Researchers say that most yield farming investors do not understand DeFi smart contracts which can leaves them vulnerable to many risks.
Most farmers earn 500 percent or more, according to a yield farming survey published by CoinGecko on Monday. However, a larger proportion of yield farmers don’t know their return on investment (ROI) and the risks in this application of Decentralized Finance (DeFi).
CoinGecko’s survey indicates that despite the confusion around the event, most people did not participate in DeFi yield farming for a month. Only 23 percent of the 1,347 people surveyed in August participated in some form of yield farming. However, at least about 80 percent of users were aware of the activity.
A significant percentage of users don’t understand DeFi smart contracts. It seems this group of people are those who take extreme risks for high returns because 33 percent don’t know what non-permanent loss means. This also indicates that they invested their capital substantially without having enough knowledge of their true return on investment (ROI).
It seems that many yield farming users depend on smart contract checkers for validating security or any DeFi smart contract. This might work for them; however, smart contract auditors have also warned that audits do not guarantee whether a contract will be secure. CoinGecko said: “As there are more copy-paste yield farming tokens that could potentially expose you to a greater risk of code vulnerability or fraud, all users should do their research before farming in any pool.”
The survey also showed that 52% of farmers put up less than $1,000 in capital to farm new tokens, with the high ETH gas fees remaining one of the biggest concerns.
Another result is that over 23% of the respondents participated in yield farming only in the past two months, showing the activity was still a niche but growing movement.