Not Only Crypto-Savvy Russians Use Yield-Farming to Harvest Wealth

Paul Goncharoff

Even while living and working in a somewhat isolated and sanctioned Russia, with somewhat limited access to mainstream (USD) banking systems, I have noticed especially in these past few weeks and months a sizable shift in search for higher yields on money towards what is known as ‘yield farming‘.

In a world where interest rates have been eroding, the actual inflation on the daily necessities of life have been rising, a new disruptor is gathering velocity and strength. It may also be the straw that breaks the camels back of resistance to cryptocurrencies, ushering in greater and greater acceptance by main street.

Just consider, here in Russia the principal retail savings bank Sberbank recently rolled out a seasonal promotional savings rate called ‘Meet the Fall’ where depositors may choose three maturity options on their roubles: three months at 3.6% p.a., six months at 3.8% p.a., 12 months or 24 months at 4% each. When compared to US or EU savings bank returns (0.1 – 0.6%) these are comparatively generous. However, again, against kitchen and household inflation all are in the NIRP (negative interest rate) zone.

Enter ‘yield farming’. Basically, yield farming is a process where users (liquidity providers) provide liquidity to decentralized financial (DeFi) protocols and are rewarded with a yield/percentage return in a specific agreed cryptocurrency. At the end of the day should you decide to realize your gains in roubles, dollars, or whatever, you can withdraw your cryptocurrency, then exchange for the fiat currency you prefer.

With the recent legislation in Russia allowing citizens to own and trade in cryptocurrencies (just not settle business transactions in them… yet) the popularity and use of yield farming is growing daily. After all, why settle for a 2 – 4% APY when 8 to 20% are available? There are of course far higher rates of return claimed, I’ve even heard up to 1,000 -3,000%, but as the old adage says: ‘If it sounds too good to be true, it probably is’.

Today there are three ways to earn yield in this manner: money markets, liquidity pools and incentive programs. The money markets earn a profit on their existing holdings by lending tokens via a decentralized money market such as Compound, Maker, etc. Liquidity is important for DeFi protocols because it allows them to provide their clients with clear and easy use-cases. Yield farmers also can obtain returns in the form of incentives. For example, some DeFi platforms give liquidity providers tokens in exchange for their work.

The complexities of getting involved in yield farming range from very complex, requiring in-depth knowledge of various platforms, to the simple and clear such as Swan Finance, or Yearn.finance, where all one has to do is deposit some tokens like Ether (ETH) or their accepted stablecoins and collect the yield.

What I have noticed in just about all of these Defi yield farms is the fact that their websites besides the default English, are widely offered in Russian and Chinese languages, and some have added several others. So there you have it, all that is needed is an electronic wallet, some cryptocurrency and the desire not to have your wealth eroded in these interesting times.

While it may not be the most financially dignified endorsement, even my neighborhood ‘Znakhar’ (witch) and her cabal of Moscow pensioners are now yield farming and spreading the word. Live and learn.

Paul Goncharoff

Moscow October 18, 2020