Yield Farming ‘Frenzy’ Didn’t Boost DeFi User Numbers

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Tim Alper

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Tim Alper

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Tim Alper is a British journalist and features writer who has worked at Cryptonews.com since 2018. He has written for media outlets such as the BBC, the Guardian, and Chosun Ilbo. He has also worked...

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June 26, 2023 06:56 EDT

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A new report has found that so-called “yield farming” has taken the decentralized finance (DeFi) scene “by storm” of late – but has failed to bring large amounts of new people to the DeFi table, and has done little to help the “DeFi community grow beyond its current borders.”

These were the findings of a quarterly report from ConsenSys’ Codefi unit.

Yield farmers make use of the Compound-developed COMP governance token, which was released in June this year.

COMP tokens are offered as daily rewards daily to borrowers and lenders on the Compound platform. The report’s authors explain that this has seen “enterprising DeFi users maximizing their COMP yield (i.e. “yield farming”) by using DeFi mechanisms to unlock capital and then lending or borrowing on Compound.”

The authors concede that yield farming “took the DeFi ecosystem by storm in the last two weeks of the quarter,” adding that “crucial metrics like ethereum (ETH) locked and daily active users soared after being fairly stagnant earlier in the quarter.”

Figures showed that the increase in ETH locked in Compound increased by “nearly four times” in the last two weeks of the quarter.

Crucially, though, the reporters added that an analysis of the data suggested that “the frenzy did not bring many new users into DeFi.”

The authors said,

“Looking at the big picture, COMP did not impact DeFi user growth substantially – i.e. COMP did not bring significant numbers of new DeFi users into the ecosystem. However, Compound’s own considerable increase in user growth in just the last two weeks of the quarter suggests that many DeFi users who may not have been using the protocol in the past chose to do so because of the new financial mechanisms allowed by yield farming.”

According to them, if we looked just at user growth in Q2 2020, we might presume nothing significant had happened the past few months.

“User growth increased steadily and each protocol appears to have gained new users at the same rate and within the same ratio as they had the entire quarter,” they added.

DeFi platform stats

As previously reported, Ethereum co-founder Vitalik Buterin has also spoken out about yield farming recently, labeling the phenomenon “unsustainable.”