Crypto 'yield farming' is reportedly booming, and investors could see up to 50% returns - or watch as scammers make off with their investment
- Yield farming is crypto's answer to traditional lending, as laid out in a recent Wall Street Journal report.
- One popular strategy is "liquidity mining," where yield farmers lock up tokens in exchange for fees.
- Between January and April of this year, investors suffered $83.4 million in DeFi fraud losses, according to CipherTrace.
Any investment involves balancing risk and reward, but few are as risky or as rewarding as "yield farming," a booming segment of crypto that has already humbled the likes of Mark Cuban.
Yield farming, falling under the umbrella of decentralized finance, or DeFi, is crypto's answer to traditional lending, as laid out in a recent Wall Street Journal report.
As DeFi has grown parabolically - with assets locked into projects collectively worth tens of billions of dollars - so too has yield farming, spurred on by low interest rates in other markets.
Yield farmers put up capital in anticipation of excess, often double-digit, returns. One popular strategy is "liquidity mining," where yield farmers lock up tokens in exchange for fees. In doing so, yield farmers play a role similar to market makers like Citadel Securities in traditional finance, profiting from each transaction but taking on price risk should their locked-up tokens soar or crash.
Yet yield farming, which is largely unregulated, is prone to con jobs or badly designed products. Between January and April of this year, investors suffered $83.4 million in DeFi fraud losses, according to CipherTrace data cited by the Journal. In June, Mark Cuban "got hit" as a yield-farming operation imploded. After peaking at $60, the underlying token became worthless, in what some called a crypto bank run.
"It feels like the beginning of the internet, with these weird and crazy things that are not going to be around in the long run," Marcio Chiaradia, a yield farmer, told the Journal.