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Reveal the secret behind DeFi's monstrous high yield: What is farmer Farming?

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What do you think you doing yield farming, but in fact you are farming "crop".

The original title: "uncover hidden behind the excessively high yield DeFi: farmer farming?"

The original source: babbitt

Long story short:

DeFi yearn. Project finance and mStable are introducing a new "dig" mechanism, it will benefit farming (yield farming) into a new era: the farmer farming. No matter who want to be a part of revenue farming game, will be before the "farmers" farming.

You think you're farming for profit, but you're actually a "crop" being farmed.

The value proposition of the agreement

Recently, many DeFi projects will be introduced in the system a scrip, whether governance, agreement or ownership tokens, and each tokens will be Shared for voting or fees, or both.

DeFi programs will be distributed to the user tokens, which set off a upsurge of "liquidity mining", for example, one of the most famous liquidity Compound mining project, it will be given out on deposit and borrowing agreement tokens COMP. According to Compound the official said, this is in order to achieve the goal of decentralized management, and handed power to the people who often use the agreement.

But, not foolishly, we all know that Compound earns money: borrowers take about 10% of the interest they pay off as reserves, while Compound governance can easily be taken away as income from the agreement itself. Although the COMP is now a governance token, the holder will eventually be able to profit from the proceeds of the agreement.

Since the COMP is likely to benefit for holders, it certainly has a financial value. People are motivated to provide/borrow the money to earn the COMP, it quickly makes locking Compound agreement by about five times.

We've seen Synthetix, Compound, Kyber, Balancer, and Curve all announce similar governance scrip releases that are, in fact, dependent on future earnings, and have been hugely successful in the industry.

It looks like forever gone is just another DeFi issuing scrip, but unlike dozens of other DeFi scrip, Forever Gone's YFI and mStable's MTA are creating the next crazy era of scrip.

So what makes YFI so different?

The value of YFI

Gone forever. Finance (formerly iearn. Fianace) is a loan aggregator agreement. It used to be a non-profit agreement, but its creator Andre Cronje turned it into a public good. Since the loan agreement will distribute the tokens to the user, Andre feels it would be unwise not to collect them.

Therefore, he proposed a new mechanism, create a pool, collect all deal with random drop tokens, will change them into a stable currency (aDAI), then put these stable money distributed to yearn the scrip holders of the agreement. Although Andre said YFI don't have financial value, but people still buy and farming it. Participants thought, a kind of create a revenue stream of tokens must be worth something.

In the above section, YFI and COMP are still exactly the same, both have a lucrative agreement to airdrop tokens to early users, and both represent a portion of the project's future revenue.

And then, things started to become different, the following is the most popular YFI farming way:

The outline of the whole YFI farming (dig) :

1. Supply DAI/USDC/USDT/TUSD for casting yCurve;

2. Deposit yCurve for farming YFI;

3. Put 98% yCurve+2% YFI in Balancer pool to cultivate additional YFI;

4. The pledge BPT (tokens) Balancer reserve pool, and vote for the governance solution;

Revenue source:

1. Supply benefits from Compound/AAVE/dYdX/bZx;

2. Transaction fee from Curve;

3. CRV token mining (forthcoming);

4. YFI obtained by pledging yCurve;

5. YFI obtained by pledging BPT;

6. Yearn agreement fee (COMP, LEND, etc.);

Farming in these pools, you get these incredible annualized rates of return.

Returns the secret behind the madness

Face yCurve such high annual returns, the income of farmers (Yield Farmer) will naturally be attracted, of course, they will want all the revenue. Do they do? They will cast yCurve and deposit for farming YFI, later, they found that in the Balancer pool can gain more YFI, they want to join, but most of them haven't YFI.

Therefore, YFI farmers with a single asset yCurve added liquidity.

That's the point. Due to YFI/yCurve is a 2% / 98% of the Balancer pool, so people don't immediately feel the friction losses. However, only use yCurve increase liquidity and bought with yCurve YFI has the same effect (what is this logic? . In short, every time a new YFI farmers into the pool, he will deposit yCurve, like 2% of them have been used to buy YFI.

Ninety-nine percent of the Balancer pool is YFI's recipe, and it starts a feedback loop: more capital deposits drive up YFI prices, and higher YFI prices mean higher annualized returns, and then higher annualized returns attract more people to the income farming game, and so on.

So what's with mStable?

MStable polymerization agreement is a stable currency. You can use it to support any kind of stability of the currency to casting mUSD, then it will be put at the bottom of the stable currency to borrow platform to earn interest. MStable also supports USDT/USDC/DAI/TUSD this several stable currency 1:1 exchange (plus 0.1%).

At first glance, mStable seems a bit strange, 1:1 stable currency exchange? Because in the actual cases, the stable currency will always exist between the difference! AMM there should be a dynamic rate, so that it can be a two-way arbitrage, otherwise, the price is higher the basis of a stable currency is easy to be dry.

Not surprisingly, a basket of mUSD should appear USDT + 55% to 45% of USDC (because it is about 55% in a single asset limits), the system will be stopped, no new casting/withdraw/swap operations, also no longer produces any expenses (excluding interest).

MStable, however, is not facing a death spiral. On the contrary, its promised-currency MTA keeps climbing. It occurred to me that mStable's model was exactly the same as YFI's: if someone wanted to farm an MTA, he had to first produce mUSD. For mUSD to be minted, he must supply a stable coin other than the USDT. Then the percentage of USDT drops, others can trade with USDT, cast, and so on, and the agreement can be refunded again.

Wait, so this isn't... A Ponzi game?

Yes and no, depending on how you define Ponzi. By the broadest definition, Social Security, pension funds, $1,500 in Tesla stock also fall into this category, and anything that makes profits highly relevant to other people's investments, especially later investors, may constitute the concept. So how do we distinguish a Ponzi from a non-Ponzi? This is not an easy question.

Going back to the DeFi scenario, both YFI and MTA create positive cycles between token prices and lock-up values. Slightly differently, yCurve can make some gains without the token, but mUSD itself cannot be sustained without the MTA.

At the moment, I can't tell you which DeFi treaty will survive, but I am well aware that if the party ends someday, forever will still have some basic, self-sustaining value, but mStable may not, because possession of mUSD is more likely to be lost.

Y phenomenon

Since the launch of Yearn Finance, its underlying deals have scooped up huge amounts of stability, with about $310m in yCurve and about $400m in Balancer.

Who also don't know the "harvest" game still can last long, but at the very least, it provides many DeFi programs with liquidity, it also has certain benefits for the industry.

The most important thing for individual investors is to understand where these unusually high annualized returns are coming from. 500% annualized earnings, 3% from borrowing interest, 2% from transaction fees, and 495% from YFI mining? Do your research and get involved in farming wisely.

"Don" t buy it, Earn it. -- Andre Cronje"