 1 billion user base), it certainly has the most amount of swap sites with LP functions. This was the first big mainnet built out to take on ETH gas fees, and honestly they are super cheap.
I mean there are more than that but you get the point. You can send directly to the BSC network from a Binance account but for something like Matic you need a bridge and you can even swap from BSC to ETH using Binance Bridge.
The other two networks worth noting are Matic mainnet (formally polygon) and Fantom mainnet (FTM), but you can go find a complete list and quickly add them to your Metamask wallet here.
I could also cover other protocols like Solana and Raydium but want to keep this as a primer.
Buying Tokens
This is actually really easy, move over ETH, USD, USDT, BNB or any other asset to your MetaMask (MM) wallet and then use the swap function on these networks to swap from asset to asset.
The pages all kinda look similar to this. You see both the swap and liquidity tab.
Getting LPs
This is the next step after you own the single asset or both assets exp: cake/bnb, cake/busd. On the Pancake example above you click on the liquidity tab and you see a big green button that says “Add liquidity”, click that and you end up with something that looks very similar to the exchange or swap tab.
This takes some tweaking so keep clicking on max between the two assets you want to stake up for LP until you get the right combination. Then approve the spend and the transaction and you get in return LP. You should see that in your MM wallet now.
Staking LPs into vaults/farms
Next you would go to the vaults/farms page (the individual projects might call them different things but those are your options) and add that in or deposit to the farm/vault.
That looks like this.
You would again approve spend and complete 1 or 2 transactions (depending on network) to get your LP staked up and that’s it. You would be done.
Below are links and resources that hopefully help you with your trading while supporting us.
PrimeXBT
This is a bitcoin in/out platform that allows you to leverage trade major indices and currencies worldwide as well as follow successful trade ideas from other traders. So if you live in Asia, you can trade major S&P stocks and vise versa, alongside major crypto pairs.
Binance Exchange
By far still the largest exchange, if you want to trade majors and a huge selection of alts and defi, not to mention the Binance Smart Chain projects!
FTX Exchange
For non-US residents who want to trade leverage on bitcoin, alts and trade futures contracts on crypto and stocks.
QuanTower
A tool like this is valuable because its a lightweight desktop software that connects via api so even when the front end site goes down during volatility, you can still trade. This happens the most with sites like Binance and FTX. They integrate with tons of exchanges in crypto, forex and options space. Videos coming soon!
None of what I put in these emails is intended to be taken as investment advice, there is no BUY/SELL calls in these emails, nor is this any kind of signals group. There is obvious and inherent risk involved with trading cryptocurrencies or any asset, that must be taken into consideration by the investor. Any and all outcomes are your fault good/bad!
Great article as ever Jay. This is surely a great intro to the farming game. I look forward to other issues on this subject. Personally, I think farming on the BSC Mainnet makes more sense for me because of the lower fees (although, like you pointed out also, there are other factors to consider like the available pairs, APY etc).
Caveat: This is not financial advise. :)