Survey shows 40% of DeFi traders can't understand smart contracts

There's a high chance that most yield farmers and DeFi traders may not have the technical prowess to read and independently audit the underlying smart contracts of such platforms, according to the results of a survey held by CoinGecko.

"Yield farming" - which took off after the launch of Compound in June 2020 - brought with it scores of newbies and traders to the crypto markets punting on tokens named after food and branding the highest earners as "Degens."

In a survey of over 1,347 people, CoinGecko found out that 40% of all yield farmers did not know how to read contracts.

5/ Shockingly, 40% of the farmers do not know how to read smart contracts and about 33% have not heard of impermanent loss! Does this mean.

The survey also noted that 52% of farmers put up less than $1,000 in capital to farm new tokens, with the high Ethereum gas fees remaining one of the biggest concerns.

The last metric the firm found was that each token "Farmed" by yield-giving projects made up less than 10% of the holdings of most investors - meaning returns were small and unlike the 10,000% annualized yields promised by some protocols.

As per CryptoSlate data on DeFi tokens, the crypto sub-sector accounts for over $11 billion cumulatively, with a tiny sector dominance of just 3.8%. This shows the DeFi sector could still be in its nascent stages despite the relatively high growth in July and August.

High gas fees - which regularly reached over $100 per smart contract interaction - meant investors with smaller portfolios, such as those below $1,000, did likely not many any profits on their yield farming activities: The fees were large enough to cancel out the profits.

CoinGecko additionally suggested it saw a "Farm and dump" behavior among large farmers, meaning the quick selling of all accrued tokens.

They might just be right - a lot of new DeFi tokens have fallen over 50%-80% since their all-time highs, with newcomers likely ending up with the bags that a large farmer may have offloaded on the open market.