Long-Only: A Better Approach to DeFi Farming

3 min readMar 15, 2022

Auto-compounders can seem a bit like magic the first time you use one. Simply deposit your assets and watch them grow, as simple as a savings account. A closer look at the underlying strategies, however, shows some cracks in the foundation. The key problem is that they generally rely on strategies that involve claiming governance tokens issued as rewards by an underlying protocol and selling them in the market to buy more of the deposited token. This is not ideal for farmers, because selling tokens today pushes their value down, and makes the ones you farm tomorrow worth less. The more farmers who use this approach, the worse everybody’s returns become. Classic tragedy of the commons.

Pictured here: tragedy of the commons. When everyone farm-dumps, everyone loses

If farm-and-dump autocompounders are “not ideal” for users, they are downright bad for the protocols they exploit, and their communities. A farm-and-dump user is quite parasitic to the underlying protocol since they depress the token price, and do not participate in governance (which is ostensibly the purpose of the rewards). If a large enough volume of TVL is dumping all of their rewards then the token price will suffer, and in the worst case, the parasites can kill the host. A protocol may still need to issue these rewards to incentivize capital to support its core functions, but for the protocol it is always better if farmers hold than sell.

The pragmatic farmer will ask, why should I hold a volatile governance token, for a protocol in which I have no conviction? Of course, you shouldn’t. But you might also ask why you farm such a protocol in the first place. This type of transaction is a short term play with diminishing returns. The future of DeFi is not mercenary capital exploiting farm after farm, leaving destruction in its wake, but rather it is savvy farmers using their capital to support high quality, foundational protocols, while earning sustainable rewards that can increase in value, retroactively making their farming returns better and better over time.

Farmers looking to deploy this strategy will choose only the best quality protocols to farm, and leverage their core assets to earn associated high-quality DeFi tokens. Rewards can sometimes be compounded in a single-staking vault, depending on the asset in question, yielding a return that compounds even faster than the underlying reward rate on the base. More importantly, farmers using such a strategy will keep price exposure to the farmed token, which if well chosen can yield returns that dwarf those of the farm-and-dump compounder!

The missing piece of the farm and hold strategy is the mechanization of the auto-compounder to provide convenience and gas savings. To address this need, AladdinDAO has released a new product called Concentrator: the first farm-and-hold auto-compounder in DeFi. Based on the exceptional Convex and Curve ecosystem, Concentrator maximizes Convex vault returns by swapping rewards from Convex vaults into cvxCRV and staking it in the Convex cvxCRV vault, allowing farmers to keep CRV price exposure while boosting yields by around 50%. When it’s time to withdraw, farmers can also zap to CVX, CRV, or even ETH. Farmers enjoy a big boost to their returns, keep exposure to CRV/CVX and simultaneously help support the Curve and Convex protocols.

Concentrator adds a piece to the investment landscape which was missing before; the ability to leverage the benefits of an auto-compounder while longing, rather than shorting, an excellent reward token. Depending on a farmer’s tax jurisdiction it may also provide an advantage by allowing the farmer to choose when to claim rewards while still benefiting from compounding yields. It is a new tool in the Curve and Convex farmer’s toolkit and an experiment in better inventive alignment.

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