ECONOMY

TRANSCRIPT: Aaron Lammer On Yield Farming, DeFi, And Ethereum

Aaron: I loved when you when you brought up Sushiswap there. Cause I’m not sure I had actually ever heard Hayden Adams directly say what he thought about Sushiswap, which is a clone of his exchange. But when Sushiswap was started getting started, they basically said, we’ll pay you these APY fees and we’ll pay you this bonus in our native sushi token to bring your liquidity over here. So on top of the liquidity profile and you get a LP token, right? So my deposits, aren’t just something I know I have, I can actually see my LP token in my wallet. And in the case of sushi swap, you can then deposit that LP token and earn these incentives on top of the APY. So a lot of this farming stuff is like bonus on top of bonus, I’ll give you like an example of like a way you can stack some, some of this yield earning there’s this thing called Ledo finance, which we’ll do that F2 staking that I was describing and you can deposit your ETH with them and they give you back a token called STF, which is basically staked F when you take that stake to ETH, you can then go deposit that somewhere like Compound or AAVE and borrow against it.

Aaron: So you can take that staked ETH and go borrow a bunch of Stablecoins against it, and then earn yield on those. The really hardcore farmers are using a system of constant lending and borrowing to get the most advantageous yield while basically still holding their original collateral. That’s the game to hold your original collateral and get as much else as you can. So when you ask, well, what happened when it crashed, the same thing would happen when it crashed. That would happen to me anyway, except I’d have more of the thing that had crashed, which gives me a better position.

Tracy: How has the yield farming phenomenon impacted the crypto coins themselves? So you have this whole process at Uniswap that is dedicated to creating liquidity in crypto currencies, whether they’re, you know, big or small coins at a minimum, I would imagine this is allowing a lot of those smaller coins to sort of get traction.

Aaron: It’s allowing small coins to get traction and big protocols to lock large amounts of value, which allow them to do lending and borrowing stuff. And then there’s this service called Yearn. That’s kind of on the top of a lot of this stuff where if you don’t want to go out and seek out all these, yield opportunities, you can just lock your coins in Yearn and Yearn works in an automated fashion to try to find you the best opportunities. So I would say that actually most of the yield farming that’s happening, isn’t people like making a bunch of manual decisions. It’s people who are locking their money into these big protocols that go out and use strategies that require tons and tons of capital. If you only have a few thousand dollars in crypto, it may not be worth it to do this, but it might be worth the posting that crypto into Yearn and letting Yearn move around billions of, or hundreds of millions of dollars in the way that can earn the most yield. So not everyone is like me trying to do this themselves, which is probably stupid. I think a lot of the smarter people actually just go for these automated strategies

Joe: Backing up for a second. You know, you mentioned like finding some sort of like a smaller coin, some tiny coin where maybe you’re going to dominate the pool or you already had it or something like that. You know, I think that like when people like buy stocks, you know, there are certain metrics that they use and they look at profitability or whatever. Like how do you begin to evaluate? I mean, there’s that, you know, I think as Hayden said, there’s like, they’re adding like 2000 coins a day on you and a swap or something like that. Just some insane number. How do you evaluate what’s a coin you want to buy? Like, what are the things you look for?

Aaron: Well, it’s a really interesting question because I have really dabbled in all the stages from the blue chip, uh, prestige DeFi to the very, very tiny market cap. And I’ve tried to play those kind of waited. So I have most of my DeFi money in things like the top 10 DeFi tokens, things like Uniswap that you’ve heard of. Um, and then as you say, 2000 being added a day, there’s a lot of really tiny cap coins. So I’ll admit I for a period would scan the top 500 coins top gainers. Um, when NFTs were big, I just looked through the entire list on CoinGecko of NFT-related coins. I’m looking for a good logo. I’m looking for a clear presentation that offers what the value is. And above all, I’m looking at the market cap.

 You know, if I can see a coin that has a market cap and the market cap, this is in cryptocurrency, just basically how, how much at the current price are all the tokens in circulation worth. And I also like to look at how much will the total market cap be when it’s fully diluted, because there’s a lot of manipulative tactics where it’s like, “Oh, you know, we only have released a certain amount now, but we’re going to release a ton in the future,” which is going to crash the price. So I’m on the lookout for all that stuff, but I’m mostly looking for what looks like a legitimate project that has like a clear value proposition. Ideally, it’s doing something that earns money, right? Uniswap, earns money. It’s earning millions of dollars in fees every day. That’s a good look. I like that.

I look at all those factors and then I try to figure out where I am sort of in the narrative of that coin. And I generally don’t like to buy things when they’re like really, really at the beginning, because liquidity is really bad. You know, some of these really tiny coins, if you’re to sell off anything over say like $10,000 worth of them, you can slip the market. I’ve had times when it’s going to slip the market 15% if I sell off my own coins, right? So some of those things you need to be careful of, it may look like a great opportunity that’s doubling every few days and value, but not necessarily easy to get out of some of those positions. So each of those factors are kind of like weighing against each other. And I’m so bullish on Ethereum right now that I’m like kind of less likely to be dabbling in these really tiny coins.

But I think that’s kind of a market cycles thing. I’ll probably be back there at some point, but one of the reasons there’s so many of these little projects that I actually do think are worth buying and I have invested money in is that the whole DeFi system makes it really easy for people who make open-source software to do their own projects. You’ve got DAOs, uh, digitally autonomous organizations, which are tools to coordinate lots of people around the world and split the upside amongst them. You’ve got a lot of people who are willing to flood capital into tiny projects often with almost no information. So in the same way that I think like, I don’t know, 2009, like Silicon Valley was probably a good place to just invest in like every little startup that was coming up. And people made a lot of money doing that.

When I look at the sort of shallow end of the DeFi world, I just see like a lot of really young people experimenting. And some of those projects will become big. I’m probably not going to like hold them for three years. So I might not see all of that, but, uh, if I can ride it, you know, through the early part of the project, it’s, it’s kind of exciting. And a lot of these projects, like I, I was interested in this project and FTX, which basically creates funds based on NFTs. So they have like a CryptoPunks fund where instead of actually owning CryptoPunks, you can get exposure to crypto punks through this coin. It’s just a bunch of people they’re on Twitter. You can see the people who are running the project that follow them, and it’s kind of fun. And following them does give me some insight. Like I saw that they had a designer who was doing a rebrand of the site. It’s kind of bullish, you know, like people who are shipping new software and doing stuff. 

Tracy: A really blunt question. Um, and I don’t mean to pry or anything, not at all. How much money have you made? Sorry. Um, I need to know, okay. For science.

Aaron: I, I won’t tell you how much money I’ve made. I’ll tell you how much a factor of what I put in and what it’s worth now. So I think I’ve gone about 14 or 15x, my original investment, but that original investment was years ago. If I had just bought Bitcoin when I very first got into crypto and never done anything I would have done better than I did now. So I was into all of this small cap coin trading during the first alt coin boom in 2017. And I also made a lot of money during that period. Not a lot of money. I had, my initial investment was very small, but as a percentage, a large amount of money and lost it all in the crash.

So I don’t really know that I’m going to walk away even with, uh, as much as I’ve made now. And I know people who’ve made a hundred times more than me, uh, through more aggressive strategies. I’m kind of in it, to like mess around a little bit more like I like to try things. So some of the things I do are not necessarily the smartest or most, you know. Putting your money in during the first round in a exchange that was supposedly, I think, in New Zealand, but the guy’s exit scammed like that wasn’t smart that wasn’t like a smart financial move to do that. Some of the things I think I’ve done in DeFi, like I’ve bought some like dumb NFTs. I’ve bought some projects that went to zero. Like there’ve been mistakes along the way, but you know, this stuff is so new that simply riding the success of even the biggest projects probably would have yielded you many multiples now. And I didn’t actually, I wasn’t into this during the Defi Summer last summer, which was when people made the most gains. I only got into this, like after the first wave of interest. I had no idea what it was when I was first happening

Joe: Years ago. I think it was like sometime in 2017 or like 2018. I think we got Hot Pot together. And Aaron was trying to pitch me on like setting up some like mining operation in upstate New York to mine a fork of Monero or something, just some like crazy things. I’ve always really admired your experimentation. And did you ever get that mining rig off the ground?

Aaron: So I did go visit. My plan was to buy a defunct hydroelectric dam in upstate New York that had its own power generating station and then use that to mine and like most things in crypto, like that wasn’t going to happen. But it did lead me to an interesting place. It eventually hooked me up with these guys, Bison Trails, who were starting a mining center, which I actually think their mining center didn’t do that well, but they built a bunch of software for their mining center to coordinate all the miners and then Coinbase acquired them because they wanted all of this like mining software. So like that’s a lot of crypto is like that few losses than a win few losses than a win.

Joe: Here’s something. And I have to admit, like, this is probably like a super Boomer question of me and it’s why I haven’t made a ton of money like you, but I’m curious, and this is the part that always gets me And it’s the same when we were talking to Hayden.. when I think of finance, regular TradFi banking… in theory there’s always some non-finance end to it. So someone invests in like Uber early on, you mentioned like Silicon Valley in 2009, but then like someone’s doing something non-finance, like selling rides. The early model of venture capital was whaling ships. And you like lay off some of your risks to investors because whaling is very dangerous.

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