Copy- Farm Risk Management

Risk Types:

  • Has the protocol been audited and by who? Audits done by reputable sources result in a lower risk rating. If the audit highlights protocol flaws that are amended this also contributes to a lower risk rating.
  • How new is the protocol? Usually established farms are less risky than newer farms.
  • What is the TVL in the protocol? Usually higher TVL protocols are less risky
  • Have there been any security compromises in the past? How were they dealt with? No security compromises and responsibly managed security breaches result in a lower risk rating.
  • Do known aggregators use this protocol like Autofarm, Swamp, Beefy, etc? Aggregator usage results in a lower risk rating.
  • Is the strategy exposed to just one token — the deposited token? In this case there is no chance for impairment loss
  • How many tokens are involved? The fewer the better, with one token type holding no risk for impermanent loss at all. Single asset farms are rare, which means the below factors need to be considered.
  • If tokens are swapped according to the strategy plan, what are the tokens’ market cap? Do these tokens have high liquidity? Higher market cap tokens have less price volatility, and therefore less impairment loss. This results in a lower risk rating. Also, tokens swapped with high liquidity carry a lower price impact, which makes them less risky.
  • If tokens are swapped according to the strategy plan, what is their correlation to the base token? Most yield farming is done in tokens pairs; the more closely token pair prices are correlated, the less impairment loss occurs. This results in a lower risk rating.
  • What is the vesting period? Shorter (or no) vesting periods equate to less exposure to price deteriorations and result in a lower risk score.
  • At what rate are rewards distributed? The daily APR shown is average and may mislead users, as the rewards distribution can be non-linear and offer the most rewards only after a period of time. The shorter this time, the lower risk the strategy is. APR can also be misleading if a strategy’s yield is composed of trading fees, which can fluctuate wildly.
  • Has the coin been audited and by who? Audits by reputable sources result in a lower risk rating.
  • How new is the coin? Established coins are less risky than newer farms.
  • What is the market cap of this coin? Higher market cap coins have less price volatility and less security concerns and result in a lower risk rating.
  • What is the historical price range of this coin? Less price volatility results in a lower risk rating.
  • Is there sufficient trading liquidity to the coin, which allows for large swaps with a minimum slippage? Higher trading liquidity allows for swaps without slippage which results in a lower risk score.

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social trading meets yield farming

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Don-key.finance

Don-key.finance

social trading meets yield farming

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