How fast can I grow $1,000 in DeFi: Week 3 - I need to simplify
May 7th 2021
An updated version of this article can be found here.
-5% return on initial funds to date.
Earning about 2% in rewards per week.
Removed borrowing from the strategy in order to simplify.
Those new to this series can find the Week 1 article here.
Caveat: I see a high chance that I will lose all of this money. If you plan to do yield farming, I suggest you plan on losing all of your money too.
Week 2 Performance:
Over the second week, net assets reduced to €867, down from €909 at the end of last week. Here is the breakdown of returns:
a. Rewards - I earned just under €20 in rewards from selling EGG and CAKE tokens, respectively earned farming EGG-BUSD on GooseDeFi and farming XMARK-BUSD on PancakeSwap.
b. The Rest (Borrowing, Price Movements, Impermanent Loss) - these other factors contributed to a loss of €62 during week 2 - and I don't have a clear sense of the breakdown between the different factors. I'm embarrassed to say that this shows up how poor my record keeping system is to track what is happening, which leads me to taking a simpler approach for Week 3.
Improving how I keep track of my positions
One problem with my record-keeping is that I didn't know how to track my ownership of tokens within farming pools. This is important because the balance of tokens in a liquidity pool shifts as prices shift.
For example, here is what the interface for a farming pool on GooseDefi looks like:
Notice that it tells me how much value I have staked ($0 here), but it doesn't show the breakdown of how many EGG and how many BUSD tokens in the pool I own - which I need for a full understanding of my position.
To find that out, I click on "View on BscScan", which is the explorer for Binance Smart Chain. This brings me to a page showing you information about that farming pool:
Notice the "Total Supply" of 1,322,000 tokens. Comparing this to the number of tokens I received when depositing on GooseDefi, I can figure out my proportional ownership share of the pool.
Notice where it says "Contract" to the right hand side. This brings me to the liquidity pool contract for BUSD and EGG, with a dropdown list showing how many total BUSD and total EGG tokens are in the pool:
Knowing the tokens that are in the pool, and knowing my proportional share of the pool allows my to calculate how many BUSD and EGG tokens are mine at a given time.
Going forward, this information will allow me to better comment on how my portfolio is affected by price movements and impermanent loss.
The plan for Week 3
No borrowing. I have reversed my borrowing of BNB on Venus.finance . The reason for this is to simplify things. I won't do any more borrowing until I better understand what is going on with a simpler strategy.
Same two farming pools. I'm sticking with the EGG-BUSD pool on GooseDeFi and also with XMARK-BUSD on PancakeSwap.finance .
My holdings at the start of week 3 are roughly:
50% BUSD (just held in a wallet, not deposited on Venus.finance)
25% EGG-BUSD liquidity pool on GooseDeFi, deposited to the farm on GooseDeFi
25% XMARK-BUSD liquidity pool on Pancake, deposited to the farm on PancakeSwap
Each of these farming pools are yielding an APR of about 250%. Going back to my table from last week, I expect average weekly returns from rewards to continue to be around 2-2.5%:
Lastly, I've more carefully tabulated my positions this week using the methods described above and hope to report back at the end of Week 3 with a more clear assessment of the breakdown of return into rewards, impermanent losses and price movements.