Understanding the Yield Farming Meta
Correctly mapping risks to farming strategies is the key 🔑 to diamond hands 💎 🙌
So you’ve found the next farm to ape in, and you’re looking at your bags and wondering what would be the best way to monetize this opportunity without losing your pants.
You have come to the right place.
A lot of newbies inexperienced with the yield farming meta tend to get fleeced because they tend to look only at APY’s and underestimated the risks of their yield farming strategy.
This analysis is set to help the agricultural apprentices to fully understand the risks and implications of each methodology so that they may gain confidence after taking action and be safe from paper-handed weaknesses.
The Secret Arts of the Yield Farmer
Risk level assessments here are relative to that of BSC big caps / stablecoins (termed as “SAFU Bags” in this article) vs. the risk level of the farm that you are contemplating.
This analysis also assumes that you are well-versed in the basics of yield farming concepts such as impermanent loss / divergence risks, reward token economy, native TVL theory, etc., and other Defi / cryptocurrency related risks.
You should always start from the lowest risk level and only consider levelling up as you gain more understanding and knowledge of this space.
[Risk Level 1] The Careful Spider Monkey
Strategy: Stake SAFU Bags into the farm, sell reward tokens for other SAFU Bags or for the same staked SAFU Bag to compound.
Commentary: Aim to grow SAFU Bags and benefitting off the native economy while maintaining minimal exposure to reward token price action. This should always be your default action if you are not comfortable with the reward token’s price action, or unfamiliar with its tokenomics or pumpamental status. However, you are still exposed to rug risk but safe from exit scam risk.
[Risk Level 2] The Journeyman Gibbon
Strategy: Stake SAFU Bags into the farm, use reward tokens for Level 3–5 strategies.
Commentary: Aim to protect SAFU Bags while gaining a small exposure to the native economy. Profits are susceptible to higher risks but also higher returns. This is the typical “playing with house money” strategy.
[Risk Level 3] The Expert Bonobo
Strategy: Stake reward token liquidity pairs, typically with $BNB or $BUSD. Sell reward tokens for SAFU Bags.
Commentary: Gain significant native economy exposure, with the goal of recouping the principal as quickly as possible. This play is generally more feasible in the early days of a farm’s life when APY is high and reward token supply is scarce (and therefore price is high). Once the principal is recovered, the underlying investment and future profits are considered “house money”.
[Risk Level 4] The Master Chimpanzee
Strategy: Stake reward token liquidity pairs, typically with $BNB or $BUSD. Further compound reward tokens into the same liquidity pair farm, or hold them in wallet / single token staking if applicable.
Commentary: Gain significant native economy exposure. One would expect to either outpace potential price depreciation with APY, or is expecting mid-to-long term reward token price appreciation. Highly risky method due to the typical inflationary supply and speculative nature of most reward tokens.
[Risk Level 5] The Degenerate Silverback Gorilla
Strategy: Buy reward token and keep in wallet / single token staking if applicable.
Commentary: The ultimate hardcore play fully banking on massive price appreciation in the near term. This is the all-or-nothing, mansion or cardboard box, pump & dump, #YOLO speculative strategy. Risk management and financial literacy is nothing compared to the “didn’t read, just ape” mindset of these degenerates. Caveat emptor.
Now that you have been fully educated on the risks of each farming strategy, thou shalt deeply meditate and consider which works best for you. Review your expected exit horizon, fundamentals of the farm and its reward token economy, current bull-o-meter / pumpamental status of the project, before picking a strategy.
Most importantly, after you have considered all of the above, gained conviction in the feasibility of your strategy, and decided to ape in, keep your hands 💎 and be confident in your decision.
Thanks to @draft_monk for previewing and editing.
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None of this should be considered as investment advice. Do your own research and manage your own risks appropriately.