Introduction
This a hot new trend involving Defi composability (interoperatbility), and issuance of governance tokens. The assumption is that they will accrue value in the future, since the governance will vote to allow cash flows to accrue to the governance token holders. It is better than simple staking since it rewards participation in the project, and network adoption instead of only ownership. So it is a good way to raise funds for further development, after a project is up and running and working well. It is also more compliant with legal regulations than an ICO. So, it benefits the projects and the community.
People have been taking advantage of this trend by re-using their digital assets on multiple platforms and doubling up on the yield. A simple example would be lending a token on Compound, getting a ctoken in return, then depositing that token on Curve liquidity pool (or Uniswap pool) to get transaction fees on the same tokens that they are earning interest. In addition, you are also getting a small share of the distribution of the new COMP governance tokens (which have been going way up in value). Another approach is to take a loan to get part of the COMP distribution, and invest the loan proceeds on another platform. But that comes with risk of collateral liquidation if the pledged assets go down in value. So, this method has to be monitored more closely. See previous articles in my Defi Blog, if you want to know how to use any of the tools discussed below.
Yield Farming (Liquidity Mining)
Current farming opportunities
- Comp Tokens (Compound finance)
- Borrow USDT using eth as collateral (and get part of the COMP distribution) Pay interest at current rate
- Deposit the USDT back to Compound to get interest at lower rate but get part of the COMP distribution also
- Or use Instadapp to use leverage to maximize yield (higher risk)
- Or you could just swap eth for COMP on Uniswap or 1inch, and then deposit them into a Liquidity pool on Uniswap (ex Eth/COMP pool) and earn transaction fees, and get the increase in value of COMP tokens
- BAL Tokens (Balancer Labs)
- Provide liquidity on balancer platform to get some of the BAL token distribution, on the same tokens that you are earning transaction fees from the balancer exchange
- SNX (synthetix) integration with Balancer and Curve.fi
- Convert eth to sBTC, RenBTC or WBTC on 1inch.exchange
- Deposit on sbtc.curve.fi. Earn transaction fees and also accrual in value (if BTC goes up)
- Stake on Synthetix/Mintr. Get additional rewards from Synthetix
- Synthetix also has a similar process for Susd, and other pools on Uniswap
- yTokens (Iearn and Curve)
- Deposit one of the stablecoins on iearn, and receive ytoken and earn interest
- Deposit ytoken on y.curve.fi liquidity pool and earn transaction fees on the same ytokens that you are also earning interest (double your pleasure)
- aTokens (Aave and 1INCH and curve)
- Deposit any of the tokens supported by Aave, get atoken and earn interest
- Convert the atoken on 1inch.exchange to any of the tokens supported by any of the pools on Curve.fi, and earn transaction fees
- Rinse and repeat
Future (Not yet available)
- Uniswap Tokens
- When these governance tokens become available they will be in high demand
- Curve Tokens
- Look for these governance tokens to be distributed the same way as COMP and BAL
- Ptokens - will also issue governance tokens
Additional Yield Hacking Opportunities (to be covered in future articles)
- Defi index on Synthetix
- Sell Insurance (Put Options)
- Buy real estate on RealT (Rental properties)
Conclusion
There are lots of different ways to participate with varying rates of risk. This trend is very hot right now, but will inevitably cool off. And be aware of the inherent risks of interdependence. The more platforms that your connected investments depend on, the more chance that something could go wrong in any one of them. And the more you are leveraged, the more chance that the value of your collateral could go down, and trigger liquidation. So make sure to monitor your investments, especially if your are leveraged. Happy farming.
