The Best Websites for Yield Farming: How to Choose Safe Platforms

With over 1,400 DEXes to choose from, finding the right platform to invest in can be a challenge even for seasoned veterans who have years of experience trading digital assets. The variety of investment opportunities in the DeFi sector can be so overwhelming that interacting with the ecosystem can feel exhausting.

Despite the seemingly unending ocean of ways to allocate capital using decentralized platforms, it is possible to make informed decisions. Let’s talk about some basic tips and techniques that will help you avoid rug pulls, scams, and questionable protocols.

How to pick a good project

The diversity of the ecosystem with its thousands of protocols creates an intricate landscape that is difficult to navigate even if you are equipped with knowledge. It is important to have some guidelines and benchmarks to identify which projects deserve your attention and can outperform tradfi instruments.

Below are some of the criteria that you should use to pick a reliable protocol:

• Interest rates. Annual Percentage Yields (APY) vary greatly within the ecosystem with some protocols offering rates close to 5,000%. Usually, such pools are riskier and also feature memecoins and other questionable tokens that may not appreciate enough to warrant the risk. Many time-tested protocols offer relatively low yields within the range of 5% — 20% while some pools on Orca (Solana) offer up to 10,000% on pools like SOL-FRED or SOL-TRUMP.
• DeFi security measures. Smart contracts are susceptible to hacks and exploits which can lead to massive losses. In 2021, the total amount of hacked funds was over $10 billion. Safety improvement techniques usually involve a variety of approaches from better quality assurance to extensive audits. One of the best ways to create a solid smart contract and stress-test its robustness is to run bug bounty programs. For instance, MakerDAO and Near Protocol offer $10 million to experts who find critical vulnerabilities in the code. In many cases, inviting a professional organization like ConsenSys or Certik to conduct a thorough smart contract audit is more than enough.
• Pool compositions are hugely important if you want to find a good place to park capital. As mentioned previously, some pools have outrageous APYs. However, the riskiness of the investment is magnified due to the unpredictable nature of the crypto market and the prevalence of tokens that quickly lose value to inflationary pressure. Overly volatile assets can negatively affect your portfolio through realized impermanent loss and rapid depreciation of holdings. On the other hand, stablecoins are less volatile. Some protocols offer over 10% APY on stablecoin investments.
• Total Value Locked (TVL) is a telling metric that represents the volume of assets locked in a pool, protocol, or whole blockchain. Many experts believe that higher TVL numbers suggest trustworthiness, better long-term prospects, and predictability. It is true that among the best projects praised by professionals and regular investors, the vast majority are high-TVL platforms like Aave ($15.02 billion), Uniswap ($5.08 billion), and PancakeSwap ($1.76 billion). Working with protocols capable of attracting capital is quite important.

Track record. Many projects do not have the necessary level of trustworthiness and reputation to count on the goodwill of the community. The anonymous nature of the ecosystem also creates situations where founders are unknown or do not have the required credentials to run massive financial operations. To avoid losing money, you should focus on platforms that have proven track records and high user counts. For example, Aave, Compound, and Uniswap are all projects with at least five years of history.

Calculating gas fees and other commissions. While it is quite rare for the ecosystem, some protocols have withdrawal fees to discourage users from taking their assets out of their pools. Moving assets on the mainnet can be quite expensive. Ethereum is notoriously overpriced with a single transaction going up to $21.8 on November, 6, after the results of the US presidential election were made public. Work with platforms that utilize layer 2 networks to reduce fees.

In conclusion, you should choose a platform that has high TVL, low fees, a good track record, solid interest rates, and a reasonable asset composition.

Yield farming platforms to pick from

Different types of protocols exist in the DeFi ecosystem. Many of them offer rewards in exchange for provided liquidity. It is important to search for the best ratio of risks and rewards. For instance, one of the most popular projects in 2024 is Aerodrome with its high rewards paid in AERO tokens which have been performing extremely well so far (+1,400% since launch). Picking it over many other destinations for capital allocation feels like a good idea.

Let’s talk about various protocols that offer rewards to their users. Note that we won’t be covering all available options. Below are the most popular types of projects.

Decentralized exchanges (DEXs)

Curve DEX, Uniswap, PancakeSwap, Aerodrome, DeDust, and many others are exchanges that operate within the DeFi ecosystem. They are always in desperate need of additional liquidity and can offer generous rewards to users who provide it. 

Take a look at some of the decentralized exchanges and their pools:

1. UniSwap is the biggest DEX on Ethereum with a massive $5 billion TVL. The UNI token is quite expensive trading at $9.37 with a market capitalization of over $5.3 billion. The exchange has 3179 pools across 28 chains. The average APY is 31.52%. One of the best pools today is the USDC-WETH (0.05%) pool which has a 33.86% APY with a huge $155 million TVL.
2. PancakeSwap is another Ethereum exchange that has a $1.76 billion TVL. With 314 pools across 8 supported chains averaging 37.37% APY in 2024, it is a great destination for many investors interested in DeFi. One of the best pools here is the WETH-USDT (0.05%) with a high 25.6% base APY and up to 7.98% paid in Cake rewards. CAKE is a token that battles inflation quite successfully. Four years after launching, it is still 31% up!

Lending protocols

Many projects focused on lending are also competing for user funds and offer rewards in various types of tokens. For example, Compound offers COMP, INV, and many other tokens as rewards that are paid on top of base APYs which can be quite lucrative on their own. Many lending platforms are strongly focused on stablecoins and mainstream coins like Bitcoin, Ethereum, Solana, and others.

Below are some excellent protocols from this category:

1. Compound Finance is a massive lending protocol operating on 6 different chains including Base, Ethereum, and Arbitrum. The price of the COMP token is $44.1 with a $413 million market cap. The TVL is over $2.73 billion. Currently, the protocol offers 109 pools with APYs ranging from 0.01% to 13.53%. Investing in the USDC pool on Base yields 10.95% which is one of the highest stablecoin APYs in the industry.
2. Aave is the biggest lending project in the ecosystem. The massive $14.99 billion TVL is more than impressive on its own without taking into consideration the performance of the AAVE token which is priced at $175 and has a solid $2.86 billion market cap. The protocol offers 136 pools across 13 chains. The average APY is 3.34%. One of the most profitable options is the GHO pool on Aave V3 with a 16.09% base APY and a massive $117 million TVL.

Decentralized finance risks

The problem for many newcomers to the DeFi ecosystem is difficult onboarding and unforeseen risks that are unique and do not occur in the world of tradfi. Someone without any experience with decentralized applications will not even think about some of the dangers that many veterans perceive as apparent.

Let’s talk about some of these risks:

• Self-custody can be dangerous. One of the biggest advantages of the DeFi sector is that most of the protocols are non-custodial. It means that funds are always under your control and there is no single-point weakness that can be exploited by hackers. This advantage is a significant drawback too considering the lack of knowledge and training among regular users. Using secure, multi-sig wallets is a good idea if you want to store assets and give relatives some control over them.
• Difficult onboarding. Many newcomers feel overwhelmed by the complexity of many Dapps that may function very differently from what many users are familiar with after dealing with tradfi applications. Since navigating unconventional UIs can be challenging even for professionals, users are always at risk of making a critical mistake, sending funds to the wrong addresses, and otherwise messing up relatively simple operations.
• The lack of regulatory oversight is another big problem. If you are scammed or lose funds due to smart contract inadequacy, you won’t have any meaningful options for legal recourse. In rare cases, users can be reimbursed from reserves or operational funds. However, hacks usually lead to permanent loss of assets by all parties. The most obvious answer to this problem is the emergence of insurance protocols that offer coverage for various risks including smart contract hacks, protocol failures, and even price fluctuations.
• Impermanent loss is a big issue that is closely related to the volatility of the crypto market. Prices that can drop in a matter of hours to erase all gains are already a big issue. However, it is an even bigger deal for users who have their assets locked in stakes or pools without an opportunity to quickly liquidate their positions. Impermanent loss, as the name suggests, can be reversed as prices may recover before you need to liquidate a position.
• Unprecedented risks. Smart contract vulnerabilities are among the risks that do not happen outside of the DeFi ecosystem. The same can be said about flash loan attacks which are unique types of exploits targeting lending protocols that offer uncollateralized loans that must be settled before the finalization of a transaction. These are used by expert investors who want to secure financing for trades or short-term positions. The protection against these technological risks is in better development practices, thorough audits, and community engagement.

Do your due diligence!

Contemporary investors have to be smart about their assets and how they use them. We strongly suggest focusing on DYOR (doing your own research) and reading about different yield farming protocols as much as possible before making a decisive move. All the tips above will help you avoid rookie mistakes and make informed investment decisions in the complicated world of DeFi!