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.
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Farmers are exposed to risks as well
