In order to understand Harvest Finance (CCC:FARM-USD) understand yield farming.
I’ll get to that in a moment, but first it’s important to understand why the token ranked # 453 in total is even on your radar in the first place. The answer to this is that Harvest Finance rose massively on December 27th.
It went from around $ 100 to $ 250 briefly in the space of a day. I can’t find a definitive explanation as to why this happened, but it does. FARM-USD is now trading around $ 140. So that aside, let’s get back to what it really is.
Yield farming with crop funding
According to its website, “Harvest is an international cooperative of humble farmers pooling their resources in order to obtain returns from decentralized finance (DeFi). When farmers deposit, Harvest automatically grows the highest yields with those deposits using the latest farming techniques.
If that sounds a bit like lending money to make money, it should. In order to earn returns on your crypto, you need to do exactly what you would do with your money: lock it in and give it to others.
Just like you lend money to a bank for a nominal return, the same can be done with crypto. Locking in crypto is called “staking”. Here’s the really interesting thing about staking:
Since Yield Farming began in 2020, Yield Farmers have achieved returns in the form of Annual Percentage Yields (APYs) of up to triple digits. But this potential return comes with a high risk, with protocols and coins earned subject to extreme volatility and sweepstakes in which developers abandon a project and run away with investor funds.
Therefore, it is very clear that quick returns are possible with this strategy. And given that FARM-USD has risen so significantly recently, people will be interested.
Harvest financing and yield farming issues
There is also a very large legal asterisk regarding yield farming and harvest financing. Currently, according to the Harvest Finance website, “due to regulatory uncertainty, Harvest is not available to individuals or businesses residing in the United States.”
Put simply, investors based in the United States cannot directly use Harvest’s yield farming platform and must purchase FARM-USD tokens through an exchange like Coinbase (NASDAQ:PIECE OF MONEY).
And there is certainly some regulatory uncertainty around yield farming as the Securities and Exchange Commission (SEC) has begun to focus on this relatively new practice.
So what is the real benefit of Harvest Finance other than a potential rapid appreciation?
Automation is the key
Investors who invest their capital in Harvest Finance do so in part because it automates yield farming.
One way to cultivate is to do it manually. I’m not talking about planting real crops, but rather cultivating yields. However, both forms were once manual. Fortunately, advancements in technology have made the process of planting and harvesting crops much more efficient and profitable. The same is true for yield farming.
Manual yield farming is tedious because you need to identify the best place to invest your crypto. It is also expensive because it is subject to high gasoline charges. Harvest Finance automates the process of agricultural production on what it calls farms. There are over 100 of them he’s looking for returns.
How it works?
Let’s say Harvest generates a return. In this case, 70% of the returns are returned to the deposit pool. The remaining 30% becomes FARM-USD tokens to reward those who bet in the first place, among other things.
It is also interesting – if I understand correctly – from the point of view of the offer. It currently has an outstanding supply of 877,230 tokens but a total supply of only 690,420 tokens.
The website refers to this total as greater than four years. So, if I understand correctly, it means that the supply will decrease in the future. Theoretically, this should increase the value of all current tokens in the future.
What to do with crop financing
To be honest, I don’t know much about yield farming. The premise is not that different from the interest in today’s banking world. The mechanisms, like the legal aspects, differ, but this makes sense at one level.
The thing that gives me pause for thought is that there is a dark side to the rapid returns that users have recently experienced with FARM-USD: volatility.
Over the past year, Harvest Finance cost $ 410 and $ 40. He went up and down again and again.
In addition to the risks here, Harvest Finance has already been hacked once last year and it could happen again.
Dip your toes if yield farming interests you, but beware of the many risks.
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As of the publication date, Alex Sirois does not have (directly or indirectly) any position in any of the titles mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Alex Sirois is an independent contributor to InvestorPlace whose personal equity investing style focuses on long-term, buy and hold stock selections that create wealth. Having worked in multiple industries, from ecommerce to translation to education and using his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.