In order to understand Harvest Finance (CCC:FARM-USD) one needs to understand yield farming.
I’ll get to that in a moment, but first it’s also important to understand why the token ranked #453 overall is even on your radar in the first place. The answer to that is that Harvest Finance spiked massively back on Dec. 27.
It spiked from around $100 to hitting $250 briefly in the span of a day. I cannot find any definitive explanation as to why that happened, but it did. FARM-USD now trades around $140. So, that aside, let’s get back into what it actually is.
Yield Farming With Harvest Finance
Per its website, “Harvest is an international cooperative of humble farmers pooling resources together in order to earn decentralized finance (DeFi) yields. When farmers deposit, Harvest automatically farms the highest yields with these deposits using the latest farming techniques.”
If that sounds a bit like lending money to make money, it should. In order to earn yields on your crypto you have to do exactly what you would with your money: Lock it up and entrust it to others.
Just like you lend money to a bank in order for a nominal return, the same can be done with crypto. Locking up crypto is referred to as “staking.” Here’s the truly interesting thing about staking:
Since yield farming began in 2020, yield farmers have earned returns in the form of annual percentage yields (APY) that can reach triple digits. But this potential return comes at high risk, with the protocols and coins earned subject to extreme volatility and rug pulls wherein developers abandon a project and make off with investors’ funds.
Therefore, it’s very clear that quick returns are possible with this strategy. And given that FARM-USD spiked so appreciably recently, people will be interested.
Harvest Finance and Yield Farming Issues
There’s also a very large legal asterisk here regarding yield farming and Harvest Finance. Currently, per Harvest Finance’s website, “due to regulatory uncertainty, Harvest is not available to people or companies who are residents in the United States.”
And there is definitely certainly some regulatory uncertainty regarding yield farming as the Securities and Exchange Commission (SEC) has started to turn its attention to the relatively new practice.
So, what is the actual benefit of Harvest Finance other than potential rapid appreciation?
Automation is Key
Investors who put their capital behind Harvest Finance are doing so partially because it automates yield farming.
One way to farm is to do so manually. I’m not talking about planting actual crops, but rather yield farming. Both forms however, were once manual. Fortunately, advancements in technology have made the process of planting and harvesting crops much more efficient and profitable. The same is true for yield farming.
Manual yield farming is tedious because you have to identify the best place to stake your crypto. It’s also expensive because it is subject to high gas fees. Harvest Finance automates the process of yield farming on what it refers to as farms. There are more than 100 from which it seeks yields.
How Does it Work?
Let’s say Harvest generates a yield. In that case, 70% of the yields are returned into the pool of deposits. The remaining 30% become FARM-USD tokens to reward those who staked in the first place among other things.
It’s also interesting — if I’m understanding this correctly — from the perspective of supply. It currently has a circulating supply of 877,230 tokens but a total supply of only 690,420 tokens.
The website refers to that total as being over four years. So, if I understand correctly that means supply will decrease in the future. Theoretically, that should make the value of all current tokens greater in the future.
What to Do With Harvest Finance
To be honest, I don’t know much about yield farming. The premise isn’t all that different from interest in the current banking world. The mechanics, as does the legalities, do differ, but it makes sense on some level.
The thing that gives me the most pause is that the quick returns users recently experienced with FARM-USD have a dark side: volatility.
Over the last year Harvest Finance has been $410, and it’s been $40. It has gone up and down again and again.
Adding to the risks here, Harvest Finance was already hacked once last year and it could happen again.
Dip your toe in if yield farming interests you, but beware of the many risks.
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On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.