Farmers are exposed to risks as well

Farmers are exposed to risks as well

Farming, or "profitable farming", cannot be considered a completely risk free way of earning  money. Such earnings based on providing liquidity for decentralized exchanges. Tokens based  on Ethereum (ERC-20), Binance smart chain (BEP-20) and TRON (TRC-20) are all can be used  for this purpose. In order to provide liquidity in major cryptocurrencies, a wrapping technology  was invented. The addition of the letter W at the beginning of the coin designation indicates that  we are dealing with a "wrapped" cryptocurrency, for example, WBTC or WETH. Farming  profitability is constantly fluctuates and depends on many factors.

A drop in the rate of one of the cryptocurrencies used to provide liquidity will bring a loss. This  loss will not always be offset by farming income. The use of stablecoins will reduce the  profitability of farming, but it will significantly reduce the risk. High market volatility or slow  network performance will reduce a speed of the decentralized exchange of tokens. Users who  rely on quick income from speculative transactions risk losing funds because of this. You should  also take into account the Ethereum fees, which can be quite high with a high network load.

The disadvantages of “profitable farming” stem from its advantages. Profits are generated  automatically, thanks to smart contracts and other software code. However, even in the most  reliable and tested protocols, both minor bugs and serious errors are constantly found. Refunds  in the event of a bug or error are impossible due to the decentralized nature of blockchains.  Failures occur in protocols, contracts, and other “building blocks” that make up a decentralized  finance system. At the same time, participants in such markets have no insurance, and no legal  protection. For example, the Yam token fell in a day from an all-time high of $ 167.66 to about $  0.97 - because a critical error was found in its code. At least the developer apologized for it on  Twitter. If leveraged tokens are used for “profitable farming”, there is a risk of liquidation (just as  it happens with leveraged margin trading). Users of platforms such as Compound, MakerDAO  and Aave should be especially careful.

Exit scam

Exit scams are a type of fraud in which the founders of projects, instead of developing their  tokens, withdraw all the funds that are in the pool to provide liquidity. The deceived users left  with the tokens in their possession that have no value. And it doesn't matter how high a  percentage you could earn on them. Fraudsters also call this operation rug pull. For example,  this happened with the TITAN token, which suddenly fell from $ 60 per token to zero. And the  investor and cryptocurrency enthusiast Mark Cuban, who advertised the TITAN cryptocurrency  on the air television show, was pretty disgraced. For rug pull, token names are often used that  are consonant with existing names. The dodgers who made the TMPL token, whose name is  similar to AMPL, pulled out 1,800 ETH - leaving TMPL buyers with this useless nonsense. The  YMD token, which many users confused with the profitable YAM token, brought $ 40,000 to its  creators and the corresponding amount of losses to the buyers.

"Endless mining"

And there is also "endless mining", when a fraudster suddenly activates one line in the  cryptocurrency code, and thus throws an unlimited number of his tokens onto the market. So did  the unknown creators of the KPER cryptocurrencies - a shameless counterfeit for KPR, and  KORE - a useless analogue of CORE. Both operations took place over 24 hours, suggesting  that the same team of hackers is behind them. Their profit from these operations was $ 2 million. It also happens that scammers organize fundraising to create new decentralized  exchange platforms with fabulously profitable conditions.

Hacker attacks

Hacker breaks are also dangerous. In early 2021, the well-known yield aggregator Yearn  Finance was hacked, pumping $ 11 million out of it. In February 2021, Alpha Finance suffered  losses of over US $ 37 million. The hackers exploited the vulnerability of a "smart contract" that  provides quick loans in cryptocurrency. In March the hackers hacked Meerkat Finance for a  whooping theft of 13 million BUSD and 73,000 BNB. The year continued with the hacking of the  Paid Network for $ 3 million and pumping $ 75 million in tokens from EasyFi.

April was a bad month for ForceDAO, which was punished with 183 ETH, and for Uranium  Finance, whose entire capital, $ 50 million, disappeared somewhere in the network without a  trace. In May, $ 30 million disappeared from Spartan Protocol and $ 11 million from Rari Capital.  On July 12, 2021, a decentralized exchange site ChainSwap was hacked. The site was robbed  of about $ 8 million in cryptocurrency, and the tokens that were exchanged on this site fell in  price to almost zero. In total, in 2021, hundreds of millions of dollars was lost from hacking and  exploitation of vulnerabilities of various platforms of decentralized finance as a result of hacker’s  attacks.

It is impossible to completely protect oneself from all these factors by engaging in “profitable  farming”. However, you can reduce the number of possible losses by diversifying your risks and  controlling your greed.


Show Comments

Traders rating | Mirror Trading

© Copyright 2021 AIVIA Wealthtech, Inc. All Rights reserved.