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Tasty Yield Burgers - The Daily Gwei #455
McDonalds doesn't serve them but Ethereum does!
We all know that “yield farming” can be quite a lucrative (and risky) endeavor with promises of riches to be gained from very high APY’s. This is all achieved in a layered way where more and more yield is stacked up to form what I like to call a “yield burger”. Though just like most burgers, yield burgers can be very bad for you if not consumed in moderation.
The concept of a yield burger is something that came to prominence during DeFi summer in 2020 where people figured out you could stack lots of different incentives together to bolster the yield on “yield farms”. One of the first examples of this was a ‘BTC Yield Farming Pool’ launched in June of 2020 that allowed users to earn SNX, REN, CRV and BAL tokens by providing BTC liquidity to a Curve pool. This was a very very big deal at the time and opened everyone’s eyes to just how lucrative yield farming could become - this subsequently turbo-charged DeFi summer and led to the numerous different liquidity mining schemes that are still used to this day.
Now, of course, with any increased reward comes increased risk - and DeFi summer was full of increased risk. One of the main risks people would take was to basically throw money into random, unaudited food-themed fork of existing yield farms that was promising extremely high APYs (usually in the 5 or 6 digits). Of course, this didn’t last very long, but if you were one of the early depositors of a relatively large sum you stood to make some very nice profits in a very short amount of time. You may be wondering where those profits were coming from - basically always from people buying the native token of the project to either speculate on it or provide liquidity for it to get even more rewards. As you can imagine, this circus didn’t last long and had diminishing returns as time progressed until the music totally stopped and DeFi summer was over.
I still think yield burgers can be done tastefully with long-term health of the yield farm in mind and I’m personally a fan of ETH staking farms in particular (as seen in the tweet linked above). This is because when you hold a staked ETH token such as rETH and stETH, that token is earning you vanilla ETH rewards from staking (one of the safest ways to earn yield). Then you can just throw on whatever other token incentives you want and measure the risk from there while earning a juicy ETH yield - very nice!
Anyway, I don’t really think the absolute craziness of DeFi summer will ever be repeated in the same way - most of the big players are too smart for that - but I do think we’ll continue to see more yield burger experiments in the future. I personally hope to see something more innovative than just throwing on extra token incentives, but I also want these things to be done in a risk-minimized way. It’s all fun and games earning 1,000% APY until the rug gets pulled from under you and you’re left with nothing!
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.