Avalanche is one of the most popular blockchains in the whole DeFi ecosystem. It is built with a novel consensus mechanism that uses four different interconnected protocols called the Snow Family. The name Avalanche refers to just one of these protocols. However, it is also the name of the chain as a whole. This complex consensus system is designed to solve the Byzantine fault that, in theory, can significantly increase the risk of systemic failure in other blockchains like Bitcoin and Ethereum.
The technological innovation of Avalanche is one of the key reasons for its popularity among tech geeks and crypto enthusiasts. The online community has over 1 million active users. Throughout an average week, the protocol handles over 8 million transactions. At the beginning of 2024, the blockchain reached its ATH monthly active users (1.6 million). Despite the number of active users slightly declining by August 2024, daily gas usage and transaction numbers are consistently increasing.
The DeFi ecosystem has a very special place for Avalanche. It is a highly useful blockchain with multiple interesting protocols that are already changing the market in positive ways. AVAX is also a popular financial instrument that can be staked or used as collateral on a variety of DeFi platforms.
Currently, DeFi on-chain analytical websites track 299 different pools featuring AVAX, SAVAX, and WAVAX. TVL numbers range from a measly $10,000 on TraderJoe to a massive $215 million on Benqi Staked Avax. Interest rates also vary depending on the protocol and its AVAX utilization method. For instance, you can receive up to 5.62% base APY on Benqi or use liquid restaking pools from platforms like Balancer to get up to 5.05% in SAVAX rewards.
If you want to start investing AVAX on yield farming platforms, you should take just a couple of important steps:
The selection of platforms that offer rewards for AVAX staking is quite limited compared to popular stablecoins or mainstream coins like ETH or BTC. However, you can still find lucrative investment opportunities within the DeFi ecosystem. Investors should not forget that they can always use protocols deployed on this chain to farm yields using other types of cryptocurrencies. We will cover these options too.
The total number of pools offered by Avalanche-based protocols is close to 460. Finding a good investment tool is not as hard as finding one for popular stablecoins or ETH. The Avalanche ecosystem is not as complicated and diverse as bigger networks.
Some of the most popular protocols operating on the chain are Aave, Benqi Lending, GMX, PerltaPrime, and Yeti Finance. These platforms offer different types of services from liquidity mining to lending. As of the time of writing, Avalanche had 401 tracked protocols with 24,000 unique addresses interacting with them daily. An experienced investor will quickly find options that fit their portfolios and risk styles.
Note that many protocols have underwhelming metrics. If you want to work with reliable protocols, their number is notably lower compared to other, larger networks like Ethereum, Polygon, BSC, or Arbitrum.
Many newcomers are interested in staking their layer 1 coins. Avalanche offers incredibly generous rewards compared to Ethereum. The latter, on average, yields 4% APY while AVAX staking goes up to 7.6%. Many Ethereum investors often fall behind their counterparts investing in HY bank accounts or buying US treasury bonds (4.11% APY in 2024). On the other hand, AVAX is known for its volatility. For instance, the coin is already 63.5% down compared to this year’s high.
Many investors believe that investing in certain protocols with even more generous rewards can be a good way of achieving high AVAX farming APY numbers. For example, the AVAX Supercharger pool on WOOFI Earn offers a 6.8% base APY and 7.67% in WOO rewards for a total of 14.47% mixed APY. While these numbers look good on paper, the WOOFI platform does not have impressive metrics. The combined TVL is below $16.5 million and the biggest pool on Avalanche is USDC Supercharger with a $825,000 TVL, 7.92% base APY, and 3.32% WOO reward APY.
Selecting one investment option over another should be a decision made after careful consideration of all potential outcomes.
Since the protocol does not have too many pools with high TVLs, you should focus on investment strategies that do not expose the portfolio to excess risks. The best way to do so is by choosing protocols with moderate risk-reward ratios. Beginners should also consider staking as their main investment tool if they plan to work with Avalance. If yield farming is something that you decided on doing, avoid low-TVL pools and look for rewards in layer-1 coins since they can recover. WOO, QI, and GoGoPool are inflationary and may soon become worthless.
Careful investors always try to focus on strategies that allow them some room for maneuvering. For instance, it is a good idea to hedge your staked positions to achieve delta neutrality. AVAX is offered by multiple CEXes and DEXes as perpetual futures allowing you to short the asset while holding it in a high-yield pool. Calculating the overall effectiveness of such approaches can be difficult since crypto prices tend to change quickly. However, it is a safe option for experienced investors.
Here are some tips for beginners:
All of the above may convince you that there are no safe strategies on Avalanche. While it is true that the network itself is struggling to take a big market share, many of its protocols are doing fine. For example, the WOO token is surprisingly resilient and has been trading above its lowest price at the launch for over 3 years. As of the time of writing, it had a solid $284 million market cap and over $5.1 million in daily trading volume.
Even Benqi, with its QI token succumbing to inflation, has a $63.7 million market cap and daily trading volumes close to $1.9 million. These are still good numbers and indicate a good level of liquidity making them fine investment targets for those who want to achieve consistency.
We have already mentioned relatively high APYs for staking and solid gains in reward tokens for some Avalanche pools. However, these rewards are significantly lower compared to what you can get by engaging in slightly riskier yet more lucrative projects on Solana or BSC. While Solana is known for its huge amount of scams and meme projects, it has 159 protocols visited by 1.6 million unique visitors. The sheer number of interactions leads to higher liquidity, higher throughput, and, as a consequence, more fees, higher interest rates, and increased flexibility.
The risks of investing in AVAX yield farming are numerous:
Investors looking to improve profitability should be scouting the sector all the time. AVAX is not the most popular digital asset in 2024 as multiple security failures in 2023 significantly reduced the number of crypto enthusiasts supporting it. However, you can still find interesting investment opportunities on the Avalanche network.
The situation may change in the future if the development team behind the blockchain rolls out new security features and allows auditors to conduct thorough inspections of smart contracts. With over 247,000 contracts deployed and 40,000 deployers, it is imperative to focus on safety and appropriate data handling.
In 2024, one of the best approaches to receive rewards for AVAX staking is by using established protocols like Aave, Balancer, Benqi, and WOOFI. While other platforms exist and offer flexible investment opportunities, only a handful of them reward investors with native or governance tokens. Since the popularity of blockchain tanked in 2023, your options will be limited. Nonetheless, you can search for platforms with great reward APYs.
For instance, one of the most popular gamblefi projects BetSwirl offers its users an option to provide additional funds to the platform via BETS pools on the Avalanche blockchain and receive wrapped AVAX in exchange at a high 26.48% interest rate. You can stake acquired coins on Balancer for additional Benqi Staked AVAX rewards (4.8% APY).
The selection of protocols using Avalanche is quite limited as only a handful of currently operational projects have sufficient TVLs to be featured in any list. In August 2024, Aave V3 and Benqi Lending controlled close to 50% of the blockchain’s entire TVL with just $559 million combined. Balancer is the only high-TVL protocol (over $7.3 million) that offers good rewards in WAVAX. If you are interested in staking your AVAX tokens for rewards, selecting a target platform will be the easiest part of the process!
Right now, the test DeFi platforms for AVAX yield farming are several leading multi-chain protocols that manage to keep the blockchain afloat with their massive audiences. For instance, Aave has a TVL of $8.155 billion. It means that their $317 million TVL on Avalanche represents just 3.8% of their overall pool value. The same can be said about other DeFi projects still supporting Avalanche.
Despite the setbacks, the development team is partnering with a variety of institutions and plans to improve the network’s efficiency making many enthusiasts hopeful about the near future of the blockchain. In September, it is expected to be available on the Hong Kong exchange. Other international partnerships may also boost the popularity of the chain.
The problem with the current state of the Avalanche’s ecosystem is the lack of interesting projects offering rewards to their investors. In fact, there are only several platforms where you can engage in yield farming using AVAX tokens:
Investors interested in receiving tokens in exchange for staking their AVAX coins should look at several profitable capital allocation options:
Avalanche has a lot of promise and a growing ecosystem where developers can thrive. However, security issues have made it clear that investors should keep their distance from many protocols deployed on this blockchain until more improvements are rolled out by the Core team. Yield farming with AVAX can be profitable, but we are talking about a hope of assets appreciating in the long run. Right now, the variety of yield farming options with AVAX is underwhelming.
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