Dive Into DeFi

Dive Into DeFi: Don't Be A Degen

This weekly edition of Dive Into DeFi serves as a warning, or at least a suggestion… Don’t be a degen. 

Don’t Be a Degen

I found it exciting to write about the various high APY’s from yield farming earlier in the Dive into DeFi Series. It can be even more exciting to participate in them, but I want this weekly edition of Dive Into DeFi to be a warning, or at least a suggestion… Don’t be a degen. 

What’s a degen? Someone that essentially gambles money in hopes of quick multiples on their investment. I get the idea; if you do a 10x, you can afford some total busts. That’s true, but it’s not my style. My goal is not to lose money on any position. Some will fail, yes, but others will make good profits, and now and then, you hit a jackpot winner. I then want to compound those earnings. 

Ask yourself a question. What APY is too low to be satisfying? It’s pretty easy on Binance Smart Chain (BSC) to make 60 – 100% APY on a LINK/BNB position. That’s amazing. Shoot, you can even do that with Ethereum right now. So why risk losing all your money, or a large portion, on a total degen play when you can compound bullish assets with ease? I’ll answer that for you: You shouldn’t. 

Degen Traps

I want to talk about a couple of degen traps I see. The most common three I see are Twitter shills, catchy clones, and a profound misunderstanding of how yield farming works, especially at inception. 

Twitter Shills

My only piece of advice here is to take everything you read with a grain of salt. Just because something pumped after a presale doesn’t mean it’ll keep going. Shiller’s love to claim victory with profitable calls and never mention the bad ones. Look into what they are promoting:

Are there new developments coming? 

Does the project differentiate in any way? 

Is it even really a project? 

Do some due diligence before chasing the latest tweet you saw. This even includes tweets from me. I pick my investments from my research and decide if I think it has potential. I’m certainly not always right. 


A common practice goes like this: A unique token comes out, and it does well. Within days, you might see new versions of the same thing pop up. I don’t think I’ve ever seen a direct clone succeed. Or at least, not as well as the original. I tend to be careful with obvious clones that don’t offer new incentives to investors or market differentiation. There are so many projects coming out or already out and succeeding. You don’t have to be first to make money.  

Yield Farming

It’s fascinating when a brand new yield farm launches. The governance token pool APY is usually incredibly high – 10,000%, for example. I tend to avoid those pools early on as part of my risk management plan. In a Yield farm, the rest of the pools (like BUSD/BNB) will earn the governance token, often leading to immediate dumping. Suppose you happened to provide LP to the governance token pool initially. In that case, there’s a good chance your liquidity will be sucked out (you can suffer extreme impermanent loss, and that 10,000% APY isn’t going to provide you much cover. You might get lucky, and the platform offers enough incentive to hold the governance token, and your LP position will be safe, but that really doesn’t happen often. 

Instead, provide some safe LP, and watch what happens with the platform while you earn the governance token. I will note here, however, that no LP is genuinely safe as scams have been able to steal liquidity in several ways. The “safe LP” title is designated for non-platform liquidity in a project that has proven itself to be legitimate. 

If you happen to be farming a winning project token, you can start to use your farmed tokens to provide liquidity to the governance token liquidity pool. I generally consider this “risk free” compounding, as you are only at this point gambling profits. Your investment is safe and sound in your initial LP positions. Once another opportunity presents itself, move your “safe” LP to the next farm, rinse, repeat. 


A perfect example of what I just discussed is how I played my investment in Jetfuel. At the launch, I provided flip tokens as liquidity in Link/BNB and ETH/BNB. I then took my earned fuel and began giving liquidity to the FUEL/BNB pool. I continued to do this for several days. At this point, I could move my original liquidity out of the platform and be playing with house money from here on out. Even if you haven’t started farming with Jetfuel yet, you can run this exact same scenario and start building a new position. Also, take some damn profits. You won’t go broke taking profits.

Luckily, Jetfuel took off, and I built a brand new position in my portfolio while assuming minimal risk. This doesn’t always happen, as sometimes the governance token you earn dumps itself, and you end up with minimal profits. When this happens, you waste some time, but not much money. 

Compounding is King

The central theme that I tend to come back to throughout this series is compounding your positions. I can’t think of another asset class that allows you to compound earnings as quickly as yield farming crypto. Typically, the tradeoff is dividends vs. capital gains. Crypto offers both. As long as your investment time horizon extends past next week, just take a deep breath, research some truly unique projects, and wait for the next opportunity for low-risk farming to come along. Preserve, compound, preserve, compound, and then compound a little more. You’ll be amazed at how quickly your portfolio can grow when you stop being a degen. 

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