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Congratulations to聽Patrick Augustin,聽Associate Professor in Finance, whose聽paper with co-authors Roy Chen-Zhang and Donghwa Shin (both with the University of North Carolina at Chapel Hill) titled 鈥淩eaching for Yield in Decentralized Financial Markets鈥� has been awarded the 2022 Global AI Finance Research Conference Best Paper Award. The award was announced at the annual Global AI Finance Research Conference in Singapore on December 12th, 2022. The conference provides a platform for researchers and practitioners from academia and industry to present current research and stimulate exchanges on new developments in FinTech areas.

Paper Abstract: Among the ecosystem of decentralized financial services, yield farming is a complex investment strategy with hidden downside risks providing opportunities for passively earning income. We characterize the risk and return characteristics of yield farming and show that yield farms dynamically compete for liquidity by offering high yields that are advertised as salient headline rates. Levering the full history of transactions available through blockchain data, we show that investors chase farms with high yields and that those farms with the highest headline rates record the most negative risk-adjusted returns. That underperformance is amplified by small investment stakes and investor mistakes. Overall, our evidence is consistent with salience theory that may underpin reaching for yield behavior. We exploit heterogeneity in shocks to the information set of yield farmers to show that improved information disclosure and reduction in product complexity reduces yield chasing and improves investor performance. Since yield farming is easily accessible to retail investors, our analysis has important implications for the regulation of decentralized finance.