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by 22c 1866 days ago
> yield farming (ponzi scheming)

There are a lot of ponzi scehemes in cryptocurrency markets, but you will have to expand on why you think yield farming is one of them.

The typical yield farming scenario is that users provide liquidity to AMM pools in exchange for LP tokens and accumulate trading fees on the pair while they HODL. The LP tokens themselves can often be staked on the DEX in exchange for governance tokens on that DEX (which may have other utility on the DEX as well).

Where is the ponzi scheme in this scenario?
1 comments
jakeva 1866 days ago
Maybe it isn't a ponzi scheme (I'm no expert) but even after looking up all the acronyms (and maybe especially after looking them up) this sounds like an episode of Schitt's Creek.

But let me try to actually understand.

You provide liquidity to a pool in exchange for a token and accumulate trading fees, while maintaining ownership of your capital.

Ok, first of all this sounds like a bank. But it's decentralized? So what happens when someone has a majority of governance tokens on your DEX?

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22c 1866 days ago
Yes, correct. First of all, you'd probably DYOR and ensure that the governance tokens at least have the appearance of being community owned rather than centralised, and secondly you'd probably need to ask yourself what having majority voting power on a governance token really offers. It's like shareholder voting power (which is typically held by a majority or a few majority stakeholders), you probably don't want to vote for something if it's going to throw all your other investors under the bus.

Stepping back from that, you need to understand that initially you're dealing with smart contracts. The governors can't fundamentally change the underlying aspects of the contract.

So let's say, "worst case scenario", the governors could decide to reduce the emissions rate of governance tokens on the staking pools you're interested in. Well, they haven't fundamentally changed the underlying contract, you can still unstake your LP token from the farming contract, withdraw your liquidity from the pool and end up with (some combination of) your original capital + any fees you earned over that time (impermanent loss is a topic for another conversation).

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