Overview

Definitions

What is Yield Farming ?

• Yield farming is a means of earning interest on your cryptocurrency, similar to how you'd earn interest on any money in your savings account. And similarly to depositing money in a bank, yield farming involves locking up your cryptocurrency, called "staking," for a period of time in exchange for interest or other rewards, such as more cryptocurrency.
• When traditional loans are made through banks, the amount lent out is paid back with interest, with yield farming, the concept is the same: cryptocurrency that would normally just be sitting in an account is instead lent out in order to generate returns.[1]

What is a Liquidity Provider?

• A liquidity provider, also known as a market maker, is someone who provides their crypto assets to a platform to help with decentralization of trading. In return they are rewarded with fees generated by trades on that platform, which can be thought of as a form of passive income.
• It is important to note that the assets provided are locked with the platform for the amount of time the user decides to provide liquidity.[2]

What is a Liquidity Pool?

• The quantity provided by you would be in the form of a token pair, which are locked in smart contracts and are used to provide liquidity. The liquidity you provide is deposited into a liquidity pool, which is used in most cases, by decentralized exchanges. A liquidity pool is designated by the token pair it represents. For example, ETH-USDC is a liquidity pool that contains the liquidity provided for the token pair ETH and USDC.[2]

Methodology

• We look at all the token and ETH transfers to the Sushiswap Router 0xd9e1ce17f2641f24ae83637ab66a2cca9c378b9f where the origin functions are one of the following for adding and removing Liquidity.

  • SQL credit:

         '0xe8e33700' -- addLiquidity
        ,'0xf305d719' -- addLiquidityETH
        ,'0x5b0d5984' -- removeLiquidityETHWithPermitSupportingFeeOnTransferTokens
        ,'0xbaa2abde' -- removeLiquidity
        ,'0x2195995c' -- removeLiquidityWithPermit
        ,'0xded9382a' -- removeLiquidityETHWithPermit 
        ,'0x02751cec' -- removeLiquidityETH
    

• For all the yield farmer we look at all the transfer to 0xef0881ec094552b2e128cf945ef17a6752b4ec5d which is the SushiSwap: MasterChef V2 contract.
• All the analysis is the for the past 1000 days, which is configurable at the top.
• We define LP positions as each individual add liquidity transaction irrespective of the pool.
• To find the Profitability we look at total liquidity removed per pool by each user minus the total liquidity added per pool by each user, the difference if positive is profit, else loss.
• To find the length of time we look at first date of adding liquidity and the last day of removing liquidity for each pool for each user.
• For profitability per pool we look at the pool address and join it with the labels table to find the label/pool name
• Note: For metrics like TVL and profitability, we only look at LP Pools, as we don’t have prices for Sushi Yeild Farms Tokens in the prices table so we cannot find the USD equivalent value of each.

What’s the ratio of liquidity (Based on TVL) owned by the Protocol vs. Retail LP in both LP Pool and yield farms

• We look at
  • Retail TVL = The cumulative of Liquidity Added - Liquidity Removed
  • Protocol TVL = Current Pool Balance - Retail TVL.
• USDC-WETH Pool is one of the few pools where the Retail has a very comparable TVL, 17M $USD vs 23.4M $USD.
• DAI-WETH Pool is one of the other few pools where the Retail has a very comparable TVL, 3.1M $USD vs 6M $USD.
• WBTC-WETH pool is the only pool where the retail, owns around 3X the liquidity owned by protocol.

What’s the total no. of unique LP providers?

• In total there are 86.8K Liquidity providers out of which only 14.8K are yield farmers.
• Only 17% of the liquidity providers are Yield Farmers.

What’s the ratio between Yield farmers vs. LP Providers?

• The ratio of Yield Farmers to LP Providers is 0.17 which is quite low.
• We have seen this ratio be as high as 0.47 during the week of Dec 27, 2021.
• Most of the times this ratio has been 0.2±0.05.
• Both the number of LP Providers and Yield Farmers has seen a decline since Jan 2022.

What’s the average no. of LP positions opened by each unique wallet address

• On an average each wallet only holds around 3 LP positions, which seems quite low.
• The most number of LP positions are held by 0x1f14be60172b40dac0ad9cd72f6f0f2c245992e8 , totalling 1.2K positions, followed by 0x0202ed9ff0d505f9b064a610199a001cef9977bd with 571 positions.

The percentage (%) increase/decrease of LP Providers in Sushi over the last 1 year

• Over the past year we have majority seen number of LP providers decreasing per week.
• Jan 2022 full month only saw decrease in the number of LP providers, Mar-Apr saw a bit of relief, however since then it has been decrease mostly.

Evaluate if there is a correlation between profit vs. time of withdrawal

• Most Profit was seen in Sep 2020, however after that most of the months have seen similar amount of profits, irrespective of when the liquidity was removed.
• Mostly Wallets have seen losses, however May did see, around 3K wallets see impressive profits.

Correlation between profitability vs type of pool? EX: stable pool

• There doesn’t seem to be a strong relation between the stable pool vs profits, most of the profits have come from non-stable pools.
• This seems to make sense since most of the pools are paired with WETH and WETH has not seen much growth in the past 1000 days, other tokens like AXS and PERP have seen quite a lot of growth, hence more profits.

Evaluate if there’s a correlation between profitability vs. length of time?

• As seen in the charts on the right there is no clear co-relation between the profitability and the length of the time.
• However one thing is clear, wallets with less that a day of time, almost always end up with loss.

Conclusion

• Given the market conditions we have seen a drastic decrease in the number of Liquidity Providers as well as Yield Farmers
• Most of the Liquidity Providers in crypto end up losing money as seen in the data above, seems like majority of the profits are made by very few wallets, most likely the whales that control the markets.