The fuss in the decentralized finance (DeFi) has heightened over the past three months, as yield farming protocols have continued to taunt high returns for investors. No wonder the cryptocurrency industry has seen many participants rushing to take advantage of this rare/risky opportunity by moving their digital currencies from exchanges to such protocols to make better returns.
Yield Farmers Are Taking High Risks
While everything may seem to be running smoothly for yield farmers, a new survey shows that most of these farmers do not possess in-depth knowledge about yield farming. Many participates do not understand the risks that come with investing in the DeFi métier. Even at that, some investors are not considering the risks associated with yield farming either. Instead, they depend on auditors to do the work for them.
This was proven in the survey carried out by a crypto market analysis platform, CoinGecko, which involved 1,347 participants. A minimum of 312 users said they have heard of or participated in yield farming. Most of these people are male and aged between 30-59 years.
According to the results of the survey, 79% percent of the 312 users who claimed to have heard of/ participated in yield farming admitted that they know the risks involved in yield farming. However, 40 percent of these supposed yield farmers could not read smart contracts, nor do they understand the risks associated with the activity.
One might say that their inability to read smart contracts indicates why they are starry-eyed from identifying potential fraudsters or boondoggle in the industry.
Do Your Research
The survey results also showed that about 33 percent of the yield farmers do not know the meaning of some terms such as ‘impermanent loss,’ their real return of investment (ROI). This suggests that they are only great risk-takers.
In addition, 49 percent of the people polled claimed the wouldn’t invest in a protocol without audits. However, a significant percentage revealed that they had deposited a capital of more than $1000 into yield farming protocols.
Yield farming remains a new but fast-growing métier for investors. However, investors should have been urged to better understand any DeFi project or smart contracts and learn how it works. In this way, they can be able to detect unnecessary risks or potential scams, and ultimately ensure their investments will be safe.