2 ms·

> Whatever you do, don't borrow against the value of your crypto holdings. That's like, the whole premise of yield farming, so I think that horse has fully esc

> Whatever you do, don't borrow against the value of your crypto holdings. That's like, the whole premise of yield farming, so I think that horse has fully escaped the barn. He's probably right though, I have no idea what a "worst case" scenario looks like if all of the yield farmers lose their collaterals; feels like a negative feedback loop, but IDK, maybe it's not because the provider of the loan has guaranteed recourse on a default.

blihp 5y ago
It never escapes, it just runs around the field for a while. During the dot com bubble a very large number of retail investors (and hedge/mutual funds) were racking up huge gains during the run up due to margin leverage and got wiped out on the way down. During the housing bubble lots of people had 2nd and 3rd mortgages and sucked all of the equity out (or worse, kept trading up to more expensive properties to the point where they had no equity when the market crashed) of their homes and were underwater to the point where it made sense for them to walk away from the property and hurt their credit scores for a period of time. So while they may not lose absolutely everything, they'll likely lose all of their gains and much of what they started with when the music stops.
pcthrowaway 5y ago
That's only one aspect of yield farming, there are many other ways to yield farm that don't involve borrowing against volatile assets. Automated market makers are another popular way to farm that have a different kind of risk (impermanent loss), though there are other kinds of AMMs which have less impermanent loss as well. Even with borrowing, you can enter a money market with just stablecoins and get returns in the range of 10-30% APY. The risks there are smart contract risk (obviously significant) as well as peg loss.

2 ms·

> Whatever you do, don't borrow against the value of your crypto holdings. That's like, the whole premise of yield farming, so I think that horse has fully esc

by TameAntelope 5y ago

blihp 5y ago
It never escapes, it just runs around the field for a while. During the dot com bubble a very large number of retail investors (and hedge/mutual funds) were racking up huge gains during the run up due to margin leverage and got wiped out on the way down. During the housing bubble lots of people had 2nd and 3rd mortgages and sucked all of the equity out (or worse, kept trading up to more expensive properties to the point where they had no equity when the market crashed) of their homes and were underwater to the point where it made sense for them to walk away from the property and hurt their credit scores for a period of time. So while they may not lose absolutely everything, they'll likely lose all of their gains and much of what they started with when the music stops.
pcthrowaway 5y ago
That's only one aspect of yield farming, there are many other ways to yield farm that don't involve borrowing against volatile assets. Automated market makers are another popular way to farm that have a different kind of risk (impermanent loss), though there are other kinds of AMMs which have less impermanent loss as well. Even with borrowing, you can enter a money market with just stablecoins and get returns in the range of 10-30% APY. The risks there are smart contract risk (obviously significant) as well as peg loss.