Yield farming comes with a variety of risks. These are broadly:
- Scam risk (intentional)
- Code risk (unintentional bugs)
- Ethereum fee risk
Borrow/lend protocols on Ethereum are built using smart contracts, which is a fancy word for computer code that runs on the Ethereum blockchain. A smart contract that handles money / cryptocurrencies could include features that enable the programmer to take all the funds whenever they want.
Look for code that is open source and audited by a reputable person / team. Never send your money to a protocol unless both of these are in place. Even so, this does not fully eliminate risk.
All computer code contains bugs. Even when the writer of the code does their best to ensure it works as intended, they can miss things.
Often these are benign issues. But sometimes they can be serious, and someone can exploit the issue to their advantage. If you have supplied money to a borrow/lend protocol, a bug like this could result in you losing your money.
This isn't such a risk for larger / wealthier participants. But for smaller participants, Ethereum gas fees can become a genuine issue. In August 2020, Ethereum fees rocketed as several projects offered yield farming opportunities and lots of people raced to take advantage. Smaller players found the costs to withdraw their funds were higher than their earnings. They lost money.
Argent is simple and safe to use – we carefully curate protocols inside the app to minimise your risk. Try Argent now!
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