Can You Lose Money Yield Farming? The Ugly Truth

Even the big players can make mistakes, so always be vigilant and do your homework.

By
Dardania Havolli
on
July 23, 2021
Category:
Blockchain News

Rugpull Or Underperforming?

Sometimes it can be difficult to learn, especially when the pain of losing money is factored in! Users who deal in yield farming know all too well that price fluctuations in decentralized finance are painful to watch and even more so with leveraged yield farming.

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Yield farming is when a user deposits crypto assets onto a platform to receive awards and mega high interest rates. Leveraged yield farming is a mechanism that allows users to lever up their yield farming position by borrowing external liquidity and multiplying their ability to farm higher yields. Yields are bringing returns that are unseen in traditional finance––in the hundred and even thousands. 

For more info on what yield farming is, check out our Cryptonomics explainers on What is Yield Farming and Where Does Yield Come From.  

Reputable projects like PancakeSwap, MDex, and BakerySwap have shown gruesome price fluctuations in these last few months. Users on these platforms have increased their token values but are painfully aware they hold less value.

PancakeSwap and its native token CAKE reached near $44 before plummeting and consolidating just above the $10 mark. 

MDex saw difficult movement; its MDX token reached near $10 just a couple of months ago and is now flagging at just over $1.1.

BakerySwap, in similar circumstances, saw its BakeryToken BAKE from over $8 to where it currently sits at $1.7.

With the whole market enduring somewhat of a pullback in the last couple of months, it would be naive to say that any of these projects are on their way out. That does not make any of these price falls easier to handle for initial investors. What does bear mentioning is the admirable reputation that each of these projects has established.

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So, Can You Actually Lose Money Yield Farming Then?

Most certainly. It seems that in the real hype of a bull market, full flow excitement builds to the point where we forget that all projects endure price fluctuations. A major way that projects can build is when users come to yield farm on the platform and deposit funds. Increasing liquidity on a platform helps for various reasons like gas fees and volume. 

Although there is a clear distinction between fluctuation and a ‘rugpull’, both can result in the loss of hard-earned cash. Users can get into even more trouble when they begin in strategies like leveraged yield farming. Leverage yield farming is even more vulnerable to price fluctuations and liquidation. 

Mechanisms like leveraged yield farming are very high-risk, high-reward ventures. They entice investors with the ability to flex assets into loans for more borrowing and investing. These strategies leave users vulnerable to disconnected price runs and the basic tenant of continually borrowing on top of loans. This leads to yields in the thousands on protocols like Alpaca Finance. 

A solid investor can mitigate the risks with leveraged yield farming investing strategies like delta neutrals and leveraging with stablecoins. The clearest and most important way to remain vigilant is by carrying out your own research about potential scams and understanding important DeFi indicators that help improve investing strategies.


How Did Mark Cuban Lose Money Yield Farming? 

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Even people at the top of the cryptosphere like Mark Cuban have endured significant setbacks.  But we don’t necessarily just mean rugpulls, some highly regarded tokens also simply underperform, but what does this mean for the buyer?

The famed crypto billionaire investor admitted to trading a DeFi token that endured a nightmare crash to zero in just one day. 

The DeFi investment he had made was on the token previously known as Iron Titanium Token, or Titan for short. The belief in the project may have stemmed from the fact that Titan was a part of Iron Finance, an algorithmic stablecoin project. 

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A week ago, Titan endured the kind of cataclysmic loss that sees many have sleepless nights. Huge accounts began to let go of their holdings and a domino effect followed as the price kept falling from $60 to near zero, according to Rekt News.

In the end, the goal is to know your own limits and do your research. Crypto is still very much a wild west, like old Texas. When Mark Cuban loses $75,000 or something of that nature, think of it relative to yourself. Billionaires can take losses sometimes for a few laughs, but you better bet Cuban will be wearier about where he invests. 

Another Texan, President George W. Bush famously gaffed “fool me once, shame on — shame on you. Fool me — you can't get fooled again.” And I think the idea there is to remember that everyone makes mistakes in crypto, the idea is to best eliminate as many as possible.



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Dardania Havolli

Dardania is an experienced researcher, editor and writer who is currently completing his PhD in Creative Writing. He is passionate about blockchain technology and the impact it will go on to have on our lives.

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