If you are in crypto, you realize that it’s all a game — heck, even the theory that gives crypto its umph is called “game theory.” This concept is something those of us deep in crypto embrace as we start to understand what to avoid.
Soooo, I went a little crazy last year and conducted a test. I staked assets on multiple chains and platforms to earn “staking rewards.” I invested an array of crypto assets into staking contracts with absurd rewards schedules, promising in some cases to expand by trillions of percent per year.
For this test, I put assets into the DEFI space run by Avalanche, Binance Smart Chain, Fantom, Kucoin, Ethereum, Harmony, Polygon, and Solana. Then I segregated my assets into about 40 service providers, thinking at least a few should succeed and offer a lucrative reward to counter the failures.
I’ll start at the beginning.
An APY is the Annual Percentage Yield or the income I expect to receive from the investment over a year. Initially, I thought— how can I lose with these APYs?
Yet, despite these stellar numbers, all of them failed in the long run.
Let me provide a disclaimer here. I did not perform a scientific study at all. Instead, this was a personal mission of sorts. In most cases, I still have assets staking. So, if an old project becomes popular again by some miracle, I’ll be there to reap the rewards. In general, I gained a large percentage of nearly worthless tokens but lost my valuable crypto in the process. I, and many others in the game, fell victim to the old bait and switch tactic.
So how was I able to earn 1,330,000% APY on crypto and lose overall?
Misdirection, that’s how.
If you are in crypto, you realize that it’s all a game— heck, even the theory that gives crypto its umph is called “game theory.” This concept is something those of us deep in crypto embrace as we start to understand what to avoid.
However, gamification isn’t unique to crypto. Gamification of finance started with the stock market. Before that, it played a part in legal gambling, and even before that, one might suggest it was present with illegal gambling.
Let me explain the magic of gamification. Imagine taking hundreds of hard-earned dollar bills to a store and purchasing a stock. Who would do that? No one, right? Instead, large corporations make elaborate e-trade screens with mesmerizing color and animation that allow you to distance yourself from your dollar. At this point, it’s just a number in a spreadsheet.
Chips also allow gamblers to disassociate from their money. The teller in the casino corner has transformed something familiar into something completely new and exciting— making those chips ready for the Vegas slots, so people like me can pull the handle on the wheel of life.
Thus, we start our crypto journey with those chips.
Crypto is no different from any other gamification ploy. As in other types of gamification, investors are distanced from their money when it is transformed into “crypto chips.” In the crypto world, Bitcoin came first. Bitcoin was born out of the 2008 financial crash and is considered “hard money.” This is a fact, not a mantra or silly idea I have concocted.
Then Ethereum came and was called by most “the world’s biggest computer” with the ability to run an infinite amount of programs, apps, and investment mechanisms in a geo-diverse and ever-lasting ecosystem. This, too, is a fact, not a theory.
The union of these two entities produced children— and that’s when this crypto world got complicated.
We now have more than 10,000 crypto assets, and honestly, about 9,000 of them have zero chance of survival past 2024. Eventually, regulation will come and cull the crap, but not before the crappiest of them take their fair share of our valuable crypto.
The results of my non-scientific experiment seem to disclose several sneaky strategies the staking platform creators and investors employed to siphon my crypto. Thankfully, I realized the predicted outcome was too good to be true, so I only invested what I was willing to lose. This example depicts one of my losses and is not a good working strategy. By focusing on my failures, I hope to help you avoid being duped— like I was— by the allure of the game.
As mentioned earlier, about 9,000 crypto assets will fail by 2024. The tricky part is being able to discern a loser from a winner. True, some are easy to spot— a website with a bad SSL certificate or one that doesn’t load is a hard stop for me. Also, be leary of a coin that fails its online tool security checks— don’t buy those either.
When you look across the endless field of apps farming for a yield, it’s nearly impossible to know which ones to choose because they all look the same— sometimes with just a word or two changed or just a color or logo change. Ironically, a successful and righteous yield farming experience doesn’t mean you’ll make money or grow your wealth. In fact, in some cases, these apps are designed to drain your crypto, and you never see it happening until it’s too late.
In the crypto world, it’s important to verify claims and not just take one’s word. In other words, conduct ample research before investing your hard-earned money. Always look up your prospects on coingecko.com and do a deep dive into their community, purpose, and tokenomics. Lastly, think to yourself— does it solve a problem that needs solving?
First off, please don’t follow my lead here. I’m a professional…haha. But seriously, remember, this example focuses on my failures in the game, not my successes.
In October 2021, I started on “Clam Island” with a scary-looking tall cat captain who led me to the bank. Once there, I deposited 19.4 GEM and 0.0205108 BNB here: https://app.clamisland.fi/bank. Back then, my investment was worth $19.40. I figured I’d get insane growth as the percentage APY was 331%. How could I not? In theory, that cat dude would fight off the marauders and keep my crypto safe, so the game led me to believe.
Like chips in a casino, I needed to de-monetize my investment. I needed to deposit the BNB and GEM assets into a “Liquidity Token.” This token was my crypto “chip.” And just like playing the odds in Vegas, the results can be good or bad depending on the platform and its use.
Providing liquidity is valid and not in itself corrupt. But bundling a depreciating asset with a real one is sneaky— nothing short of a con. In this scenario, my entire investment gets hidden behind this new token. I’m awarded 0.459 LP, and that’s what I watch. In reality, I should watch how much BNB and GEM are inside that token.
Pairing a legitimate asset with a “fake” one designed to depreciate like GEM is a sly way to drain the real asset while gradually accumulating the depreciating one. This example is one of my many investments that were doomed from the start. But finally, with proper hindsight, I began to find the patterns. These patterns were my red flags of what to avoid in the future. Discovering these patterns helped guide me away from specific assets. This knowledge was huge in the game because, in my opinion, knowing what NOT to invest in is just as good as being able to pick a winner.
I realize that Yield Farming may be a bit of a reach conceptually for many people. In the fall of last year, I thought the same way. I thought I’d never be able to figure it out, and it took several months before I even got to the point of making an LP token. To explain this process, I’d like to show rather than tell.
To date, the best user experience I have seen to describe Yield Farming is with DeFi Kingdoms. I believe in this project because it is one of the winners from my experiment, along with a few others that surpassed my tiny initial investment. It’s easy to explain yield farming using DeFi because their exceptional visuals tell the tale.
Off to the Gardens:
The screenshot below doesn’t do this experience justice because it lacks the cool background music and quippy animation. In combination, these elements create a relaxing vibe. In fact, it’s easy to get caught up in the fantasy when immersed in the actual experience.
The idea is to get some seeds, plant them and harvest the rewards. Makes sense!
So, I pop into the Seed Box and scroll down to this crypto:
ONE and 1USDC combine to make this LP token— or “planted seed” in this investment game.
1USDC is a wrapped version of USDC, and ONE is the Harmony network’s token.
If I want to invest, I click DEPOSIT and follow the steps. Once funded, I await my rewards in the Harvest section. One could start with as little as $10 worth of two assets such as ONE and 1USDC.
When I click on Harvest, I can claim my rewards anytime.
The claim ticket uses lots of words, but all tickets say the same thing. Once you thoroughly read one, it’s easy to click the CLAIM button and sign the transaction in the wallet.
This simple process is Yield Farming, but reaping your rewards is a lot harder than it looks. Being a professional yield farmer is difficult because you must be on top of ALL your invested positions daily. While this game is time-consuming, DeFi Kingdoms is an example of a legit game— one that I feel good about putting my hard-earned crypto into because I believe it has a future.
So, you might be wondering what elements indicate a winner in this game? In this case, research and external validation made the difference. DeFi Kingdoms is one that I researched, and I had communication from their team. I grew to understand that the community built around the game is strong.
Research, as mentioned previously, is the most crucial part of this process. When I started these investments, I planted a lot of “seeds” within a bunch of service providers. Then the research phase started, and every time I touched the site, I learned a bit about the people behind it, the platform, its direction, its purpose, and most importantly, if it looked like it had been abandoned.
I can see DeFi Kingdoms succeeding because I know many others on this platform. DeFi Kingdoms isn’t only a crypto investment site; it’s a D&D type game with deep and engaging interactions at its core. I am not much of a gamer. I just take my rewards and re-invest as I believe the small amount of crypto I have placed on this platform should grow, and I have even put a little more in since my start.
Since yield farms were created, folks have organized online and taken advantage of them. Recently, these people have been classified as mercenary capital as they move their large amounts of crypto from one project to another, leaving a wake of destruction in their absence. Let me clarify.
Markets are funny. A small market is easily manipulated, so imagine a crypto coin when it starts. Say it sells for $0.000000001— that means you can buy 1,000,000,000 for a dollar. Moments before the public knows about a new yield farm, mercenary capitalists quickly buy up all the inexpensive chips— oh, I mean crypto currencies. Their unified action sends the price of that brand new token way up. Then when the project becomes widely publicized, the people buying that crypto are paying a hefty markup, and they don’t know it. So suddenly, the investment becomes worth a lot more.
These mercenaries don’t stop there. Their intention is an insidious plan to take everything. They pretend they are into the project and play on it for a few days, just like us. They also post their capital to make insane returns, just like we do. The difference, however, is they have a timeline in mind, and they work with others to synchronize their pull out.
This has become known as “mercenary capital.” Folks with vast amounts of crypto move in and out of these platforms with ease. And each time they go out, they take our crypto with them. They leave the project nearly broke, and thousands of other participants without mercenary capital are designed to peg the crap coin against a real coin.
If a position starts to turn south, professional yield farmers will pull all their assets and move them to their next position. This swift action ultimately puts the market in shock and leaves a wake of broken people on those platforms. The result? A price that can’t recover. Everyone then looks at the chart and the tokenomics and realizes that the asset is depreciating so fast that it can’t keep up with any reasonable price.
At this point, you realize that the LP token doesn’t change, and your rewards are millions of tokens that aren’t even worth a penny. But now, it’s too expensive for you to remove your collateral as the gas fee is more than the assets you’d get back.
By nature, I always like to let things sit for a long time and come back to them, so hopping from one farm to another wasn’t going to work for me. Instead, I decided to put a ton of positions in and check on them many months later. I knew I would take a loss on most of them, but I had a strategy. I was hoping I could weed out the crooks and become a better judge of what is positive. Therefore, when this crypto thing shifts into the next regulated gear, I’ll know where to go for actual yield and what to avoid with real money.
Taking a trip back to “Clam Island,” I checked in with my scary cat captain, and damn if the APR is still high? WOW, 74.13% APR— jeez, I must be rich! NAH— the LP asset I own is now only worth $0.56, meaning I have a whole 124.25 GEM to harvest worth 10 cents. So I went from a $19.40 investment to $0.56 AND still made a significant gain like this? HOW can a high percentage like this one turn into such a devastating loss?
It’s pretty easy, really. The key is to divert the investors’ attention from their assets long enough to drain them. In return, you get back a lot more of nothing. Like many investors, my focus was on the percentage and how it moved. I wasn’t watching as the BNB inside was slowly sold with a “reward” given in worthless GEM tokens. It’s a HUGE scheme to swap the real assets for the fake ones.
The percentage return is a case that’s too good to be true. If you step back and think about it, this scheme is quite simple. If everyone is rewarded with a massive amount of these tokens in perpetuity, how could that token retain any value over time?
It’s important to note that I didn’t follow through with the entire “game” here. I think I was supposed to take the gems, farm a clam, take the pearls from the clam, and put them somewhere else. But I can’t tell you if this “game” is a real or fake project. Or maybe it was real but destroyed by mercenary capital. I’ll never know because I didn’t complete the whole experience or research— frankly, that cat dude scared me a little! I can tell you that the token GEM has depreciated so much that it’s beyond ridiculous.
Not all yield farming platforms are like this one. If you are thinking of jumping into this game, you must research and approve platforms before investing. In this case, don’t do what I did— it’s dangerous— even when performed within the same project while the other elements are good. And again, if I were a professional yield farmer, I would use my crypto as mercenary capital and move it with great strokes from one platform to another, sucking up the assets as I exit. But in this case I didn’t have the time or the desire to do this type of investing. Besides, investments should be proper and beneficial for all.
I remember hearing the YouTubers explaining that they were making thousands of dollars per hour on some platforms. To me, that meant other people were losing thousands of dollars per hour. That type of game is not for me. While I want to make money on my investments, I don’t wish financial devastation on others as I reach my goals. And one of my fundamental goals in this process is to shed light on these nefarious platforms, so folks will realize they are zero sum games.
I suspect I’d have a significant gain if I took my assets out of these pools a while ago. But my goal wasn’t to make a considerable gain. I was more interested in learning how to maintain an easy to manage passive income stream. I needed to know what to look out for in the future to do this. So long as I have even one ounce of crypto, I’m still in the game, and that is all I care about at this point. I didn’t ever exceed the small percentage of my portfolio dedicated to these experiments, and I wrote that percentage off two crashes ago. LOL.
The thing I have seen over and over again are charts that look like this:
I own all those assets— ouch!
Notice this fact— no matter the asset, the chart is the same, weird, huh?
When I bought in, a GEM was worth $1, and if it retained that value, I would have made $125 on a $19 investment. But alas, these “reward” assets haven’t kept up with the market. They give them out at such a rate for staking and super staking, the tokens naturally lose value over time. I suspect it’s only sped up because the professional yield farmers are skilled in quickly and consecutively moving their capital in and out of these platforms over time. I swiftly concluded that yield farming moves into pools against a gaining reward and uses a made-up coin to give rewards to the holders, leaving the stakers to fight losing battles.
This does NOT mean that all yield farming is bad, but farms based on being rewarded in a created token hinge their success on the token itself. Young markets like these are small enough to manipulate, and in some cases, ten grand will move the needle enough to quadruple your money off the backs of unsuspecting chumps like me.
I put a hundred or so of these bets on the line, and rather than go through each of them, I created the above amalgamation of the reward token charts. The returns on this chart tell the whole story that I have titled “There Went My Crypto!”
Thankfully, it wasn’t much of a loss, and the real experiment has only just begun. Being a HODLer, my timetables are far wider than a trader. I research the projects and follow their progress. I know the assets and what they do. In other words, I’ve been around and seen some things. For instance, I have seen projects sit dormant for lengthy periods spring forward to 16000%. So, who knows— this positive movement might happen with my de-risked bags. The bottom line— they are all worthless now, right? One never knows what the future will bring.
Among the gloom and doom, I did find some projects that seem to show progress. I do NOT endorse these projects, and I implore you to do your research; however, the charts below seem promising. But, in this game—
Here’s a last bit of irony, since most of these dapps are running on the blockchain, they will just keep running…