disclaimer: this post was originally written for the r/yield_farming subreddit and has since been moved over here for better SEO.
TLDR: If we, as a community, do a better job culling shitty projects earlier, we'll be rewarded with a less-crowded, more differentiated space. And as a bonus, our capital won't be inefficiently fractured across multiple protocols. If we continue chasing these unsustainable yields via fly-by-night farms, we're just telling scammers and wannabe devs that we like acting the fool and being parted from our money.
Look, this is probably gonna get down-voted, but we need to talk about our collective community values here.
I get it: we all love juicy 10,000%+ APYs, however
some of us seem to forget that these APYs are not only unstable on the daily-level, but
come with CRAZY impermanent loss1 as they are usually associated with LPs paired with BNB, MATIC, or some stable-coin.
The reality is that:
the total available (retail) liquidity in the entire DeFi space is pretty much finite. We're not JP Morgan or the Fed. Most of us have limited funds and shouldn't be converting life-savings into PUSSY-USDC LP tokens.
every dollar you deposit onto some brand new farm via an LP using their token takes money away from already established projects with tokens that might actually have utility. And,
a crazy super-majority of these farms/protocols are really flimsy Uniswap/Pancakeswap clones with little in the way of differentiating roadmaps.
So let's talk about points #2 and #3. I know that some of you will say that this new hot protocol's token might not utility now, but come (say) Q4 2021, it'll have (Governance|Max Supply|decreased emissions|etc.). But you have to ask yourself some (hard hitting) questions:
what's the chance this protocol has any TVL by Q4?
even if the token now enables REASON_STATED_ABOVE, who cares? And
have you already missed the singular price pump? (you're now a bag holder)
We are all here to make money and not get rekt. I hate that I have to say this but the best way to get rekt isn't all at once: it's by being a serial bag holder. Just because you got out before the token was worthless doesn't mean you didn't get rekt. If your return is -25% or worse: you got rekt. Pick 4 shitty farms and get stuck holding the bag on each one and you've basically lost all your fun money.
Right now, most people manually farm, and don't have the infrastructure to automatically monitor their farm token's price-action. Meaning, if that thing pumps and dumps while you're asleep: you're most likely fucked. Provided you sleep at least 6 hours a day, and then maybe work another 6 hours at a job that doesn't let you trade, you're vulnerable to getting rekt 50% of the day. Maybe you got in early, farmed the token via some non-native LP for a few days at an eye-watering APRD, and ultimately don't care that the meager daily yield you woke up to is now worthless? But most degens are suckers: they buy the native token, stake it for massive APRDs, rarely sell the token for a non-native token, and try and time the pump and dump. These are the people getting rekt.
Back on track, though: what do you do?/how do you actually make stable money?
Stop staking tokens on bullshit protocols that don't have a sustainable profit just yet.
You're bullish about a protocol because they've got a cool roadmap? Wonderful! Set a google reminder for when they claim they'll implement those cool differentiating features and check it out then. Anyone can write up a litepaper/roadmap with dope features, setup a telegram group to hype up the community, and just get all of their momentum vampired away by another shinier protocol. Don't believe me? WE PARTICIPATE IN VAMPIRE ATTACKS EVERY TIME WE TAKE OUR LIQUIDITY TO A NEW HIGH-APY FARM.
Basically, like traffic during rush-hour, we have no one to blame for our favorite hot new protocol's death but ourselves. We are part of the rush-hour traffic. We are part of someone's protocol's vampire attack.
We can avoid that by actually focusing on stable practices that benefit everyone and the first step is to just ignore new projects that have literally nothing new to contribute. Wait for them to earn your liquidity by delivering on their promises. You can always use apy.vision to check out various stats on LPs to earn some passive income while you wait for roadmaps to get realized.
If people want a more concrete plan for how to sustainably engage with DeFi without exposing yourself to unnecessary risk, I'm happy to write that up. Leave a comment below and let me know.
Edit: the follow up to this can be found here
1 some of y'all seriously don't seem to understand how IL works. That should be the first thing you need to understand before you provide liquidity. Not understanding IL and providing liquidity is like trying to drive a car with a manual transmission and not knowing how/when to switch gears. If driving manual is too complicated, you should single-stake. DO NOT PARTICIPATE IN LIQUIDITY PROVISIONING. I'm telling you this for your own good. I hate to see people lose money on an LP because they made pennies in transaction fees and suffered HUGE losses on IL when one of the token's price-action tore away from the pair token.