I have only started liquidity mining (yield farming) recently as I was reluctant to get started with something that I am not familiar with.
With all the impossible APY rewards from different liquidity mining pools, my logic is how can the farming pool earns when it offers over 3000% APY.
Before getting into a liquidity pool, it is good to investigate the credibility of the pool that we are getting in.
Some may give attractive APY but we would lose our money if the pools close down without warnings.
My first experience in liquidity mining was with Cake Defi.
It was simple to get started at Cake Defi and we can easily find a guide on youtube like the one below.
I have chosen to provide the liquidity pair for USDT-DFI (50/50).
After providing the liquidity, I notice that my number of DFI had reduced while my USDT had increased for my liquidity pair which was supposed to be equally balanced.
After finding out more, it was due to the price increase of DFI tokens. I did not lose in terms of the total value of my liquidity pair but I would have earned a nice profit if I sold those DFI with the price increase.
It would make better sense if we treat it like a fixed deposit with the total value about the same but we can a nice daily interest from the high APY.
It would also make good sense if we put our funds in the liquidity pool longer to earn back a reward to cover the impermanent loss.
It is therefore important that the pools do not suddenly close down.
I guess I have made the right choice in choosing Cake Defi.
One of the many reasons that I trusted it was due to the fact that it is a registered company in Singapore and the chance for it to close down is really low if we consider the strict laws and regulations of Singapore.
The other good reason was the founder, Dr Julian Hosp, has a really solid portfolio.
With the reputation that Dr Julian Hosp is currently holding, I am quite certain that he would not want to ruin the reputation that he has been building all these years.
Cake Defi is definitely a good choice especially Dr Julian Hosp would let us know about the pros and cons of liquidity mining that he did mention in his video.
I have invested in the USDT-DFI pool of Cake Defi that is currently offering 228.69% APY. The APY percentage does change due to the number of liquidity providers.
If you have not joined Cake Defi, it is currently offering new members with $20 worth of DFI after the first deposit. I found out from others that even a deposit of $1 would work since Cake Defi did not state the minimum deposit to qualify for it.
Another offer is an extra $10 worth of DFI when a new member signs up through a referral link like my referral link below.
This allows both referrer and the new member to get $10 worth of DFI each.
It is free $30 worth of DFI but this free DFI would be locked up in the staking pool for 180 days before one can withdraw.
The good part is that we can still earn staking rewards for the free $30 worth of DFI.
I have just invested another liquidity pool on 31 December 2020 at 1inch that is offering a super high APY of over 400% for the 1inch-Dai liquidity pool.
The whole process was a lot harder since I had to use Metamask to complete all the required transactions before getting my liquidity into the pool.
The ETH gas fee is really high but I am hoping the high APY rewards can cover those high transaction fees.
In simple logic, $100 would mean a reward of $400 if it is 400% APY for the year.
$400 divided by 12 months would mean we are getting about $33 monthly.
That is really a cool profit but the actual reward may not be exactly the same due to the fluctuation of the APY depending on factors like the number of liquidity providers.
I remember 1inch did give me a break down after I put in my liquidity pair into the farming pool.
For 1inch, I have only put in the money that I can afford to take the risk.
You can find out more about 1inch exchange services from the link below.
Liquidity pools come with attractive APY but it comes with the risk of impermanent loss as well.
It is always better to invest only what we can afford to lose so that we do not have to knock our heads against the wall for losing all the hard-earned money if it does not work out the way we wanted.
Disclaimer: This is my personal reflection and I am not in any position to instruct anyone what they should do. I am not responsible for any action taken as a result of this post. My post can only be a reference for your further research and growth. By reading this post, you acknowledge and accept that.
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