Yield farming is a new way to get attention from investors, who, in return, get huge assets for their investment. This system is now filled with swindlers ready to make money off other investors. The innovation was created as an open-source project to help users know what they are getting into. This privilege is now being used by criminals to defraud people of their assets.
What is Yield Farming?
Yield farming is a protocol designed to use crypto assets to yield high returns for the owner. The system offers users with an APY pool a chance of investing and making larger profits. However, the process also comes with high risk in many ways. It is advisable for a user to have a high-risk tolerance before going into this market. The protocol exposes high-priced abs (arbitrage), which have the capability of flowing into other high-earning pools. These tokens can go as far as possible.
As a yield farmer, you can choose to invest a USD token into an app such as Compound, which will give them a token known as cUSDT in return. However, the system ratio is a bit different from the stated example. The main idea is that a user can invest in any system that is fitted to bring a huge return. This process can go as long as possible until a huge return is earned.
Why is Yield Farming Booming?
Yield farming is booming because of its capacity for substantial profits. Liquidity is the extra token attached to the profit made by the farmer to encourage them to liquefy the assets often. This method increases the number of users in the system and creates a significant usage that will attract more users.
This process has positive and negative effects on the system protocol. The positive part is that developers can use these invested tokens to create new ones on the DeFi network or boost existing ones. The negative impact is that swindlers can do this as well to rip off users.
This process is the reason for the ICO (initial coin offering) wave which collapsed during operation. Most swindlers use this system to design their fake protocols, which are launched with high returns to attract investors and later defraud them of their returns. However, a new process is being tested by DeFi to avoid such scams.
Avoiding Yield Farm Scams
If you are wondering how you can checkmate a yield farming scam, below are some ways to check the list.
- Consider if the process is real by researching its existence. If it exists, then it is a tick. If the project focuses on tomorrow, then it’s shady.
- Is the project attached to an innovation? If yes, then you can give the project another tick.
- Are the developers hidden or visible? If you can’t find the developers, it is a shady project, and you need more research time.
- Has the team been involved in other innovations in the past? If yes, look at those projects and see how they have panned out. If they are unknown, it could be a shady investment. Even with this suspicion, you may still choose to get involved, but be careful in weighing your options.
- Avoid the golden yield farm ratio of projects offering returns of more than 45%. These kinds of returns are almost always unsustainable and rely on new investments pouring in when investment dries up, the bubble bursts in a similar way to a Ponzi scheme.
Many investors may be ready to pour in all their assets to make a profit. You might be convinced that a new opportunity is a real investment, and it’s safe to invest in since there is no risk attached. But that is far from the truth; no risk in trading is non-existent. It is best not to run into anything.
Relax and research all projects you invest in. Most times, swindlers are trying to attract investors to liquefy their assets into the pool while they sell their coins on the FERT/ETH pool. These swindlers will keep siphoning investors’ assets without you knowing and selling them back to you. Now, you could successfully purchase the fertilizer tokens on Uniswap and lodge them without knowing they are worthless.
It’s obvious that miners with unlocked tokens are susceptible to scams, as observed in the Sushiswap mess. Unfortunately, most novices are prone to falling into the hands of next-generation swindlers who are good at using this formula. The only solution is more caution and more dedicated research time. It is best to doubt the project first and have the facts clear up those doubts.
If you notice a pool with a high return on yield, but with a confusing token, you can be sure a scammer is trying to steal your assets. It might not seem malicious at the moment, but when all is said and done it will be abundantly clear. Stay safe and only invest in yield farms with reputable backgrounds, projects, and sensible returns.