What’s next for yield farming?

COMP turned out to be a bit of a surprise to the DeFi world, in technical ways and others. It has inspired a wave of new thinking.

We might soon see more prosaic yield farming applications. For example, forms of profit-sharing that reward certain kinds of behavior.

Imagine if COMP holders decided, for example, that the protocol needed more people to put money in and leave it there longer. The community could create a proposal that shaved off a little of each token’s yield and paid that portion out only to the tokens that were older than six months. It probably wouldn’t be much, but an investor with the right time horizon and risk profile might take it into consideration before making a withdrawal. 

There are precedents for this in traditional finance: A 10-year Treasury bond normally yields more than a one-month T-bill even though they’re both backed by the full faith and credit of Uncle Sam, a 12-month certificate of deposit pays higher interest than a checking account at the same bank, and so on.

As this sector gets more robust, its architects will come up with ever more robust ways to optimize liquidity incentives in increasingly refined ways. We could see token holders green lighting more ways for investors to profit from DeFi niches.

Questions abound for this nascent industry: What will MakerDAO do to restore its spot as the king of DeFi? Will Uniswap join the liquidity mining trend? Will anyone stick all these governance tokens into a decentralized autonomous organization (DAO)? Or would that be a yield farmers co-op?

Whatever happens, crypto’s yield farmers will keep moving fast. Some fresh fields may open and some may soon bear much less luscious fruit.

But that’s the nice thing about farming in DeFi: It is very easy to switch fields.