Supplementary Information Regarding Yield Farms
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DeFi is currently a $100 billion industry, and its expansion has benefited a wide range of people. There are many risks involved for individuals who choose to take part in this activity. Benefit levels for "safer protocols," such as AAVE, are often lower than those desired by the majority of the population. Despite the fact that smaller yield farms may still be lucrative in the long run, they are a minefield of potentially disastrous occurrences. In many cases, bugs, malevolent flash loans and poor designs have left individuals with nothing, or at the very least, a few coins picked up off the ground by chance.
Despite this, the survivors in DeFi have earned substantial gains thus far. Given that preventing a full loss of capital is critical to sustaining profitability in DeFi, many individuals try to reduce their risk by participating in pools that charge 4% deposit fees in return for staking non-native currencies in exchange for the reward token.
Although bad code has the potential to steal a user's whole amount, the assumption that the investor's risk would be restricted to 4% of the capital may be breached by malicious code. Even though the loss is just 4%, "soft rug pulls," such as a developer walking away with the deposit money and quitting the project, may be disheartening for everyone involved.
In spite of the fact that many Defi participants are risk-averse, there are others that choose more high-risk, high-reward bets to diversify their portfolio. These farmers often flock for farms' native tokens, since staking such tokens typically yields the greatest annual percentage rates (APRs). Unfortunately, the values of native tokens typically decrease too fast once farming starts for original stakers to make a return on their investments. Many yield farms have a very modest starting supply in contrast to the rate of emission, which is one aspect to take into consideration. This may result in some individuals paying very high prices for the few tokens that are now in circulation in order to stake them in pools that have extremely high annual percentage rates (APRs) if the tokens are issued at a fast rate compared to the existing supply. Unfortunately, the ensuing token price decrease often results in near-total losses for early liquidity providers, who should be considered the most valuable players in a project's early stages.
Some Defi users earn overall gains, but the dangerous environment outlined above makes it impossible for others to do so. The following seem to be the primary issues:
Bugs, exploits, and theft causing the loss of the investor’s entire deposit
Soft rug pulls
Bad farm design
Poor initial token distribution
Yield farms that do not participate in presales often begin farming with a very high initial emission rate compared to the supply, which nearly always results in a fast drop in the token price. Some of the instances are very severe. Below is an example.
Essentially, this type of emission will single-handedly destroy the project and no amount of marketing will be able to sustain the hyperinflation. Farmers will most definitely lose out on their 4% deposit fee since the token they harvest will be worthless.
Fair-launched farms often have the same issue as their counterparts, although to a smaller extent: the farms' emission rates are frequently very fast in contrast to the initial supply. Even in farms that get a significant amount of investment, rapid supply growth is often a significant hindrance. For example, in the current instance of PolyPup's BONE layer, the following is true:
On the first day of farming, the supply increased by at least twofold. It seems that investors in the original supply were unaware that over 1,000 additional BONE tokens would be issued per day once mining started. This resulted in a market capitalization of several million dollars before mining began. The price shown above would have to be maintained if individuals purchased all newly minted coins at that price (minus team buybacks totaling 30% of the deposit fee, roughly $10,000/day or less than 5 tokens/day) in order for it to remain at that level. Predictably, this rapid increase in supply resulted in a 98% decrease in the price in the first 10 days of farming, inflicting the greatest amount of suffering for native liquidity providers, who were completely unaware of what had happened:
BONE’s chart is more extended horizontally than that of PolyOwl for the following reasons: its initial supply expansion was less rapid, it received a high amount of initial investment, it has a strong community, and it has support from vault providers. However, beyond that, the charts of BONE and PolyOwl have a similar shape because of the extremely rapid initial supply expansion.
To compare the differences, we will be using PolyPulsar, Cerberus, Thoreum, and Augury as they all held a presale launch.
At one glance, it seems that there is still a possibility for recovery for presale model farms. To make sure that the farm is sustainable, the supply plays a vital role. Below is a comparison of the supply metrics for bYield Finance presale and other farms.
Farm
Initially Minted
Circulating @ Farm Start
Emission Rate (/sec)
Price @ Farm Start (USD)
Market Cap @ Farm Start (USD)
Initial Supply Expansion Rate (% of circ. supply on the first day)
PolyPulsar
2m
1.25m
5
0.40
500k
34.6%
Cerberus
72.4m
70m
33.3
0.0068
476k
4.1%
Thoreum
550m
537m
250
0.0058
3.19m
3.9%
Augury
10m
7.1m
8.88
0.47
3.34m
10.8%
bYield
25k
25k
0.05
10
500k (if hardcap is reached)
3.05% (Public & Private farming)
In terms of the initial supply expansion rate, we may split these projects into three categories, with PolyPulsar alone being at the top of the list. Despite the fact that PolyPulsar's very high initial supply growth rate resulted in a price decrease early on, the BPUL token never reached even a fraction of the price at which liquidity was made available ($.01). Cerberus and Thoreum, on the other hand, had very slow beginning growth rates. A big TVL was drawn to Augury soon after farming started, resulting in a significant rise in token price and a significant increase in token price. However, as both Thoreum and Cerberus are longer-lasting farms that are capable of sustaining their project, we get to the conclusion that an expansion rate in the range of Thoreum's and Cerberus' should produce APRs adequate to entice investment while avoiding the certainty of negative price action in the early stages of growth.
Farm
Total Raised (USD)
Liquidity Provided by Team (USD equivalent)
Liquidity Provided as % of Presale
PolyPulsar
8.8k
8.8k
100%
Cerberus
780k
6.3k
0.8%
Thoreum
5.6m
494k
8.8%
Augury
2.01m
$1
0.0%
bYield
500k (hardcap)
250k
50%
PolyPulsar is once again an outlier in terms of the total amount raised in the presale and the proportion of presale funds used by the team to provide liquidity. Its presale was an underpriced compensatory NFT offering to participants in Pulsar's previous layer, explaining the low amount raised and 100% of presale funds going to liquidity. The liquidity price was approximately $.01, which was also underpriced.
bYield will be providing 50% of the presale funds as we are committed to provide a healthy price action with smaller price impacts and slippage tolerance.
