The what and why of auto compounding yield farming
Revo makes it easy to yield farm with compound interest at low fees.
But what does that mean?
There’s some DeFi vocabulary in there that makes Revo’s purpose less than obvious to the average person — mainly the “yield farming” part. The goal of this blog post is to explain the problem Revo solves from “first principles” — such that it requires almost no background knowledge in crypto or DeFi to understand.
What is yield farming?
Whenever I tell someone about Revo, they usually ask me “what is yield farming?”
Imagine you are creating a new virtual reality video game mobile app. In your game, you want people to be able to design new VR buildings and sell them to other players. You want players to be able to cash out their in-game earnings for real money, to attract top talent architects. You also want to charge a small transaction fee for every exchange, which goes to your development team so you can keep improving on the game.
In short, you need to bootstrap a new medium of exchange. To that end, you decide to launch a new token (aka cryptocurrency) on Celo, a mobile-first blockchain (since you’re building a mobile app). Call it GAME.
GAME solves a number of problems for your team out of the gate. It took less than 30 minutes to code, and because transactions all take place on the blockchain you aren’t regulated like a bank.
However, because nobody owns much GAME yet, it’s really hard for players to “cash out” — a key requirement for your platform. GAME needs more liquidity (transferability).
You decide to deposit some GAME in a liquidity pool on a Ubeswap, a decentralized exchange, in a “pair” with cUSD. This means that anyone who has cUSD can buy GAME with no intervention from your company (so you’re still not a bank), and vice-versa. Like all liquidity providers on a DEX, you get a small fee when anyone does a swap, a great side benefit that you hope will encourage other people to stake GAME and cUSD too, increasing the liquidity of your new token.
Except no one does. It takes a while for players to earn GAME on your ..game… and the price of the token is pretty volatile at first, so most people just want to cash out. How can you encourage people to stake their GAME in a liquidity pool?
The answer, of course, is free money.
You have access to the money printers for your new token, after all. You launch a “yield farming rewards” contract that sends liquidity providers free GAME as an incentive for helping provide liquidity for your platform.
Problem solved right?
Well… not really. It turns out, the rewards contract you launched, despite being an industry standard, is kind of a pain to use. In fact, it takes about two minutes of button hammering for an experienced user to get started. And once they’ve staked their LP (liquidity provider) tokens in the contract, their rewards just sit there — they don’t get reinvested in the liquidity pool automatically. So liquidity doesn’t snowball the way you wanted it to, and users providing liquidity don’t get compound interest on their investment.
TLDR: yield farms are rewards programs for encouraging liquidity between tokens. Yield farming means providing liquidity and getting rewards. There’s no compound interest by default, and the UX is relatively poor.
This is yield farming today. Well, yesterday — before Revo.
Revo makes it easy to get started with yield farming and earn automatic compound interest at low cost.
As a DeFi investor, I can use Revo to “zap in” from any token to a yield farm with compound interest, aka “farm bot”. That means if I just bought cUSD with Ramp, I can immediately open Revo and zap into a farm. No trading for the underlying tokens, no staking in a liquidity pool, no depositing my LPs in a rewards contract. Just one swap and I’m in.
From there, I don’t need to do anything. I can sit back and let Revo’s farm bots do the work of reinvesting my rewards back into the farm for compound interest. For high-interest farms this can double my APY, or better.
And when I’ve had enough, I can “zap out” to any token, just as easily. (I can even zap to another farm!)
Doesn’t this exist already?
Yes, sort of. Not really.
On Celo, there are at least two options for automatic compound interest on yield farming rewards, Autofarm and Beefy. They charge 3.5 and 4.5% interest respectively. We aren’t going to trash talk our competitors here, but that’s highway robbery.
In our research we discovered that a small portion of those fees were pretty reasonable. If deposits, compounding, and withdrawals in a farm bot were all completely free, a dishonest user could reduce the APY for other users (and increase it for themselves) with exploits known as “sandwich attacks”. These hypothetical exploits on a totally free platform are why Revo has low fees (around the price of a swap), but not zero fees.
However, the majority of Beefy and Autofarm’s fees go to governance token buybacks, which drives up the price of their governance tokens by inflating demand. We believe this creates a misaligned incentive for governance token holders to keep fees high, at the expense of UX. Why would you vote to lower fees if the fees went straight to your pockets?
Revo’s other main differentiator is zap-ins from any token. With Beefy you can zap in from one of the underlying tokens in a liquidity pool, but not from any token. So the process of getting started is still fairly painful. Autofarm does not offer zap ins.
TLDR similar solutions exist, but Revo charges about 10x lower fees and makes it faster to get started.
How to start
Navigate to https://revo.market to get farming! Note that farming options might be limited at first.
If you’d like to learn more before you dive in, visit https://docs.revo.market
And if you’d like to say hi, feel free to leave a comment or join our discord.