I used to play a lot of World of Warcraft (WoW) as a teenager and I managed to clock up over 10,000 hours in just a few short years. Lately I’ve been getting the same feeling I did when I used to play WoW except now the game is DeFi and the stakes are billions of dollars. Oh and there’s no admin to come save you if you’re hacked and lose your money!
So obviously yesterday was quite crazy with the launch of YAM – a new governance token for people to farm that offers APY’s from 1,000% to over 10,000%. You can farm this token using a range of other “DeFi Tokens” including ETH, YFI, LINK, LEND, COMP, MKR, SNX and AMPL. The most amazing thing about this whole launch is that the Yam Protocol went from $0 locked to over $400 million in just ~18 hours which I believe is a record for all of DeFi. This growth was possible because of the fact that the protocol allowed multiple very popular tokens to be staked to earn YAM (which also led to a price rise in these tokens which turned this into a feedback loop of sorts).
What is unique about YAM (and YFI) is that they feel like massively multiplayer online (MMO) games in that there is a global community all coordinating around different goals in the same shared world (Ethereum). Instead of a dragon, the raid boss of yield farming is figuring out how to optimize your returns. The legendary items are finding “alpha” that no one else knows about. And, of course, instead of stacking in-game currencies like gold, people are stacking stablecoins, tokens, or gwei. I think it’s only a matter of time before someone slaps a game-like interface on these protocols to really take farming to the next level.
Now, is this whole thing sustainable? Of course not. Just like with YFI farming, the rewards will become a lot less lucrative over time and the thousand percent APY that you see today will be gone as quickly as it came. The APY also relies on the price of YAM which has an in-built rebase mechanism that is going to cause wild volatility (first one happens in a few hours). But the point here is not sustainability of these crazy APYs – its to experiment with wildly new distribution mechanisms for these governance tokens. Like YFI, YAM has no pre-mine, no team allocation, no VC or investor allocation and was launched fairly for everyone to farm at the same time.
We’re going to see many more of these experiments pop up over the coming months along with plenty of scams as well. My advice would be the same as I gave in my last piece about this craze – don’t try to chase every token marketing itself as giving “1000% APY” or anything like that as the best way to make money in this industry is to simply formulate a sound investment thesis and stick to it.
Have a great day everyone,
All information presented above is for educational purposes only and should not be taken as investment advice.