How to Start Earning High Yields in DeFi

DeFi is the generalized name for financial assets that are operated without central regulation. Five years ago, they were used mostly by crypto enthusiasts. Recently they started to gain more recognition due to the investment opportunities they offer. DeFi investment often provides higher yearly yields in comparison to traditional stock markets, despite higher risks frequently associated with decentralized finance. This comprehensive guide to the higher-yielding DeFi projects will help you determine which investment methods and strategies suit you the best.

How Does DeFi Work?

DeFi functionality relies on digital entities, such as cryptocurrencies and smart contracts. The latter are transaction protocols that automatically execute money transfers and other operations when required conditions are fulfilled. Smart contracts provide the infrastructure for market operation. They also eliminate the need for intermediary entities, and reduce the risks of errors.

DeFi protocols are another important element of the decentralized infrastructure. They serve as the basis of financial services. As of 2024, some of the most popular DeFi protocols are MakerDAO, Uniswap, and Aave. With lots of tokens, protocols, and investment methods, the diversity and decentralization of the DeFi may feel overwhelming. However, here is the essential information that will help you to get the best DeFi yields. 

How to Achieve the Highest Yield in DeFi

To determine how profitable a DeFi strategy is, a metric called APY, or Annual Percentage Yield, is used. It defines a potential return on your investment within a year, including the compound interest. Sometimes, you can also encounter APR, or Annual Percentage Rate. It is a similar metric, but without the compound interest. When reading reviews on DeFi platforms or choosing a strategy, look for options that allow you to maximize yield.

Whatever strategy you choose, there are certain best practices for finding higher yields in DeFi. Here are the core principles to consider:

• Choose the right platforms. Analyze the characteristics of platforms that caught your interest and read user reviews. Give preference to ones with an established history and transparent structure.
• Balance Risk and Rewards. Do not concentrate all of your investment on one type of asset or one platform. Recognize your risk tolerance and choose your DeFi farming strategy accordingly.

One of the most effective strategies for maximizing yield in DeFi is known as yield farming. In short, the yield farmer acts as a liquidity provider. This means, they provide their crypto assets in the form of staking or lending cryptocurrency, getting a yield in the form of interest, transaction fee percentage, or a governance token. While being risky due to the volatile and unregulated nature of the DeFi market, this form of investment can turn into a reliable income source when approached properly.

How to get the Best DeFi Yields: A Step By Step Guide

To move on from the theory to practice and help you with the initial steps toward crypto investment, here is a simple step-by-step guide:

1. Choose a DeFi platform using the information below or other lists and reviews. Note, that the market constantly changes, as new platforms and tools are developed. Look for the newest reviews, as even within a year the market may change drastically.
2. Acquire the tokens you need to participate in trading on a chosen platform. Commonly, it will be USDT or ETH, however, other options are also possible. Read up on various wallet types as well to store your newly acquired crypto assets securely. Usually, it is not advised to store all your crypto tokens in one place. At the very least, separate your assets into two wallets, one for active operations and the other for long-term storage. The most common options are MetaMask and TrustWallet. Check which ones are supported by a DeFi platform of your choice. After setting up a digital wallet, connect it to the platform.
3. Start yield farming: choose a liquidity pool and deposit your tokens into it. You may select several to mitigate risks that appear due to the coin value fluctuation. Combine several investment options with different risk/reward rates to maximize your returns in DeFi.
4. Stake your LP tokens to increase your rewards. In the previous step, you will earn liquidity provider (PL) tokens, representing your input in the pool. Staking means locking them for a specific period for additional rewards. Read the staking conditions carefully, as they vary from platform to platform.
5. Harvest and reinvest your rewards. While yield farming does not require high-frequency monitoring and adjusting, it is useful to check the performance of your pools from time to time, as well as collect your rewards and reinvest them. Certain platforms allow automation tools for this process.

A necessary component of a yield farming strategy for the highest returns is diversifying your assets. Study the characteristics of several investment options and combine them to mitigate risks.

What Are the Top DeFi Platforms for the Highest Yield?

A multitude of DeFi projects exist, each with its own set of features. Some of them are aimed at advanced investors while others provide easy-to-use tools for those who have just started their investment journey. Here are several examples of DeFi platforms with highest returns in 2024:

Harvest Finance

Harvest Finance is a yield farming aggregator that supports a wide range of stablecoin pairs and uses state-of-the-art algorithms to find the most profitable yield options for users. It aggregates yield opportunities from hundreds of third-party platforms and gives its users an automated way to choose the best of them without the need to explore and compare all options manually. It presents its native token, FARM, which gives its holders additional opportunities for earning rewards.

Beefy Finance

Beefy Finance is currently one of the most noticeable actors in the DeFi sphere, offering its users an efficient way to get the best DeFi interest rates with a minimum amount of manual effort. At Beefy Finance, users can choose between two types of Vaults, which are essentially yield farming strategies, profiting either from the native BIFI token or from the combination of various assets through lending platforms. Beefy employs modular smart contracts that determine the process of automated profit accumulation and reinvestment, allowing the users’ vaults to grow.

Rivo

Rivo is another example of a DeFi investment platform that uses effective automation strategies to provide its users with stable income. The platform presents a comprehensive selection of investment strategies but offers its users an easy-to-use interface, thus searching for the best opportunities accessible for beginners. Investment strategies are categorized by asset type, volatility, and risk level, which makes it easier to choose the most suitable one. Users can start with the options that require minimum activity, such as collecting passive income, or using a whole array of cryptocurrency operations, concluding trades, lending, and borrowing assets.

How to Choose the Best Yield Farming Platform

Whether you prefer one of the platforms mentioned above or prefer to search for other top-yielding DeFi platforms, it is useful to watch out for the following criteria which will help to understand if a particular platform suits your needs and is a reliable way to establish a passive income:

• User Interface and Experience. Explore the knowledge base and other resources the platform of your choice provides for newbie investors. You should be able to understand the nature and consequences of your operations with your assets and have easy access to all the basic features. Some DeFi platforms allow switching between “easy” and “advanced” interfaces.
• Security and Transparency. Learn how the platform of your choice protects users’ data and assets. Look for information about data breaches in the past. Do not limit yourself to the information provided on the platform itself. Explore external sources, such as TrustPilot reviews. Remember that if something feels too good to be true, it probably is. Do not let your desire of finding the high APY DeFi platform and maximizing DeFi returns with high yield strategies overshadow your caution.
• Token Diversity and Integrations. Give preference to the platforms that provide the best variety of crypto tokens. The wider the token selection is, the more investment opportunities you will find at a particular platform. Look at the wallet integration as well to find the options that are the most convenient for you.

The best practices for finding the highest yield in DeFi include thorough research and cautious exploration of the opportunities emerging on the market. Along with time-tested strategies such as staking and liquidity provisioning, you can try out alternative and innovative DeFi strategies, such as high-frequency trading or NFT Farming. However, many investors prefer to just stick to the proven strategies that provide a steady income, such as yield farming.

The Future of Yield Farming

While the last couple of years demonstrated the growing potential of yield farming, the long-term evolution of the market is hard to predict. The value of DeFi assets can be influenced by regulatory measures introduced in various countries, as well as by changes in the global economy. Among others, there are following trends to look out for in 2024 and beyond:

• An increasing role of AI integrations in various investment and trading tools, such as using AI for risk assessment or determining the most profitable farming strategies.
• A growing level of collaboration between DeFi lending platforms and protocols, with the market becoming more integrated.
• Development of DeFi investment products tailored more precisely to the user needs, which, in turn, will lead to the wider adoption of decentralized finance, not limited to crypto enthusiasts anymore.

By applying the best practices, such as those described above, and diversifying your investment portfolio, you can tackle these challenges on the way to your goal of maximizing DeFi returns with high yield strategies no matter what happens on the market. Stay on top of current trends and find several reliable sources to follow, to understand how the market will change in the future and take advantage of the emerging investment opportunities.