Last month, the Fairfax County Retirement System shared that they will be putting $70 million of their $6.8 billion fund into two crypto yield farming funds. In other words, pension money that allows teachers, firefighters, and police officers to retire will be invested into volatile digital tokens known as yield-farming projects.
Yield-farming projects offer yields that are significantly higher than those available in bond markets – high-risk, high-reward, is the thinking. But there are few of the investor protections found in traditional finance. The protocols and coins earned are subject to extreme volatility, and even so-called rug pulls when developers abandon a project and make off with investors’ funds. There is no Federal Deposit Insurance Corporation protecting these funds.
In October 2021, one of Quebec’s largest pension funds — the Caisse de Depot et Placement du Québec — invested $150 million into the crypto-lending company called the Celsius Network. When Celsius went bankrupt over the summer, the pension fund experienced a precipitous drop in its value and was forced to write off its investment. Interestingly, the fund’s investment manager refused to concede that the investment was a mistake, merely calling it “too soon.”
Unfortunately, this is unlikely to be the only time that a pension fund loses money on a risky crypto bet. But we have tools at our disposal to mitigate harm.
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