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Yield aggregators, decentralized protocols that invest crypto funds on your behalf automatically and optimize the investment across a variety of liquidity pools, represent one of the hottest growth areas of the decentralized finance (DeFi) industry. They’ve become popular in the last two years, particularly with the rise of the category leader, Yearn Finance. In 2020, another yield aggregator, Harvest Finance, made headlines by amassing over $1 billion in total value locked (TVL) in just a few weeks after its launch.
Let’s take a closer look at the two-year-old Harvest Finance, and discuss its benefits and potential as a more mature project.
Harvest Finance (FARM) is a crypto asset management protocol that optimizes your funds by depositing them into a variety of liquidity pools on other DeFi platforms. A classic yield aggregator, Harvest Finance employs a variety of investment strategies to automatically deposit and manage your funds, freeing you from the necessity to manually sift through countless DeFi protocols and pools. As such, the platform is a great tool to earn passive crypto income. Additionally, Harvest Finance empowers beginners to join the ranks of yield farmers without the need to dive into all the complexities of the industry.
Harvest Finance allocates your funds to DeFi protocols via Ethereum, BNB Chain, Polygon and, most recently, Arbitrum. There are more than 30 protocols used by Harvest Finance. These include the majority of the popular DeFi platforms — Curve Finance, Uniswap, Compound, SushiSwap, Lido and more.
Launched on September 1, 2020, Harvest Finance became an instant hit in the crypto market, reaching a TVL of above $1 billion within a few weeks by late October. The platform’s meteoric rise to success was abruptly halted by a flash loan attack that was first noticed on October 26, 2020. The perpetrator used an elaborate scheme involving multiple pools to steal $24 million in stablecoins. As a result of the exploit, the protocol’s TVL plunged to $290 million by October 28.
Harvest Finance’s price has never managed to fully recover to its October 2020 levels. Although at some stage in early 2021 its TVL rose as high as $869 million, the protocol has slowly declined, partly due to overall market weakness over the last two years, becoming a modest player in the yield aggregator category. Currently, it’s the 15th largest yield aggregation platform, with an unassuming TVL of $18.44 million.
Harvest Finance users deposit their funds into so-called vaults to earn interest from the pooled staking conducted by Harvest Finance. Each vault is a yield-farming, Ethereum-based smart contract that acts as a repository for pooled funds from many users. This pooling helps the protocol reduce the overall gas fees and other charges associated with moving funds to and from DeFi protocols.
While vault depositors receive 70% of the profits generated by vaults, the high APY and low network fees make for an attractive overall yield. The remaining 30% is used to buy FARM, Harvest Finance's token, off the market. These FARM tokens are then distributed as rewards to stakers in the platform’s Profit Sharing Pool.
The way each vault allocates funds for yield optimization is based on a specific strategy devised and pre-programmed by the protocol’s developers. When you deposit funds into a vault, you’re issued fASSETs to represent your share of the investment in the vault.
fASSETs are synthetic crypto assets that serve as your deposit certificate to later claim Harvest Finance crypto rewards. Each fASSET corresponds to a deposited cryptocurrency. For example, if you invest USDC, you’ll be issued fUSDC tokens to represent your share in the vault.
As the vaults earn interest, the value of your fASSETs grows. When you decide to withdraw your funds, your fASSETs are burned, and you receive your original funds together with the corresponding interest accrued.
Your deposited funds earn compounded interest — that is, interest is measured using annual percentage yield (APY), rather than simple annual percentage rate (APR). Note that an auto-compounding feature is built into all the strategies used by Harvest Finance.
Instead of withdrawing your accrued interest, Harvest Finance regularly adds it to the total amount invested in a pool. The total amount is withdrawn only once, when you claim your deposit back.
In addition to helping you earn compounded interest, auto-compounding also reduces the overall transaction costs of moving funds between Harvest Finance and its partner DeFi platforms.
The security of your funds is protected by a time lock feature implemented by the platform. The time lock is applied to a vault if there’s been a change in the underlying strategy.
If the protocol developers decide to modify a strategy, the modifications are announced on the platform and remain in a pending state for 12 hours. During this time, if you don’t like the new strategy, you can withdraw your funds. When the 12-hour waiting period expires, the new strategy is implemented.
The time locks allow you to evaluate changes to vault strategies in a transparent manner and with a reasonable notification period, benefits sorely lacking on many other yield optimization platforms.
FARM is Harvest’s primary cryptocurrency. It’s an ERC-20 token used to provide various incentives to the platform’s users. A key incentive includes rewards for staking in the Profit Sharing Pool. Vault depositors also earn FARM tokens as part of their rewards, in addition to benefiting from the growth in the invested fASSETs.
FARM is also a governance token. Holders of FARM typically vote on key issues concerning the platform. Examples include a vote on reimbursing the victims of the October 2020 flash loan attack, and voting on changes to the token’s supply mechanism.
FARM was initially slated for a supply limit of 5 million. However, soon after the platform’s launch, its governance community voted to limit the supply to 690,420.
An unusual feature of the token is that its supply wasn’t pre-minted at launch. Instead, FARM is regularly minted each week, with 70% of the new supply going to the platform’s liquidity needs, 20% allocated to its Operational Treasury and 10% sent to the development team.
The regular weekly mint and its dependence on the liquidity needs of the platform have likely caused the total supply of the token to exceed the 690,420 limitation. Per the token’s indicators on the leading crypto data portals, FARM’s total supply now stands at 701,936 (as of November 13, 2022). The token’s market cap is around $19 million.
The FARM token started trading in early September 2020 at an initial price of over $5,000. Within two days on the market, it dropped to more sustainable levels of under $200. On October 26, 2020, just before the infamous flash loan attack was spotted, FARM was trading at $234.05. As a result of the attack, many people decided to sell Harvest Finance tokens and FARM fell to $86.31 by October 29.
The token’s price slowly but steadily recovered over the next few months, reaching its post-attack max of $410.84 by mid-February 2021. However, over the following 1.5 years, a combination of factors — the overall crypto market turbulence and crashes, new yield aggregation protocols entering the market, and the firm establishment of Yearn Finance as the dominant category leader — have led to a decline in FARM’s value.
By the time of writing (November 13, 2022), the token trades at just $28.45, a far cry from its first days on the market.
Despite its decline in fortunes, FARM is a token with significant future growth potential. As the crypto market slowly recovers, and Yearn Finance sees its previously overwhelming category leadership diluted, FARM is expected to grow with strength. DigitalCoinPrice projects that the token will reach $89.65 by 2025 and $182.84 by 2030. PricePrediction portal is even more bullish, expecting FARM to reach a maximum of $149.42 by 2025 and $991.95 by 2030.
FARM might be a great investment if you don’t mind altcoins on the riskier side. The leading forecasting portals are expecting it to hit significantly higher levels in the mid-to-long term, compared to the token’s current price. At the same time, the high potential profits are accompanied by the risks inherent in coins of this type.
Among the pros of FARM are:
The key risks/drawbacks of FARM include:
Harvest Finance is an attractive project with significant growth potential. Having declined to a medium-sized player position among yield aggregators, the platform is expected to make a recovery to a more prominent role in the category, at least judging by its price forecasts.
The continual fragmentation of the yield aggregation market represents both challenges and opportunities for Harvest Finance. The platform’s future performance will depend entirely on how the project’s team reacts to this market development.