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After the great big dip of "19 MAY 2021", it seems like the community has totally forgotten all the China and Regulatory Crackdown FUD.
Here is a quick update on some of the current and upcoming events in the crypto space:
1. Solana DeFi Sumer in full swing - TVL of Solana has surpassed Polygon and is now #3 behind BINANCE and Ethereum.
2. Polygon Announced Hermez acquisition for $250M for ZK EVM compatibility in the future.
3. Avalanche announces a liquidity mining programme of $180M
4. Fantom announces a peformance based liquidity mining campaign of $350M
5. Arbitrum going live today, i.e., 31 August 2021
One can safely assume that the second wave of "DeFi Summer" is back and the bridging and network activity will be booming. Leaving aside all the positives, several opportunists take advantage of the situation and exploit and scam new DeFi participants. I myself was rugged in the first farm I tried out :)
The big question here is what sort of tokens should you risk farming. In my humble opinion a $TOKEN must have all these characteristics to be worthy of farming.
1. Check the Rugdoc rating of the protocol / farm you plan to farm on (TG Link) :https://t.me/rugsteemer
2. See if the team behind it is anonymous or not. It is better if they are not and are documented
3. Check the tokeneconomics. It should be inflationary and ideally, the team + investors + advisors should not have more than 25% - 30%.
4. Do a deep dive on the protocol and understand the utility of the token you are farming. The best token to farm would ideally be an interest bearing governance token i.e. one that you can stake and earn fees. The longer the lock-in period suggested the better. This usually varies from 91 days to 4 years.
5. Make sure the governance token emissions are sustainable and inflation is over a long period of time. 10 years is usually great.
6. make sure that the investors and team have a long vesting period
7. The protocol must have an active community and active participation in the governance and running of the protocol. This is a good sign as it shows that the token holders have a lot of skin in the game and it is in their best interest to make sure the project succeeds.
8. The protocol must have other other useful features apart from just auto compounding LP pairs and sustaining high APY through unsustainable governance token emissions.
9. Figure out how much fee the protocol is generating and how much of it is being received by the TOKEN stakers. A good fundamental analysis would be return on capital employed ("ROCE") as it will determine how efficiently a protocol is utilising its TVL to generate fee or protocol revenue for its TOKEN stakers. The formula for this would be = Protocol Revenue / Total Value Locked or Protocol Revenue to Token Holders / Total Value Locked. A high ROCE is always better, and an uptrend in ROCE growth is always a good indicator to "APE" into a protocol / farm.
Below are some examples of ROCE:
From the above figure, one can see that QiDao is an excellent example of a protocol that passes all of the 9 points mentioned above and has a potential ROCE higher than Uniswap V3 if all the protocol revenue is given to Qi Holders. Apart from just auto compounding LP tokens with Qi rewards, they have selectively incentivised only those pairs that would benefit the protocol i.e. USDC/MAI and Qi/MAI pairs with Qi LM rewards.
Apart from auto compounding, the main utility is stablecoin issuance and 0% interest loans. The fee generated from these services is massive and ~$1M per month of which 30% accrues to the ~4M Qi tokens staked.
Below is a type of yield farm which is totally dependant on high buy pressure on its Farm Token which does not have any utility. Based on evidence all such farms Moon and then dump and it is best to keep away from these. This is suitable only for the most experienced "DEGENS".
Example of a Yield Farm that you must stay out of
