A mini-series of posts on yield farming. Part 1 - What is it, the follies of trading, and why did I abandon trading for yield farming?

Following my recent posts, people keep sending my messages about my crypto farming and how to get into this, but I find its too long a topic for a message or even a single post. So I thought I'd do a "mini-series" about crypto farming, which in my mind is one of the best opportunities out there in crypto. Let's start this with an admission that I used to trade a lot, and probably far too much for my own good.

When I say trade, I would always stick to spot trading the ETH or BTC pairs on a main exchange. I knew that I would be terrible at predicting the USD price movements, and I've seen the ruination that margin trading can have on a person.

I'd like to say I was fairly good at it, but then again, in a bull market we are all geniuses right?

So early this year I had a break from work and was full into trading. Not just exchanges, but now I had the glory of the various DEXes at my disposal, so I was happily buying that latest moonshot that had just launched on Sushi or Pancake swap. I think my best trade was buying Ethernity and selling half when I doubled my gains, and the other half at around x10 (and yes I know somebody will say that x10 is nothing etc but I try not to be greedy)

A memory that sticks out for me during this period was shorting Ripple. Now I know I said I never margin trade, but I made a slight exception with this one when I was delisted from coinbase. So I used the binance leveraged "short-XRP" x3 token on binance, and shorted every bounce. I made nine shorts in all, and made gains eight times in a row.

And then came the ninth one - and guess what, XRP is suddenly bouncing and jumping right up again, and here I am with an effective leveraged short, playing with a ball in my garden with my 4 year old daughter, and I can see the money draining away from my position. So because I have a trade in play, I'm torn between running in the house and exiting my position, or actually being a good father.

And this is magnified if you are actually working in a role where you have constant access to the computer and potential trades, or even if you just can't stop looking at blockfolio every few minutes.

And I should add that for every Ethernity, I have some god awful terrible trade, like holding Grin from its launch for 3 months.

So then I started to think more about yield farming. I had entered a large ETH / WBTC and ETH / SUSHI position on sushi-swap back when Sushi was $2 or so, and I noticed that the sushi yield was really really decent by this point. So I started to experiment, entering more farms gradually, recording my results and gradually building up my positions and my yield.

For those that don't know what this is, it is taking two coins and finding a DEX like sushi-swap. You then allocate your two coins into a trading pool (so for example, an ETH / SUSHI pool) and from that point effectively other people are trading your coins back and forth - so if somebody has ETH and wants SUSHI, they put ETH into the pool and take it out. And best of all, most DEXes or platforms have "farms" that allow you to allocate your pool position into a smart contract, which then pays you a reward overtime.

That reward varies - it might be relatively low for a conservative pool like WBTC / ETH on Sushi (about 7% per year), high for the risky pools (Dino / WETH is around 700%) or extreme for the super degen pools (Cobra has a pool that is 130,000% APR). I think the most extreme pool I ever saw was an autocompounding pool on Eleven Finance that was running at 135 million percent (including compounding!!)

So now I have around 8-10 farms running (this varies) and they pretty much utilise all of the crypto that I would otherwise have allocated for trading. The total average return (last time I checked) was 130%, which is the average of a mix of high, medium and low risk pools.

Best of all, having giving up trading means that now instead, everytime I wake up in the morning I have effectively earned some crypto sleeping. And when you harvest (i.e. claiming your bonus coins you have earned as a result of yield farming), you can re-invest into pools or find new pools, effectively compounding your gains (and compounding at these rates is quite extreme).

Trading is also a constant drain on your emotions and your time. With yield farming, what I like it you can spend the time when you are free to research and figure out a particular farm and how to enter it. Once you have done that, you simply let it go and leave it. Sure the high risk farms need monitoring and attention, but if you have a fairly balanced “portfolio” of farms that you can probably get a consistent gain, even if you have a really busy week and don’t have time for crypto. Its kind of like a real garden / farm, where 90% of the hard work is the building and planting, while the harvesting / re-seeding is a small portion of effort.

The other great thing is that usually with crypto you are relying on prices going up, and you selling at the right time (good luck with that!). But with yield farming, even if the prices stay exactly the same, as long as you are earning a net positive yield from your farms, you are still rewarded. In a way, time is on your side, and you don't have the stress of having to wonder when you need to exit and sell your position.

And over time, as I've been compounding back into new pools, that daily income has gone up and up, to the point where it is now a fairly considerable amount of cashflow (albeit in the form of whacky defi coins)

To be clear there are absolutely a bunch of risks (impermanent loss, native coin emissions, security risks, the tax treatment etc etc). On the other hand, even if some rogue got hold of my private keys, I'm not sure they would even find all my farms, or know how to extract the crypto. And this is certainly a game of experimentation, with lots of pools that have failed (thankfully I have yet to be "rugged" in this particular game).

In terms of where the value comes, I guess it is like deciding to start a casino with no money. But instead, you obtains goods and services from a range of people (including leased premises), and instead of paying them money, you give them an allocation of ownership in your casino money over time. If the casino becomes successful, those people can sell their shares which now have value.

This post is really more a background on why for me, trading had too many negatives and that yield farming has pretty much changed the crypto-game for me long term. So I'll be posting a few more posts on this topic in terms of how to farm, tools to use, risks and dangers, and what my farms currently look like and the types of yields I'm getting. Plus a few of the farms that were terrible and failed as well.