Humble Farmer Tai breaks down his $1M on-chain yield farming strategy, revealing how he's capitalizing on an AI-related stablecoin and perpetual DEXs while navigating market uncertainty.
Review of Initial Farms: Oiler and Morpho
- Oiler: A $100,000 allocation is generating roughly 10% APY, yielding $64 in interest plus inflationary token rewards.
- Morpho: A $150,000 position is earning 8-10% APY, resulting in $110 in interest and additional token incentives.
- Tai emphasizes his “farm and dump” strategy for these inflationary rewards, cautioning investors against buying tokens that are heavily emitted to sustain protocol activity. He states, “If you're buying a token and you're wondering why it's going down, it's probably because there's people like me across the world... farming and dumping these tokens.”
- Strategic Insight: He rates these farms a "C-minus," signaling his intent to reallocate this capital to higher-yield opportunities soon. This highlights the active management required in yield farming.
The Perpetual DEX Play: Lighter's Liquidity Provider Vault
- Perpetual DEX: A decentralized exchange for trading derivatives with leverage, allowing users to speculate on asset prices without owning the underlying asset.
- The Lighter LLP vault has generated approximately $460 in one week. Lighter is a rapidly growing, invite-only perpetual DEX, second only to Hyperliquid in daily volume.
- The investment thesis is to “be the house,” profiting from the high volume driven by airdrop farmers and the statistical reality that most traders lose money.
- However, Tai notes the risk and volatility. The estimated APR has dropped from 71% to 55%, and recent 7-day returns were negative due to a phenomenon known as the “Tiki Curse.” Despite short-term losses, historical monthly performance has been positive.
- Strategic Insight: Tai plans to hold this position until the Lighter airdrop later this year, expecting a 40-60% APR. This demonstrates a strategy of tolerating short-term volatility for long-term yield, timed around a specific catalyst event.
The Main Event: Allocating $500K to USD AI
- USD AI Explained: This stablecoin is backed by a mix of T-bills and hardware-backed loans that use GPUs as collateral. This model allows businesses to borrow against their GPU assets to finance further hardware purchases.
- Tai highlights a key catalyst: the “big beautiful bill” introduced bonus depreciation, allowing businesses to expense 100% of hardware costs upfront, potentially increasing demand for this type of borrowing.
- The protocol, backed by Binance, has seen its TVL (Total Value Locked)—the total value of assets deposited in a protocol—shoot up. Initially, the backing is primarily T-bills, but as the TVL scales towards $500 million, the proportion of hardware collateral will increase.
- Farming Mechanics: The protocol has allocated 7% of its supply for an ICO (Initial Coin Offering) at a $300 million FDV (Fully Diluted Valuation) and 3% for an airdrop. Users farm points to gain access to these allocations.
The Farming Strategy: Navigating TVL Caps and Technical Glitches
- To earn yield and points, users stake USD AI to receive sUSDI. Staked holders receive the yield from all underlying T-bills, meaning if 50% of USD AI is staked, sUSDI holders earn double the T-bill rate (e.g., 8% yield from a 4% T-bill rate).
- Last week, Tai attempted to deposit $200,000 when the TVL cap was raised but was blocked by the website crashing, which he later learned was a suspected DDoS attack by a whale aiming to secure the entire allocation.
- He successfully entered the farm by using a workaround suggested by his Discord community: “zapping” funds directly into a Pendle liquidity pool, bypassing the faulty main website.
- This Pendle LP position offers a 15-25% APY on stables plus airdrop points, which Tai describes as “overpowered as hell.” He plans to deposit an additional $300,000 when the cap is raised again.
The Arbitrage Opportunity: Capitalizing on USD AI's Peg
- Peg: The fixed price at which a stablecoin aims to trade, typically $1.00.
- Due to intense demand from farmers and the strict supply cap, USD AI consistently trades 1-3% above its $1 peg on decentralized exchanges.
- The Trade: When the deposit cap lifts, Tai can mint USD AI at its $1 value and has two options:
- Immediately sell it on the open market for a near-instant, low-risk 1-2% profit.
- If the peg normalizes, he can simply hold the position and farm the 20%+ APR.
- Tai frames this as a win-win scenario: “Downside near zero, upside, 1 to 2% gain... in either scenario I'm winning, you know.” This highlights an inefficiency in the market that savvy farmers can exploit.
A Farmer's Philosophy: Minimizing Uncertainty in a Frothy Market
- Tai concludes with a candid reflection on his personal trading confidence and broader market philosophy, offering a crucial lesson in risk management.
- He admits his confidence and trading “edge” have recently declined, leading him to shift focus from maximizing gains to minimizing uncertainty.
- He advocates for the strategic value of stablecoin farming, especially when one feels they lack a clear edge in directional trading. It provides a way to stay engaged and productive without taking on excessive risk.
- Tai's core principle is balancing the drive for high returns with capital preservation. He states, “You can't... put yourself in a position to make a [ton] of money but also eliminate all downside.”
- Strategic Insight: This perspective is critical for investors. Recognizing personal or market limitations and shifting to lower-risk, yield-bearing strategies is a sign of mature portfolio management, particularly as the market cycle advances.
Conclusion
This episode reveals a sophisticated farming strategy focused on minimizing uncertainty while capturing high yields from market inefficiencies and AI-related narratives. For investors and researchers, the key takeaway is to evaluate stablecoin opportunities that bridge crypto with real-world assets like AI hardware and to exploit structural arbitrage during a protocol's growth phase.
