Harvest Finance : The reality of APYs

Red
4 min readSep 12, 2020

Ahh, the life of a Discord moderator. Answering the same question 700 times a day even though we have provided a well compiled Wiki and FAQ in Discord. But I digress! No I am not here to lament my virtual woes on those of you who have gathered here for much alpha, but that little pity party is a segue into this articles core about how the APYs on Harvest.Finance work, which as you might have guessed is one of our most frequently asked (misunderstood?) questions in the Official Discord chat server.

First you might need to take a step back if you haven't read this article which explains how Harvest Finance works, especially in gas savings related to compounding. All brushed up? Now lets dive in to some quick fundamentals:

  1. Do you even know what APY means? (vs APR) To keep it simple, APY means you are compounding (reinvesting) your earnings into the original amount deposited, which can exponentially grow your worth, versus APR, which is flat interest generated on the base amount deposited. Most traditional banks use APY on your standard savings accounts, but with such tiny interest rates of ~1%, the compounded amount is negligible.
  2. But what about APYs of 300–600% like you are seeing displayed on Swerve.fi? This is where understanding APY is important, and may be very misleading by these projects who display these HUGE returns on your money invested. Why is it misleading? Well if you really did read this fine piece of literature, and understood point 1 above, then you would see that you are only achieving APY if you spend a ridiculous amount of gas through various steps to sell that SWRV and compound the earnings with your base investment. Most humble farmers do not know this important fact, or simply cannot afford the costs of constantly compounding.

Brain hurting yet? 🧠 Good it means you are finally putting it to use! Now lets talk about those APYs on the front page of Harvest Finance and what they mean:

APYs for depositing USDC
  1. The first APY listed is earned from the strategy that deposit is aligned to. (Currently Curve or Swerve) This APY is real in the sense that Harvest Finance does the compounding for you, multiple times a day! Not only are you seeing an actualized APY, you are saving time and money.
  2. The second APY listed is the stacked earnings you can gain from depositing the fAsset you receive when depositing to Harvest Finance to earn $FARM. These assets are not automatically staked for you because the fAsset can be sold on the open market. Selling on the open market enables smaller depositors to directly obtain fASSETs (fUSDC, fUSDT, fDAI) without paying high gas fees on the ‘Farm’ page. Smaller depositors will be able to stake their directly obtained fASSETs into the ‘Earn’ page and start earning $FARM right away.
  3. If you made it this far, time for some juicy alpha. Ready? There is a third pool you can stack for more of that sweet sweet nectar! Shhhh…

4. Final point, and its an important one. Harvest.Finance (or any of these complex systems like Curve/Swerve) are generally not for staking your funds for 1–2 days and then exiting to chase the next forked food group coin. The cost of gas, and slippage when entering/exiting these platforms, and/or fees charged (yVaults) can mean you actually lose money. Also because the “doHardWork” contract call, which distributes the compounding assets, occurs manually, exiting too soon can possibly mean you have yet not received your full allotment of earnings compared to what your APY projects to be.

In nerd speak: APYs for curve and swerve are point estimates based on short term strategy returns from the last doHardWork, extrapolated to 365 days, and don’t include entry and exit slippage. Depositing for short periods of time may result in losses due to slippage.

In Summary/TLDR; When you stake with Harvest Finance you have piece of mind knowing the best possible farming strategies are being employed, so let everyone else dumpster dive for spoiled Sushi, while you relax and reap what you have sown.

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Red

#Degen Crypto Enthusiast; Community Manager for Harvest Finance, Compli.Fi and APWine Finance