In the past two weeks, I lost $5,000 in DeFi farmer income.
DeFi has been very hot in the past few months. After repeated reminders from friends, I finally decided to enter the venue two weeks ago. The following is my experience after losing $5,000 in DeFi agricultural income. I hope to give you some inspiration.
Yield Farming agricultural mining income
“Liquidity mining” is currently a must-do to play DeFi. People pledge some tokens in smart contracts to provide liquidity for the trading pool, and thus get some native token rewards. The Farming application has multiple forks, the following are some fork cases
Sushiswap
Kimbap.finance
Ulu.finance
Pickle.finance
In the past two weeks, after trying mining on various applications, I found that they are essentially the same. Here is my Kimbap.financie story.
Contacting agricultural companies, I was stunned by the yield!
In applications like Kimbap, you can deposit Uniswap’s LP tokens. When you hold the liquidity tokens in Kimbap’s “Chef’s Contract”, you can get a reward of $KIMBAP tokens. , Liquidity provider tokens, that is, tokens that provide liquidity in the trading pool, such as the ETH-USDT pool, which can use ETH and USDT, and use smart contracts to generate corresponding liquidity tokens, hereinafter referred to as LP tokens).
When I first encountered “Farm”, I was in awe, and there were many questions in my mind:
1. Is it true that the annual rate of return exceeds 1000%?
2. How can I get the tokens needed to invest in this farm?
3. Has the token I pledged been taken away by the possible smart contract owner or disappeared due to a bug?
When the interest rate exceeds 1000%, I certainly can’t wait to know the answers to all the questions. And the most important question is-“How do I participate?”
After research, I found that I must first obtain two tokens. For example, I choose USDC and ETH as the trading token pair and deposit them in the Uniswap trading pool to generate corresponding liquidity tokens for my use.
1. Redeem my USDC and ETH shares (why should I do this?)
2. Stake LP tokens in the farm for profit!
As a very cautious investor, I carefully looked at the smart contract and confirmed that it is safe. First of all, I have seen the code and there is no problem; I have also compared this contract with another secure smart contract, and there is no outstanding problem; there are many people who have invested in this project, then it must be safe; it is still Have not been hacked before, and I plan to evacuate before this happens.
Not much to say, I bet my first USDC-ETH UNI-V2 LP token on Kimbap Farm, and immediately saw the Kimbap balance increase a little bit.
Do you know how curative it is to be able to watch your own money in real time?
I know!
For a few minutes, I have been watching the tokens grow in seconds. This feeling is like opening the door to some evil world.
Want to maximize revenue? I lost
In this world where the annualized rate of return is 1000+%, I think it only needs an annualized rate of return of 300% to make a lot of money. If I need to achieve an annualized rate of return of 1000+%, I will have to spend the same money with 3 times the effort! I thought to myself, “If I buy some Kimbaps tokens now, pair them with ETH to generate LP tokens and put them in the flow In the pool, I can accumulate Kimbaps tokens faster than others, and then quickly sell it to recover my initial investment.”
Not long after I came up with this “genius plan”, I bought some Kimbaps tokens on Uniswap and matched them with the corresponding ETH to generate the Unisawp transaction pool and put the corresponding LP tokens into the pool. .
Seeing the rapid growth of Kimbaps, I thought, in the rest of today, let this money work for me.
Waking up, smelling the fragrant coffee, and seeing the rich return of Kimbap token growth are the best things.
It’s just that neither of these two things happened.
Overnight, the price of Kimbap tokens dropped by more than 100 times. I never imagined this possibility. Seeing that the value of 6W+ Kimbap tokens is lower than the exchanged GAS fee, I realized one thing…
I am the source of high yields for other farmers.
“If you don’t know the source of income, you may be the source of income.”
The basic components in decentralized finance come from various channels, such as loan & liquidity provider fees. We can look at two examples of sources of yield, one is to provide loans through Compound, and the other is to provide liquidity through Uniswap.
In Compound’s case, users can obtain a 3% annualized rate of return by lending excess DAI tokens. In return, Compound will also use a cDAI as the user’s IOU for lending DAI (annotation: IOU, I owe you, similar to I owe you), and the accrued interest rate.
In Uniswap’s case, users can obtain a 29% annualized rate of return by providing liquidity for trading pairs such as ETH-USDT. By providing liquidity, other people in the market can freely exchange between ETH and USDC trading pairs, and the exchange fee of 0.3% for each exchange will be paid to the entire pool. In return for providing liquidity, Uniswap will reward you with a bookkeeping token-UNIV2 USDC/ETH LP token to track your share in the entire pool and pay you corresponding transaction fees.
We can see that the “normal” annualized rate of return in the above figure is in the range of 0-30%. How did these farms report a return rate of more than 1,000%?
“If you don’t know the source of income, you may be the source of income.”
The answer is simple, honest farmers just eat up the profits of other honest farmers.
In the case of providing liquidity or loans, you are adding value to the ecosystem, and you should get the return you deserve for the added value. However, in Farming, betting on LP tokens does not actually add more value to the ecosystem. In this case, the reward you will get is that the value will eventually return to zero.
The value of the native token of each farm should be 0, such as Kimbap, Moon, Sushi, Ulu, and Kimchi.
If the value of the native token should be 0, and the transaction fee should also be 0, then why is the exchange price higher than this price?
The reason is greed.
When farmers refuse to believe that the value of native tokens is zero, they believe that they can obtain income faster than others by providing a stable currency liquidity pool for native tokens. These farmers provide channels for other farmers to sell things worth $0 at a higher price.
Some farmers don’t know the truth about the ultimate return of native tokens, while others understand the laws of physics, but they decide to take the risk and provide liquidity for native tokens because they believe that they will not become a greater fool.
As long as there are fools in the market, there will be an additional rate of return, and as long as there is an additional rate of return, there will be degraded farmers. (Annotation: degenerate or degen)
Don’t be a fool, refuse to be greedy
As the saying goes, when the iron is hot, DeFi games may not disappear for a long time. As long as there is greed, there will always be bigger fools. Your goal is not to be a fool.
Here are some tips for not being a “dumb”.
1. Never buy the functional currency of the so-called farm. In the long run, the price will always return to zero.
2. Never participate in a new type of farm, which is often a fork of the previous “successful” farm.
3. Always check the permissions of the smart contract controller. When the permissions are configured incorrectly, even a previously secure farm may be dangerous.
