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Wake up Bro u should farm ETH/USD
A framework on how to measure a good farm, holding vs LPing
If you hold ETH n USDC
You SHOULD farm ETH/USDC v2 LP
if the apy is 20% +
IL is a over rated fud for token holders
Here's a frame work with numbers to show how to find "risk & reward" acceptable apy for token holders
You should stop reading if you do not hold ETH or USD already
This thread's framework is has assumption based on
You are holding ETH already
You don't mind buying a bit more ETH for long term if price drop a bit
Obviously if u smart, this thinking model applies to any token
Here we go
Lambro has 1 ETH & 1800 USD
total networth of 3600 usd
he will not to sell ETH because he loves hodl
Should he put 1 ETH & 1800 USD in uniswap v2 LP for 20% apr ?
ETH goes to 3600 usd in one year
the LP will be worth 5091
where if he just hold is 5400 (1 eth =3600 +1800 usd)
The difference ( IL ) is -5.72%
but ur yield of 20% will cover this -5.72% 🤯
ETH goes to 900 usd in one year
LP will be worth 2545
where if he just hold is 2700
The difference ( IL ) is -5.72%
but ur yield of 20% will cover this -5.72%
but lambro's networth still went down from 3600worth into 2545 ??
and looking for a job in McDonld now?
Here's the key assumption
HE WAS GONNA HOLD THE ETH ANYWAYS
ETH went down in price, he got rekt not because of LP, IL or all those scary words people don't truly understand
The "action" of LP did not cause you to lose money, ETH's price movement did.
Let me introduce the framework of farming for token that you are holding anyways.
u don't mind holding this token, this is hodl or LP
u have a brief idea of what the price movement e.g. +/- 50%
if yield - IL = +ve within timeframe
this is profitable
ETH price is 1,880 usd
I think it wont go up or down more than 20% in a week
If it does move IL will be -0.41%
if weekly apr is > IL then its profitable farm
0.41% * 52 = 21.32%
So if any farm is higher than 21.32% it is a profitable farm
Same case with but with 10% price change
IL is only 0.11%
0.11%*52 = 5.72%
meaning if u think price wont move more than 10% 5.72% apy is already a profitable farm
Do note that the curve of IL is not linear the easiest is to just enter in this IL calculators to check.
Obviously there are a lot of moving parts in the decision
Actual APY after exit, ( farm token price can move a lot )
Protocol rug risk
Different farming "time frame" will have different expectation of yield
Some general questions i often ask myself
will the farm token pump n dump?
are there enough liquidity for u to dump the farm token?
are they lock ups or vesting involve?
is gas a considerating factor? ( specially moving funds to L2 )
Some example eth/usd yield
@CamelotDEX 20% apy on arb weth/usdc
@SushiSwap yield 10.19% on arb weth/usdc
@SushiSwap yield 20% on arb weth/usdt
More on zksyn from my old post (apy might not be updated)
Understanding exposure n comparing decision is key to be a good investor.
As u can see there is a big difference in views on doing LP if u are
purely holding USD
purely holding ETH
hodl ETH n have USD
have a view in price volatility
Understand ur trading tools set best fit ur situation & views towards the market instead of just blindly believe "key words" that kol throw at u.
IL is bad, No IL, AI metaverse tech to aviod IL etc
Now thats a wrap.
hope u enjoyed it.
i need to hit 10k before end of June, show my twitter some love.
Also follow me on debank for my token or farming info!
This thread was heavily inspired by @yieldinator
a true farmer that i respect n convinced to start writing more!
please give him a follow!