Ever wondered how you can put one magic token in a smart contract and it will give birth to even more magic tokens with no effort whatsoever?

Come with me kind stranger, I want to show you something.

Can Money Grow On Threes?

Absolutely, as long as the threes are residing in the metaverse.

Yield farming has been around for over a year now but it seems like we are approaching a peak phase. For a while, the high ETH fees repelled small investors from participating but Binance gave them a centralized version of that playground and it was an instant success. New investors were more than willing to pay 20-30 cents per transaction and CZ was more than happy to collect all those fees since he was the only one operating the nodes.

This example above may be far from what we strive for but it is our current reality and a very viable business model as well. BNB had very little utility until BSC became a thing but now everyone needs it if they want a taste of DeFi. This whole process gives BNB as a coin tangible value. Now let's try to apply this same model to farms.

Can Money Grow On Farms?

Let's imagine that the Jerry farm just launched with no pre-mined tokens and you are the only investor that wants to participate with $100 in BNB. There are two ways we can print money out of thin air, in that scenario.

Option one, I can sell you one Jerry token for $100 in BNB. We started with $100 but now we have $200 of value because I have $100 in BNB and you have $100 in Jerry token. The only thing that is missing is liquidity because you can't actually exchange your token for real value just yet. Instead, you have to find someone that is willing to purchase the Jerry token from you and if you succeed the process continues and we grow the farm.

Option two, you put $100 BNB in a contract on the farm and earn Jerry tokens over time. Now Jerry has no value until someone buys it from you. Whichever price you two agree on that will be the starting value for Jerry. This makes sense at first but over time it will create a very unstable bubble.

Example: Initial value of Jerry established at $1 per token. You keep farming without selling and accumulate 100 Jerry tokens. 9 more people accumulate the same amount which adds up to $1000 or 1000 Jerry tokens. On paper, you have $1k in value but in reality, there is no liquidity to justify that number. As soon as someone sells the price plummets to zero unless we add another element to the game.

Incentive

To make sure you can cash in your rewards I need to somehow convince people to provide liquidity for my token. to do that I offer insane rewards for those that provide liquidity in the Jerry/BNB pool. Now everyone is printing money on the Jerry farm and as long as Jerry tokens aren't dumped faster than the liquidity is added, the price should keep appreciating. This is a very rare event in DeFi but not impossible.

Prices will go up and down for a while until everything stabilizes. I will tweak the rewards so we can get closer to equilibrium and eventually we should all agree on a reasonable price for the Jerry tokens.

Or will we?

Utility

Our token can't have value without utility in the long run. We also can't keep printing tokens forever without a sustainable model. Even burning our tokens requires some kind of revenue as we need to buy them back from the market, so how do we generate it?

Deposit Fees

I don't like this idea but it seems to work for now. Almost all farms require you to pay 4% of your deposited funds in fees and those fees are essentially revenue. Depending on the project, these fees can be used for a buyback or dividend payout for token holders. In our case, we could convert them all in USDT and reward Jerry token holders over time with that revenue.

Another thing we could do is use the funds to purchase Jerry tokens back from the market and burn them in hopes that deposit fees will outpace our printing speed.

Token Offerings

Another revenue stream is organizing token offerings on your platform. For this example lets use CUB.

Promising projects want to raise funds based on their whitepaper and idea. For this they need investors but they are not easy to find. Lucky for them, they can come over to Cub Finance and organize a token sale directly on the platform. Cub provides them with an audience of potential investors while also giving Cub holders an opportunity to participate in a potentially successful project. A win-win situation with a lot of room for generating revenue.

Management Fees

Let's go back to the Jerry farm and introduce another service - money management. Instead of creating our own exchange we will take your deposited funds and invest them elsewhere. The profit we generate will be distributed back to you in Jerry tokens. This service creates demand for our token but also puts your money to work and generates actual revenue. If it proves to be a viable strategy more people will want to join and increased demand for Jerry tokens will drive the price upward.

We Have An Elephant In The Room

The hard truth is that a DeFi bubble is forming and no one knows when it will pop. There are hundreds of new farms launched every single day and all of them are seemingly producing value. This virtual value is feeding price aggregators with false information constantly. Over 90% of the farms are not profitable as they are generating no revenue. The more tokens they print the more value is added to the overall market cap but there is no liquidity to back that up.

For example, CUB has a market cap of $3.7M but that market cap is backed by $1.3M of liquidity meaning that the overall market cap is actually 3 times smaller. Do not get me wrong, these are very good numbers. Most other projects are 10-20 times below their MC in terms of liquidity.

Navigating The Minefield

With no exaggeration, in terms of finance, farming today is literally a minefield. Doing your own research has never been more important and it would be good to take that warning seriously. Be on the lookout for projects that generate actual revenue and have a strong long-term plan. Understand how new tokens are generated, what is their true value, and does their utility justify the price and market cap.

We are all playing a game of musical chairs and someone will have to take a seat on the floor very soon. The key to the game is not to be greedy. Do not be shy to take profits, even small ones. Always try to get the most out of your investment and ask around if you don't understand something. Jerry is always here if you need assistance.