*https://defiprime.com/defi-yield-farming*
William M. Peaster, June 2020
Actual farmers measure yield as the total amount of a crop that’s grown. Accordingly, DeFi proponents have now latched onto the farming metaphor and memed into existence “yield farmers,” i.e. folks who measure yield as the amount of interest that’s grown atop underlying crypto assets like Dai, USDC, and USDT when put to use in DeFi platforms like Compound.
The DeFi arena was already catching fire in 2020 before yield farming exploded onto the scene, but things have definitely kicked into overdrive in the sector thanks to the beginning of Compound’s COMP governance token distribution system in June. Simply put, the scheme rewards Compound users with COMP.
Before the distribution system started, Compound was the second-largest DeFi project per total value locked in its smart contracts. Yet just days after the system’s launch, Compound’s now decisively the largest DeFi project and its COMP token has the largest market cap of any DeFi token at press time. Why? Droves of traders have migrated to Compound to use the platform in order to “farm” COMP.
This buzz around the biggest happening in DeFi this year so far has had more than a few crypto users renewing their focus on various yield farming activities already available in the ecosystem, e.g. through projects like Balancer, Curve, and Synthetix. That said, yield farming is not necessarily new, but the surge of attention around such cryptonative opportunities absolutely is. Let’s dive deeper into DeFi’s hottest meme right now to better wrap our heads around what it means for us users.
For the next 4 years, Compound is offering “liquidity mining” for liquidity providers. This means that anyone that borrows or supplies assets on Compound in this span will be rewarded with a proportional allocation of COMP, of which 2,880 are distributed daily.
The start of this reward system caught the attention of plenty of traders. In the days since, many folks have moved their assets into Compound in order to start yield farming COMP distributions. Additionally, third-party projects are helping to facilitate COMP farming like the smart wallet project InstaDApp, which rolled out a “Maximize $COMP mining” widget to help users easily hop in on the action in just a few clicks. Essentially, it’s mining using a leveraged position: people borrow and deposit assets simultaneously in order to get more COMP. You can perform the same actions manually without a smart wallet, but something like InstaDApp makes this yield farming much easier, in just a few clicks.