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Yield farming is bad, really bad bad thing. 
Incentives are good, really good good thing.
Liquidity black holes are really really bad bad things. @aavegotchi is really really good good thing.
And here is why:
Incentives are good, really good good thing.Liquidity black holes are really really bad bad things. @aavegotchi is really really good good thing.
And here is why:
Preamble: Incentives rule the world whether they are economical, social or political. We're bound to incentives whether we like it or not. The devil of incentives lies in the details.
Now the important stuff:
Now the important stuff:
Yield farming = liquidity provider is paid to risk their funds.
This is where things are going wrong in DeFi
When you are incentivised enough you will take additional risk whether it's your risk appetite or not.
This is where things are going wrong in DeFiWhen you are incentivised enough you will take additional risk whether it's your risk appetite or not.
Worst case scenario is that these liquidity blacks will drain to the inexistence and there is nothing that anyone can do about it, making whole financial system less reliable. (everyone suffers - whether they participated or not).
As the DeFi protocols grow substantially, the key for adoption is that we don't fuck this permissionless future up.
Instead of Ambulance chasing for yields and LPs, incentives should be aligned towards "Safety Farming".
Instead of Ambulance chasing for yields and LPs, incentives should be aligned towards "Safety Farming".
Here is some examples where network participants are incentivised to de-risk a network:
Ethereum/Bitcoin: Secure the underlying network
@MakerDAO: Passively secure the protocol
@AaveAave: Actively secure the protocol
Ethereum/Bitcoin: Secure the underlying network
@MakerDAO: Passively secure the protocol
@AaveAave: Actively secure the protocol
Instead of putting all incentives into yield farming basket, let's focus first on Safety Farming and reward people who are making other people comfortable to use our DeFi products and services. That is a better way for adoption and away from mass destruction.
Interestingly, people who are aligned to provide safety for a protocol, might be more interested for the health of the protocol when it comes to governance, compared to yield chasers with governance power who are looking to squeeze more cows.
Bonus chapter, let's incentives good behaviour with innovation such as NFTs. Users could be incentivized to save with @aavegotchi (which is cool if the deposits are based on Safety Mining). We need more this kind of stuff.
