Problems in Yield Farming
Last updated
Last updated
However there are many problems, since it seems that this industry is only accessible to insiders at this point and is lacking professional touch. There are every day new opportunities and billions of dollars are redistributed every day.
We discovered several problems in the current yield farming / yield ecosystem:
Early Insiders dominate the Yield-Generation Game
It’s usually a matter of hours once there is a new emerging farm coming. Also mostly insiders know about new opportunities.
Rates are not comparable
There are thousands of farms across various blockchains. It becomes increasingly hard to compare those farms and find the best rates. Comprehensive Research Necessary
Only the users who spend the 24/7 on Twitter, are active on community groups such as Reddit, Discord get information about the newest opportunities. No Data Points Available
In order to make a risk-adjusted investment decision users need several data points, such as Historical APR rates, Impermanent Loss, Occurring Fees, etc. Without those data points, the investment has higher probability to fail.
Users constantly need to navigate across various websites to find and invest in new yield farming opportunities. It becomes very time intensive and scary to even invest.
Markets are inefficient
At this point, the yield opportunities are very lucrative and can be highly profitable. However the allocation of capital is very inefficient. There are billions of dollars invested in farms which are not active anymore or at farms which generate significantly less yield that somewhere else.
DeFi Protocols themselves are managing billions of dollars. However mostly they are just holding the native token, ETH or stable coins. They are missing out the vast opportunities to make their money work for them.
More and more farms are popping up every day. However each farm has unique smart contracts, unique distribution mechanisms as well as uniques structures. It’s getting increasingly difficult to compare them, audit their security as well as put them into a unique standard. In addition there are constantly emerging new yield-primitives where its getting increasingly harder to standardize them.
