In brief

  • 1inch exchange has announced a second round of its yield farming program.
  • Yield farming has fallen out of the spotlight, but is still providing annual returns unheard of in traditional finance.
  • The first round of 1inch distributions generated an average annualized return of 300%, according to 1inch.

The summer’s buzz around yield farming may have tapered off as assets like Bitcoin and Ethereum have moved into the spotlight, but DeFi protocols are still hard at work distributing their governance tokens and rewarding DeFi users in the process.

1inch is a popular decentralized exchange aggregator that helps users find the best prices when swapping assets. After launching a “liquidity mining” program last month, it today announced a second round of governance token distributions, set to begin January 9. The first round began December 25 and ends today. 

In the new round, the DEX aggregator will distribute 1% of the 1INCH token supply over the course of one month to users who provide liquidity in the form of ETH, WBTC, and dollar-pegged stablecoins on the platform.

Liquidity mining, also known as yield farming, has become a hallmark of DeFi, or decentralized finance, since the summer of 2020. DeFi is a group of protocols that replicate financial services formerly provided by banks like making loans and providing interest on user deposits—all on decentralized blockchain networks such as Ethereum.

DeFi protocols require user funds in the form of cryptocurrencies or dollar-pegged stablecoins to perform their financial functions, and typically use a "governance token", like 1INCH in this case, held by members of the community to make decisions about the development and future of the application. 

Yield farming programs distribute these governance tokens, which can then be traded on the open market, as a means of attracting funds to their respective protocol, and to try to align token holders with those who understand and plan to support the application long term. 

Many DeFi protocols have implemented yield farming programs, including the largest decentralized exchange by volume, Uniswap, and lending protocol Compound, which set off the yield farming craze in June 2020.

Yield farming also quickly grew in popularity at a time when cryptos like Bitcoin and Ethereum were rising slowly or not at all. It offered a means to earn profits with unheard of annual yields in the hundreds or thousands of percent when simply waiting around for Bitcoin to moon seemed like a less viable strategy.

DeFi yields in the high double or even triple digits can be enticing, but of course annualized yields take a year of consistent returns to be fully realized, and DeFi is not exactly known for low risk over the long-term. With Bitcoin prices up more than 100% just in the past five weeks, it might not be surprising that would-be yield farmers are cashing in on those gains instead.

Still, according to 1inch’s press release, its liquidity mining program returned an average annualized yield of 300% to farmers. 

Although the yield farming craze may have taken a backseat to other crypto events, the extended 1inch program shows that sky-high yields are still possible, and that liquidity mining isn’t going anywhere.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.