Also known as Farms-as-a-Service or Farming-as-a-Service, FaaS is a new technology that allows any blockchain project to create what are known as yield-farming pools. These yield-farming pools are funded by liquidity pools (LP) that users have supplied, and operate similarly to hedge funds in the traditional investing landscape – users supply the liquidity for others to turn around and invest for them, generating percentage profits for both the supplier and investor.
One important thing to note is that Farm-as-a-Service is not the same as Function-as-a-Service which can also be shortened to FaaS.
Using similar acronyms is a program known as Function-as-a-Service. Despite the same acronym, they are vastly different. Function-as-a-Service is a completely different cloud-computing technology and service that allows users to run code in response to live, real-time events without having to deal with the complexity of building and launching a microservice application infrastructure.
Therefore, when wanting to learn more about cryptocurrency, it is important to look for Farm/Farming, instead of Function.
It can be hard to keep up with crypto as it constantly changes and innovates how we think about blockchains and non-traditional finance. One of the newest additions to the cryptocurrency world is FaaS or Farming-as-a-Service.
Similar to traditional hedge funds, FaaS allows you to give your cryptocurrency to a group or person that has more experience. They take your money and have someone invest it into smart options.
In FaaS, you can either be the person investing the money for others, or the person asking for someone to invest the money for you. This can be a great way to increase your money via investments when you aren’t sure of the best things to invest in. However, those that handle the investments do get a percentage of the profits. So if you have experience in cryptocurrency farming, it may be worth farming as a service.
Keep reading to learn more about FaaS and investing when involved in cryptocurrency.
How Does FaaS Work?
To better understand how FaaS works, first, we have to look at a commonly used term within crypto circles known as tokenomics.
Tokenomics is a word used to describe the mathematics and incentives used to govern crypto assets. This refers to everything from the mechanics of how an asset will work to the psychological forces that could affect the asset’s value in the future.
Most FaaS tokenomics follow similar principles but keep in mind that there may be differences between each one. Below are some of the most common characteristics of a FaaS:
- Taxes – a controversial topic surrounding FaaS protocols, whenever you purchase or sell FaaS tokens, you have to pay a tax (usually somewhere around 10% of your transaction total).
- Treasuries – each FaaS token has its own treasury that is put to work by the protocol team through yield farming, trading, and investments.
- Dividends – FaaS token holders are paid in dividends, and these dividends are usually paid in Ethereum as opposed to the native token of the FaaS protocol which is beneficial for token holders.
Because FaaS makes use of audited protocol teams agreed upon in Smart Contracts, the service is kept accountable and trustworthy. The FaaS protocol team only goes on to use the liquidity provided to perform investment strategies across the decentralized finance (DeFi) environment including non-fungible tokens (NFTs) and crypto trading.
The user is then automatically rewarded with the dividends of their investment success, without having to know a great deal about the world of cryptocurrency and DeFi.
How To Get The Most From FaaS?
To get the most from using a FaaS service, you have to understand the risks of FaaS or, indeed, the risks of cryptocurrencies and investing as a whole before balancing those risks with your risk tolerance. There may be a large amount of danger with investing in yield farming, but there is also a chance for a high reward. Knowing how to choose the best options that allow you to profit is important.
- Taxed on token purchase and sale – Because there are taxes involved with buying and selling transactions with FaaS protocols, you will want to keep this cost as low as possible. This means that you shouldn’t be buying and selling FaaS tokens quickly over every small fluctuation in the market. You also have to be relatively confident that the protocol team will be able to outperform the market consistently enough to cover the taxes and gas fees associated with FaaS and other crypto transactions.
- Protocol teams and their leaders can be anonymous – The investing expertise may be volatile based on the individuals that make up or lead a protocol team. If someone on the team decides to leave in search of better opportunities, it directly influences your dividends and potential profits. This is because future farming and investment decisions may not result in substantial returns or could even become losses without knowledgeable protocol team members.
- FaaS is still new and growing – This is a two-pronged point to discuss (see next two points):
- Traditional hedge funds typically have 20 or more years of recorded performance to put investors’ minds at ease – This is in direct contrast to most, if not all, FaaS protocols that may have a few months of history at best. Keep in mind that past performances do not necessarily guarantee future success but it does make it easier to view trends in the market.
- Most emerging protocols have small market caps – To give you an idea, as of writing this article, the entire market cap for the entirety of the FaaS protocols was $42.1 million. Compare this to the market cap for the entire cryptocurrency industry at almost $2 trillion, and you can quickly see that this subsector is just a drop in the crypto ocean right now. This means you could lose funds due to slippage (the result of a bid/ask spread change between when a market order is requested and when the order is executed) and transaction gas fees. This is especially true for selling back to the open market since there is a low volume of FaaS token demand.
Why Should I Use A FaaS Service?
It is usually better to invest in farms yourself. If you have the proper amount of time to research, you can make a lot more money and take calculated risks without having to rely on a middle-man.
However, sometimes, it isn’t possible to spend that much time researching, or you are still new and unsure of how to choose the best farms to invest money into.
Whether you want someone to help you along, or to get ideas of how best to invest yourself, FaaS services can provide a way to work with a team that is very experienced in the various farms across platforms to give you the best chance to get more money.
Additionally, most of the time, good services make more money from helping you, so there isn’t much to worry about, as helping you benefits both you and the service.
Top FaaS Services To Use
When it comes to FaaS services, new options are popping up on the market faster than most people can keep up with. However, that doesn’t mean they are all good options to invest in for one reason or another.
Maybe one service’s tax rate is too high for your liking, or perhaps it is a new and unproven protocol that seems too risky.
Listed below are some of the best services available to date.
Multi Chain Capital (MCC)
One of the first protocols to rise in popularity, this relatively large protocol boasts consistent, high yields that are shared with $MCC token holders.
MCC makes it possible for users on the Ethereum and Binance Smart Chain blockchains to earn dividends from the bridging, farming, and investing efforts by MCC on both Layer 1 and Layer 2 chains.
MCC has a tax of just 6% on buying and selling, the lowest tax rate of the listed services here. A third of this tax is returned as an incentive reward to those who already hold the $MCC token. The remaining two-thirds go toward the protocol’s treasury for future yield farming efforts.
Binance Multi Chain Capital (BMCC)
Heralded as a DeFi 3.0 solution, this protocol aims to reward token holders with capital by investing in the newest and greatest Layer 1 blockchain projects and tailoring their market research to stay on the cutting edge of the competition.
Buying and selling transactions involving the $BMCC token incur a 15% tax. This sounds like a lot, and it is, but BMCC concisely breaks down what happens to that tax for you.
One-third is allocated to market research, another third goes toward the treasury for developing the portfolio of BMCC, while the final third goes back to existing token holders as an incentive for holding.
Empire Capital (ECC)
Another popular protocol goes as far as stating that it provides Defi-as-a-Service (DaaS) which encapsulates FaaS, Infrastructure-as-a-Service (IaaS), and several other services.
Empire Capital continues to innovate in line with its goal of encouraging crypto accessibility and normalization.
Empire Capital lays out how transaction taxes are used by the protocol and it is divided up between buy and sell transactions.
Of the 10% incurred on the purchase of the $ECC native token, 9% of it is given as a “reflection” reward to existing token holders.
The remaining 1% is “burned” – a deflationary action used to increase the value of the remaining tokens along the train of thought that assets tend to increase in price as the supply in circulation becomes less abundant.
Selling transactions also have a 10% tax, but it is split up into three separate categories that are different from how the buy taxes are used.
2% goes towards the liquidity pool and advances the portfolio of the protocol automatically. 4% is used in marketing, and the final 4% goes back to the treasury which goes on to produce more profits through yield generating efforts.
Reimagined Finance (ReFi)
Often considered to be one of the safest options because of its remarkable transparency, ReFi has the 2nd largest treasury in the growing FaaS market. The size of the treasury is thanks to the 12% tax that goes straight to the protocol’s treasury.
The protocol proudly shows statistics on their website, with reportedly over 1600 Ethereum being distributed between their 3000 or so token holders.
All Coins Yield Capital (ACYC)
ACYC is one of the protocols that employ every strategy possible to make a profit for its token holders including crypto trading, NFT trading, and yield farming.
In this protocol, the 10% tax on buying and selling the $ACYC native token automatically goes to the existing token holders as a reward.
Final Thoughts
FaaS crypto investing is still new even concerning the constantly innovating and evolving nature of cryptocurrency and decentralized finance. It has great potential, especially for those who don’t know a lot about crypto but want to invest in its future.
By investing in a FaaS protocol, newcomers can profit and prevent any fear of missing out (FOMO) while they learn more about the blockchain, their projects, and how else to make the most out of crypto investing.
It is important to know that FaaS protocols aren’t necessarily the perfect solution though. They do have their unique set of problems and present risks that may be too much for the risk-averse.
There are plenty of options out there to explore with a range of taxes, benefits, and investing strategies so, as with any investment, it’s critical to do your research surrounding each aspect of a protocol. This can include the market cap, how they incentivize and reward token holders, the leadership of the protocol, the investment strategies employed, and much more.
In the end, FaaS operates similarly to traditional hedge funds and can payout consistent dividends for some nice income. In some cases, it may be best to simply buy and hold. To paraphrase what is often said on the new investment scene, diamonds hands hold until it goes to the moon.
John S. Logan has been working with cryptocurrency for nearly as long as it has been available on the market. With a professional background in the finance industry, he believes that blockchain technology, cryptocurrency, and decentralized finance play an important role in the future of the world.
