Crypto “yield farming” is reportedly booming, offering big returns and big risk

• Yield farming is crypto’s answer to traditional lending, as outlined in a recent Wall Street Journal report.
• A popular strategy is “liquidity mining”, where yield farmers lock up tokens for fees.
• Between January and April of this year, investors suffered $83.4 million in losses from DeFi scams, according to CipherTrace.

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Every investment involves balancing risk and reward, but few are as risky or rewarding as “yield farming,” a booming crypto segment that has already humiliated the likes of Mark Cuban.

Yield farming, which falls under the umbrella of decentralized finance, or DeFi, is crypto’s answer to traditional lending, as outlined in a recent Wall Street Journal report.

As DeFi has grown parabolic — with assets tied up in projects totaling tens of billions of dollars — yield farming has also grown, spurred by low interest rates in other markets.

Yield farmers invest capital in anticipation of inflated, often double-digit, returns. A popular strategy is “liquidity mining”, where yield farmers lock up tokens for fees. In doing so, yield farmers play a similar role to market makers like Citadel Securities in traditional finance, profiting from every transaction but taking price risk should their locked tokens spike or crash.

Yet yield farming, which is largely unregulated, is prone to fraud or poorly designed products. Between January and April this year, investors suffered $83.4 million in losses from DeFi scams, according to CipherTrace data cited by the Journal. In June, Mark Cuban was “hit” when a yield farming operation imploded. After peaking at $60, the underlying token became worthless in what some have dubbed a crypto bank run.

“It feels like the beginning of the internet, with these weird and wacky things that aren’t going to be around for a long time,” Marcio Chiaradia, a yield farmer, told the Journal.

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