This is the third episode of the Uniswap DeFi Rugs Chronicles. In this episode we will take a look at yield farming.
Yield farming has generated a lot of controversies, coupled with its contribution to the high network fees for transactions within the Ethereum blockchain.
See Also: Can DeFi buy You a Lamborghini?
The yield farming craze has drove Uniswap’s volume to highs never seen before in the cryptocurrency industry and in the process overtaking coinbase daily volume.
This has made top centralized exchanges like Binance, OkEx, Bithumb and Huobi jelly that they had to start listing yield farming tokens for free just to get a share of the trading volume and fees.
What is yield farming?
According to Binance Academy, yield farming is a new way to earn rewards with cryptocurrency holdings using permissionless liquidity protocols. It allows anyone to earn passive income using the decentralized ecosystem of “money legos” built on Ethereum.
Is yield farming a ponzi scheme?
The Yield Farming model used by these Uniswap listed DeFi projects clearly benefits early investors, who then either start farming to earn APR or hold to sell higher before the hype dies.
Putting all of these into consideration, majority of uniswap listed yield farming projects utilize a ponzi scheme model which is purely driven by hype and how early you are to invest.
This goes a long way to show why new yield farming projects keep springing up on Uniswap and also new versions of yield farming tokens. Example YAM V1 and YAM V2.
What are the risks involved in yield farming?
1. Smart contract code exploitation.
2. No laid down lock period of team tokens using sushi as an example.
I did the recent move because I care about the community. I’m taking IL for you. But all I received was blaming and FUDing.
Here’s what happened. The devshare part of me. I converted them to $ETH. I stop caring about price and I will focus on the technicality of the migration.
— Chef Nomi #SushiSwap (@NomiChef) September 5, 2020
3. High annual returns that are not sustainable to lure investors.
But like ponzi schemes, yield farming is all about hype and immediately the hype dies the project starts moving to zero and eventually disappears. E.g Noodles, Sushi, YAM, etc.
In my opinion Uniswap yield farming projects are not Decentralized Finance (DeFi) driven but ponzi scheme inspired.
Why should you stay away from Uniswap listed yield farming projects?
- They utilize a ponzi scheme model.
- They are not sustainable but their success is based on temporary hype.
- Majority of uniswap listed yield farming projects are just clones. E.g YF, YFI, YFII YFM…
- 99% of uniswap listed yield farming projects are outright scams.
Conclusion
Uniswap has been able to take away power from centralized exchanges, for the first time in the cryptocurrency industry decentralized exchanges are recording monstrous daily volumes.
This has made centralized exchanges uncomfortable but there’s a comfort that comes with trading on centralized exchanges. Looking at the scam and clone tokens listed on Uniswap daily, trading on centralized exchanges safe guards one from these type of scams.
Centralized exchanges will always be the go-to place for crypto traders but with their rush to list these yield farming tokens that may end up exit scamming it can ruin their reputation. For instance Binance listing of Sushi has come under strong criticism after the Sushi chef liquidated his holdings claiming it was to move the project forward.
Imagine what will happen to the reputation of some top centralized exchanges if the DeFi based tokens they are listing now just to get a portion of Uniswap’s daily volume end up exit scamming investors?