I just read this article from CoinDesk to try to learn about yield farming. (good articel btw) ...
https://www.coindesk.com/defi-yield-farming-comp-token-explainedWhen I came to the following quote ...
On Uniswap, there is at least one market pair for almost any token on Ethereum. Behind the scenes, this means Uniswap can make it look like it is making a direct trade for any two tokens, which makes it easy for users, but it’s all built around pools of two tokens. And all these market pairs work better with bigger pools.
... and found myself thinking, hmm, that sounds suspiciously like some kind of fractional reserve banking. Then thought, nahhh....
Then I read ...
If there were a run on Compound, users could find themselves unable to withdraw their funds when they wanted.
and ...
It’s possible to lend to Compound, borrow from it, deposit what you borrowed and so on. This can be done multiple times ...
and ...
And weird things have arisen. For example, there’s currently more DAI on Compound than have been minted in the world.
... then I was like, yeahhhh ...
And this ...
In a simple example, a yield farmer might put 100,000 USDT into Compound. They will get a token back for that stake, called cUSDT. Let’s say they get 100,000 cUSDT back ...
They can then take that cUSDT and put it into a liquidity pool that takes cUSDT on Balancer, an AMM that allows users to set up self-rebalancing crypto index funds.
... sounds like trading derivatives
