Hello HODLers !
With all this DeFi craze many of you are probably thinking to enter the 'farming world' !
I will try to tell you a few mistakes I have made that you should not do. This is an introduction and I am working on a longer and more thorough blog post.
1. ETH Fees will eat your lunch !
To state it very simply. Most of the profits I made was eaten by ETH fees, therefore if you are a new farmboy (or girl) with a small capital I will consider using alternatives just to get the basis !
I have been trying the newest thing "Swerve" which is a decentralized Curve (pool of stablecoins). I put c.700$ and I should not have, fees are so high to use boosts/confirm... that I have been paying more than 70-80$ to set-up everything ! If everything goes well I should be breakeven in a few days but if I had known, I would have put 3-4k to be less impacted.
If you are looking for an alternative, I think DeFi Box on EOS is a great one to look at as there are low to no fees and it is quite simple
2. Beware of impermanent loss (as they mostly DO become permanent)
As a start and to limit those you should only provide liquidity with one stable coin and one other coin. For example I do provide liquidity to DeFi Box with EOS and USDT, preventing a lot of impermanent losses !
Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.
Why is it call impermanent then?
Because as long as the relative prices of tokens in the AMM return to their original state when you entered the AMM, the loss disappears and you earn 100% of the trading fees.
However, this is rarely the case. More often than not, impermanent loss becomes permanent, eating into your trade income or leaving you with negative returns.
How Does It Occur?
Let's first understand how AMM works:
If you would like to know more please click on this article: https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22.
It is a GREAT sum-up of so many question you might have.
So beware and I will advise you to be really careful and do not try to make 2bn % APR or you might end up REKKKKKT ! 🤣
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