Farming
Decentralized exchanges like Uniswap V3 are fundamental parts of the Web3 ecosystem, allowing the exchange of tokens. They work differently from traditional exchanges where people put buy and sell orders that the operators of the exchange match with each other allowing people to buy and sell cryptocurrencies. But decentralized markets must operate automatically without intervention of third parties. This problem has been solved by introducing the concept of Liquidity Pools where users deposit or withdraw cryptocurrencies from a stockpile called liquidity pool.
Users are incentivized to provide liquidity to the decentralized markets by taking a share of the trades made by other users. The more transactions the more rewards you get by providing liquidity to the market.
However, if there are few transactions there is not a lot of incentive to keep your money in the liquidity pool. This is why Seasonal Tokens implemented Liquidity Farms, to provide an extra incentive for Liquidity providers.
Nine percent of all Seasonal Tokens mined are donated to the Farms. There are two farms, one in Ethereum network and another in Polygon network. There is one Uniswap V3 in the Ethereum network, and another Uniswap V3 in the Polygon network. Both farms receive 4.5% of all mined tokens.
Investors and miners can receive a regular income of tokens by providing liquidity at Uniswap V3 and then depositing the Uniswap liquidity position into the farm. Farming helps to ensure that there is sufficient liquidity available for trades, and it generates a rotating demand for the tokens that complements the rotating scarcity.
Here is a tutorial on how to create a liquidity position and deposit it into the farm: Farming Tutorial on Reddit
Which Token is the Most Profitable to Farm?
Polygon Farm
| Spring | Summer | Autumn | Winter |
|---|---|---|---|
| 40.7% | 63.9% | 22.7% | 38% |
In this page we will dive into the details about how profitable it is to farm the tokens.
Farming Rewards Correlate with Mining Supply
The 9% donation to the farm is distributed among the 4 liquidity pools in such a way that complements the changes in mining supply, adding a rotating demand that acts together with the mining supply to produce the oscillations in the relative price of the tokens.
Four months after the mining supply of a token is cut in half, the farming reward for that token is increased, creating a combination of reduced supply and increased demand helping the price oscillations.
Number of Tokens per Reward
Every ten minutes on average a miner finds a solution to the proof of work challenge and receives a reward in tokens. There are 144 rewards per day.
| Month | Year | Spring | Summer | Autumn | Winter |
|---|---|---|---|---|---|
| September | 2021 | 168 | 140 | 120 | 105 |
| June | 2022 | 84 | 140 | 120 | 105 |
| March | 2023 | 84 | 70 | 120 | 105 |
| December | 2023 | 84 | 70 | 60 | 105 |
| September | 2024 | 84 | 70 | 60 | 52.5 |
Farming Rewards
Nine percent of the tokens mined by the Seasonal Tokens liquidity pool are donated to the farms. Notice that there may be other liquidity pools and solo miners outside the Seasonal Tokens pool. Specially when the token prices make it profitable.
For example, in June 2022 the mining supply of Spring was cut in half, four months later, on October 2022 the farming rewards changed and Spring receives more rewards than the other 3 tokens. In March 2023 the Summer mining supply was cut in half, four months later, on July 2023 the farming rewards changed and Summer receives more rewards than the other 3 tokens. In December 2023 Autumn mining supply is cut in half, and on April 2024 the farming rewards will give Autumn the larger fraction of rewards.
| Month | Year | Spring | Summer | Autumn | Winter |
|---|---|---|---|---|---|
| Initially | 2021 | 0.19 | 0.23 | 0.27 | 0.31 |
| October | 2022 | 0.32 | 0.19 | 0.23 | 0.26 |
| July | 2023 | 0.27 | 0.32 | 0.19 | 0.22 |
| April | 2024 | 0.23 | 0.27 | 0.32 | 0.18 |
| January | 2025 | 0.19 | 0.23 | 0.27 | 0.31 |
Profitability of Farming
Number of Tokens donated to the Farm
Each farm receives 4.5% of the mined tokens, therefore the number of tokens donated every day is:
(144 rewards per day)*(Number of tokens per reward)*(4.5/100)
For example, at the time of this writing the number of Spring Tokens per reward is 84, therefore the number of tokens donated per day to each farm is: 544.32 Spring
Token distribution among the four Liquidity Pools
Those 544.32 Spring tokens are distributed among the four liquidity pools in the proportion given by the Farming Rewards (Fraction) table above. At the time of this writing the fraction of tokens distributed to each Liquidity Pool is: (0.27,0.32,0.19,0.22) for Spring, Summer, Autumn and Winter Liquidity Pools respectively.
Therefore the 544.32 Spring tokens will be distributed in this way:
146.97 tokens to the Spring liquidity pool. 174.18 tokens to the Summer liquidity pool. 103.42 tokens to the Autumn liquidity pool. 119.75 tokens to the Winter liquidity pool.
Token distribution among the Liquidity Providers
Finally the last factor in the calculation of the token rewards is the fraction of the tokens each liquidity provider receives. The tokens are distributed according to the fraction of liquidity provided. A person holding 10% of the liquidity will receive 10% of the rewarded tokens.
We can calculate the amount of tokens received per ETH or Matic invested. Let's suppose we are talking about a Spring Liquidity position in the Polygon Farm, then in order to know how many Spring tokens you receive per Matic invested you have to multiply by 1/Total Matic in the Spring Liquidity Pool:
146.97*(1/2597.18)= 0.0566 Spring tokens per Matic invested in the Spring Liquidity pool every day.
One Matic invested in the Spring liquidity pool receives also Summer, Autumn, and Winter. So to calculate the total rewards per matic per day we have to add the other rewards.
WARNING
The above numbers vary a lot every day with the change in prices, amount of tokens in the liquidity pools, and the Fraction of Farming Rewards given to each pool. The above example calculation shows that in this particular moment the Summer Liquidity pool is being more profitable. But if many people deposit liquidity positions in the farm this number will decrease.
Therefore the yearly ROI is just a number to visualize the current state of the Polygon Farm, but is not a good indicator of future profitability.