At the same time, they continue to receive extremely high returns on investments in DeFi projects. Analysts reasonably believe that the activities of such market participants are associated with an extremely high risk.
The return on investment (ROI) of the proponents of the profitable farming strategy is 500%. At the same time, almost half of investors do not understand how smart contracts work, which underlie the decentralized finance (DeFi) protocols they use. Analysts of the aggregator CoinGecko write about this in a recently published report.
Yield farming is an investment strategy that includes various types of interaction with DeFi projects to maximize profits. Examples of profitable farming are investing in liquidity pools, earning from token staking, providing loans, and so on.
To compile a portrait of the average crypto farmer and find out how well investors understand their chosen projects, aggregator CoinGecko conducted a survey with 13,747 respondents. It turned out that over the past 60 days, 23% of respondents have invested in one or another DeFi token.
At the same time, 93% of these investors said that profitable farming brought them a profit of at least 500%. Analysts noted that more than half of crypto farmers work with capital less than $ 1000, and 68% of them do not use borrowed funds in their strategies.
Such market participants lose a significant part of their profits due to the high cost of gas on the Ethereum network. Some pools offer really high annual returns (over 1000%), but the ROI of farmers operating with large capital significantly exceeds that of those who invested less than $ 1000. Nevertheless, 73% of respondents are ready to continue paying for processing transactions more than $ 10.
CoinGecko experts write that they are “shocked” by the fact that almost half (40%) of crypto farmers do not understand how smart contracts work, and do not even know what “volatile losses” are (33%). This means that they cannot adequately assess ROI and take very high risks for the sake of high profits.
Users who provide liquidity to an automated market-making (AMM) pool may find that their tokens lose value when compared to the assets held in digital wallets. This is due to intra-pool arbitration. This risk is called impermanent loss.
Perhaps this is why 49% of crypto farmers are wary of working with unaudited smart contracts. However, as the audit companies themselves note, an audit does not guarantee the security of a smart contract at all, so investors need to improve their technical and financial literacy.
The survey also showed that profitable farming is most popular in Europe, Asia and North America – 31%, 28% and 18% of investors, respectively, are residents of these regions. At the same time, 90% of farmers are men aged 30 to 39 years.
For obvious reasons, more than 80% of crypto farmers are Ethereum holders. But the tokens of DeFi projects are not very popular among them. The exception is the Chainlink token (LINK) – more than 25% of farmers own it. It is worth noting, however, that LINK is not a purely DeFi token – it could only be farmed through Yearn Vaults pools.