Harvest 101: FARM Token Economics
A Look at Harvest FARM Token.
Harvest Finance is an investment platform designed to help its users maximize their Yield Farming profits. The platform consists of a series of vaults, which are essentially automated strategies that can be changed to optimize returns. Perhaps the most useful aspect of Vaults is that they do not require users to pay gas fees to change strategy, and also automate reinvestment — compounding a user’s potential gains.
As if those benefits were not attractive enough on their own, Harvest provides additional incentive through dispersing its own FARM token to users of its platform. In this article we’re going to take a look at the FARM and discuss its emissions, as well as its utility as a profit share and governance token!
When we use the term “emissions” we are referring to the total number of new coins that will enter circulation. This can also be understood as the coin’s inflation rate. While many projects offer ridiculously high ROI — these high inflation rates often cause the coin’s value to plummet. FARM token has been specifically designed to not only offer a high ROI, but to do so in a manner that sustains its price point.
Many people new to crypto investing think that they could buy a coin like XRP at $.30 and that it will someday “moon” to $10k per coin like Bitcoin did. What they fail to understand is the concept of a coin’s maximum supply. It is Bitcoin’s scarcity — as well as its utility — that gives it its value. There will only ever be 21,000,000 Bitcoins, but there will be billions of Ripples. A better way to gauge if a project has reached its price potential is to look at the overall market cap (number of tokens x price per token). Coins with low circulating supplies tend to have a much higher price-per coin.
It’s also important to note that FARM was launched fairly and transparently. When the project started in September 2020, there were no venture capitalists, investor funds, or premined coins dispersed. FARM’s initial circulating supply was 0. It sustains itself through taking 10% of coin emissions for the Operational Treasury, which is used to pay for promotion and development, and 20% of coin emissions to pay the Dev Team salaries. The remaining 70% of emissions are dispersed to the various vaults as an added incentive. Please keep in mind that coins sold for Dev salary are sold through Tornadocash instead of dumped on the open market.
Through the first five weeks of FARMing, a total supply of 184,177 coins were dispersed to platform users. The initial scope of FARM was to have a maximum supply of 5M coins, minted over the course of 4 years. However, after the conclusion of the 5 week pilot, FARM holders voted overwhelmingly to reduce the overall supply to 690,420 — still dispersed over the course of 4 years. Each week the emissions would drop by 4%, approaching 0 on a logarithmic curve. The emissions chart looks as follows:
At time of writing, we are in Week 21 of emissions, and 11,431 FARM coins will be issued, of which 8335.66 (70%) will go to liquidity providers.
There will never be more than 690,420 FARM tokens in existence, making it one of the scarcest commodities available in DeFi and Cryptocurrency in general. Such a low supply ranks FARM as the 2nd most rare token — right behind YFI (and all its clones). At the current price point of $113, this gives FARM a “fully diluted” market cap of $78.6M — making it dramatically undervalued for the cash flow it brings in.
FARM Profit Share
At the time of writing, Harvest offers an incredible ROI to FARM stakers of 134.85% per year! You’re probably wondering, “how do they manage such a high ROI with such low coin emissions?” Harvest’s not-so-secret farming method is their ingenious Profit Share!
Users who stake their FARM coins are entitled to 30% of all of the yield aggregated by the platform! Currently, Harvest has over $600M in deposits, generating $39.4M per month in yield. Of this, 30% is paid to FARMers, to the tune of $11.8M per month. This extrapolates out to about $141M per year. These funds are aggregated and converted into FARM by market buying FARM off of the open market! Therein lays the secret to Harvest’s sustainability!
Let’s go back to our discussion about coin supply and Market Cap. Right now, there are only 441,476 FARM in existence, and there will never be more than 460,765 (thanks to a few coin burns) — a total supply that will not be reached for almost four years. This means that even at full market dilution, FARM’s yearly income is more than 1.5x its current market evaluation. Does that mean that FARM’s price has the potential to go up 1.5x in the next year? No, it’s even better.
74% of FARM tokens are currently staked on the platform, meaning that a maximum of 26% are on the open market to be “bought back” and paid to stakers. That means that FARM’s price discovery potential thanks to profit share is 1.5/.26, or about 6X! Obviously FARM’s income can fluctuate, but as long as yield farming opportunities abound — so does FARM’s potential!
FARM token is also used to govern the protocol. It was FARM holders that decided to reduce the maximum supply from 5M to 690K, and it will be FARM holders who continue to make these strategic decisions. FARM holders can make governance proposals in the snapshot.page community board, and then vote on those proposals within the same interface. Utilizing this form of governance helps to save users gas costs — something that Harvest loves to do.
Check out Harvest Governance here: https://snapshot.page/#/farm
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