The impact of daily compounding your defi gains is utterly mind blowing

Defi earnings – the ability to withdraw rewards and compound daily on low gas chains (BSC, SOL etc) produces utterly mind-boggling gains

First of all, thank you for everybody commenting on my last post and giving me all the awards. A lot of people have asked for a defi farming guide which I will put together. I received like 200 PMs so I can’t reply to everybody (I’m full time working!) but will try to reply to people over time.

Also, shout out to the 2,500 of you that read my telegram post and flooded whalepool / shitpool etc hehe.

But in the interim I wanted to add an initial observation regarding defi gains. As you know, it is possible to earn 20%-1000% on some of those pools. Some pools give much higher returns (cough cough Penguin Finance) but I think at a point that becomes too risky.

But we can accept, that say, an 800% annual return is pretty great? An even if that return is temporary and starts to fall, you can easily move into another newer pool with higher gains, moving around as you go.

So if you had $1000 of coins, you might be quite content with having $9000 at the end of the year. And that is assuming the coin itself doesn’t go up massively in value. I’ve been farming Sushi since it was $2 and still have a lot of those coins now worth $14.

So normally on the ETH network gas fees are very high, so I typically don’t harvest until I have a very decent harvest – at least $1,500 or so (given I lose around $40 from gas). But having low gas networks like solona, BSC, xdai, avalanche and so on have gas fees of around 10c. So it is very easy to harvest your farms every day. Say for example a Cake / BNB farm. You might earn $100 of cake a day – you could then harvest, sell half into BNB, and repool the $100 of Cake and BNB back into your pool.

(Sorry if this is all hard to understand but the point of this post is the compounding effect, NOT the farming itself which is for another post).

So what happens to your gains if you are not just earning 800% per year, but every DAY, you are taking your gains, and re-investing back with the same return?

Well this website (linked down below) allows you to calculate what you go. So for example, you can start with $1000. Put say, 10% interest, with daily compounding and you get a total of $1,105 at the end of the year – so you earned $105 instead of $100. Your 10% interest has turned into 10.5%

Okay… not bad. But let’s try it was 800% shall we? Well according to the calculator, instead of $8000, you get $2,734,186!!!!! An effective interest rate of 273,318%!

Not for something more sustainable – 100% interest. In that case you get $2,714 (so an extra $714). If you go half way (400%) you get $53,422. 600% is $384,221. And so forth. Basically, the higher the interest rate, the final compounded return is an order of magnitude above. As an extreme example, 2000% interest would get you 285 billion!!!

These results are so nuts I almost wonder if I am doing something wrong (and in fact I bet somebody will point that out!), but regardless – the impact of being able to compound your farming returns, in a high yield environment, even with “moderate” yields is absolutely huge. Use it to your advantage!!!!

EDIT: I should add one very important final point. While the strategy of compounding is likely to greatly increase your rewards, it works for everybody. And if there are multiple pools with 200-1500% currently operating (with a combined pool liquidity of tens or hundreds of million) ask yourself how sustainable these types of returns are for all participants. So a sceptic might say these results show that the current farming / yield returns can’t last forever. And yes, as noted by somebody, good luck staying in a pool AND getting the return for a whole year. So enjoy it while it lasts!

EDIT 2: I wanted to add another point. You can decent returns from other mechanism as well – whether it is trading, staking, or lending via CEFI. All of the compounding rules apply to these as well, and while they might have lower returns as an annual percentage, you could potentially be in these for a lot longer. So for example, compounding staking of ETH on the 2.0 chain could also produce staggering gains if your 8% return was re-invested, say, every week for 5 years. Again plug some numbers into the calculator and see!

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php