If you want to escape financial troubles and build generational wealth in the DeFi ecosystem, it is important to choose high-risk/high-reward investment options and hedge against risks by offsetting some of them with stable positions that are likely to generate profits consistently. We won’t be focusing on investment prospects promising outrageous returns. Instead, our main goal is to provide you with some choices that are quite reliable and have been tested by time itself!
Understanding stable yield investments
The DeFi ecosystem has a variety of interesting options for investors interested in building portfolios that can perform well over long spans of time. While the vast majority of attention is stolen by up-and-coming protocols offering unbelievably high returns, some investment options have been going strong for as long as the DeFi ecosystem existed.
As an investor, your goal is to focus on consistency and predictability. Unfortunately, the speculative nature of the crypto market prevents us from properly analyzing many digital assets. Nevertheless, judging by past performances is better than not analyzing an investment prospect at all. Risk assessment can be challenging as the DeFi sector presents some types of risks that have never been encountered in the world of tradfi.
Before we start discussing some of the most reliable investment options and strategies, it is a good idea to briefly describe some of the risks associated with DeFi investments:
- Smart contracts can be vulnerable. The driving force behind all the functionality offered by decentralized protocols is a smart contract, a tiny application that performs specific actions automatically under certain circumstances. These apps allow users to interact with each other in a trustless environment where the counterparty risk is completely nullified. While this setup is quite elegant and solves some issues that make tradfi clunky, the tradeoff is relatively slow execution and potential technological issues. Audit reports and bug bounties should be enough to protect protocols from this danger in most cases.
- The lack of regulation frustrates many investors. A typical crypto enthusiast believes that there is nothing wrong with creating a space where people can interact without revealing their identity and do whatever they want with their money. This libertarian position is quite appealing and has been one of the main selling points of Bitcoin early on. However, as the DeFi ecosystem expands attracting new users, it is important to have some consumer protection outside of protocol insurance which can be expensive and difficult to obtain for newcomers.
- Impermanent loss is a unique risk that many crypto investors are encountering for the first time after switching from tradfi to DeFi. It occurs when the price of the principal asset invested in a pool drops below the entry point creating a loss that often completely negates all interest gains. This loss is called impermanent because no one can predict how the market will behave tomorrow. The price can recover and you will cash out with a decent profit. However, up to 60% of all Uniswap liquidity providers ultimately lose money due to this problem.
Many other risks are also important when assessing the best approach to building a consistently performing investment strategy. The sector is still full of questionable projects, outright scams, and memecoins that become worthless very quickly. However, finding good investment options is still possible.
Building excellent yield strategies
There are many ways to identify a solid platform to invest in. We strongly believe that the DeFi sector has a lot to offer. Searching for something reliable and trustworthy can be a challenge. With over 3,000 tracked protocols offering 11,000 pools, you may think that there is no way of finding a good investment prospect outside of the limited number of pools that have high TVL and promise APYs slightly higher than high-yield bank accounts.
Here are some tips on how to pick a good protocol:
- TVL analysis is hugely important. Total value locked is a metric that represents the total amount of assets (usually, denominated in US dollars) that are locked in pools operated by a protocol. High TVL numbers simply mean that investors are confident that the pool is reliable. The metric does not paint the full picture but it provides a very good rough outline.
- Cross-chain integration is something that you should pay attention to. Many contemporary investors want to work with as many chains as possible to explore blockchain opportunities or to keep their investments diversified. Hosts of protocols have their native chain where they originate from and a multitude of supported networks. For example, Uniswap is the biggest DEX on Ethereum that works across 26 chains including Optimims, Arbitrum, Base, and many others.
- Protocol governance is another interesting thing that can be directly related to profitability. You will often come across platforms that offer rewards for liquidity provision. These rewards are often paid in native governance tokens that may also carry some utility. A good example is Aerodrome on Base, it is a DEX that does not have any base APYs and relies on its rewards to attract users. You can lock in AERO for up to 4 years to unlock their full potential. For instance, 4 years lock-in period gives you 100% efficient governance participation (1 token = 1 vote).
- The diversity of investment options is a good indicator of a platform that offers sufficient flexibility to allow investors to build versatile portfolios. The variety of supported digital assets is not the best indicator of reliability. For instance, Lido, the biggest liquid staking platform in the whole DeFi ecosystem, has a TVL of over $30 billion with only STETH and STMATIC pools available to investors. On the other hand, it is always great to have a choice.
Social media sentiment and the longevity of the project should be taken into consideration. You surely won’t be interested in investing in a platform that has been around for a couple of months and managed to attract some intense hate from the crypto community. It is also important to work with platforms that invest in protocol security by regularly conducting audits, allowing the community to participate in development, and running generous bounty programs.
Picking good protocols to invest in for 2025
We want to give you several examples of solid choices for investors interested in building consistently performing portfolios using DeFi instruments. Note that we do not endorse any of the options presented below and encourage users to do their own research.
We are picking protocols based on their TVL, history, reputation, available investment options, and potential profitability.
Single-sided stablecoin pools are often chosen by investors due to their reliability, high demand from borrowers, and consistent returns. Aave, Compound Finance, JustLend, and many other popular projects have some of the biggest stablecoin pools out there. Below are some interesting options for crypto investors to consider:
- Aave is the biggest lending protocol in the whole sector. It has a massive $17.3 billion TVL and operates 145 pools across 13 chains averaging 3.53% APY. It is a solid choice for conservative investors who want their assets secured and working. Investing in the USDT pool on Ethereum yields roughly 4.5% APY which is higher than US treasury bonds in 2024 (slightly above 4%).
- JustLend is deployed on Tron and has a respectable $4.9 billion TVL. There are only 18 pools here and the average APY may seem small (0.67%). However, it is a great choice for people interested in cutting protocol fees since investing in the TRX pool yields 0.03% and allows many users to significantly reduce gas prices. You can also invest in the USDD pool for 0.14% base APY and up to 6.1% in TRX rewards.
Lending protocols often offer a convenient way for investors to finance their operations. If you are interested in yield farming, it is possible to take out a loan in stablecoins while providing other digital assets as collateral. In some cases, this setup can work extremely well producing returns higher than anything else in the sector with the exclusion of some memecoins and native tokens outperforming expectations. At the same time, gas optimization is in full effect here as many lending platforms can move their operations to layer 2 chains when necessary.
DEXes can be incredibly generous
Decentralized exchanges are in constant battle for survival. They need liquidity to operate normally. Many protocols are ready to offer some outrageous rewards to keep their liquidity providers loyal. When interest rates do not work, they are adding rewards on top to incentivize participation.
Here are some great DEXes to check out:
- Uniswap is the biggest decentralized exchange in the whole ecosystem. It has a huge $5.7 billion TVL, operates 3,295 pools across 13 chains, and has a very high average APY of 28.84%. The exchange does not offer rewards on top of base APYs. However, many investors are still choosing it for reliability and reputation. You can get some excellent returns if you invest in the USDC-WETH (0.05%) pool for 26.64% APY or in the WETH-USDT (0.3%) pool for 68.05% APY.
- Curve DEX is another Ethereum-based protocol that offers solid interest rates and gives investors some CRV/CVX tokens for their contributions to pools. If you are interested in yield optimization, choosing this DEX for long-term investments is a good idea since many pools here are often experiencing boosts as rewards are distributed based on demand and market circumstances. Here, you can invest in 528 different pools with an average APY of 6.22%. One of the best options in November 2024 is the SDAI-SUSDE pool with a solid 16.73% APY.
Some important tips for investors
Contemporary DeFi investors will deal with many issues while trying to build a portfolio capable of performing well under all sorts of circumstances. Problems like sudden liquidation risks, smart contract vulnerabilities, and others can be incredibly frustrating to encounter. The learning curve is quite steep and the onboarding process can be very painful for newcomers. There are many issues that can prevent tradfi investors from entering the industry.
On the other hand, you can significantly reduce the workload and optimize investments by utilizing various forms of automation and working with experts. For instance, you can go to Rivo.xyz if you are interested in using strategies that have been verified by credible experts. People who want to automate their investments may be interested in yield aggregation offered by protocols like Beefy Finance and Yearn Finance.
The best tip we can give you is that you should never be afraid to use instruments that can simplify your journey to generational wealth.
