Yield farming and liquidity mining are some of the most popular investment instruments in the DeFi ecosystem. While it is possible to manage all your holdings personally, there is a limit to how much information an individual can process and act on. With the way the contemporary landscape of the DeFi sector has evolved, you can find a plethora of automation tools and other products that dramatically improve the outcomes of your investment activities.
Among many projects that offer unique managerial and risk aversion products, those focusing on yield aggregation are some of the most useful to the wider community of investors. With the number of newcomers to the ecosystem without any prior exposure to financial markets ranging from 45% to 70%, depending on the source, the availability of tools that simplify and optimize the investment process is hugely important.
We will explore the surface of the complex DeFi world and dive deeper into the structure of offerings on one of the most popular aggregators.
The idea of farming native and layer-2 tokens by investing in other types of digital assets, usually more expensive ones, comes from protocols that are competing for liquidity provided by individual investors holding coins that are required for these protocols to function. For example, DEXes, decentralized exchanges, need all sorts of tokens in sufficient quantities to ensure that users can swap them easily.
The very existence of these services is the consequence of layer 2 chains dramatically reducing transaction costs. Fas fee optimization is one of the main reasons why blockchains like Optimism, Arbitrum, and many others have a place in the DeFi ecosystem.
You can find a variety of ways to allocate capital in this sector of the wider blockchain industry. However, it can be quite a challenge even for experienced veterans. Some studies indicate that even people with good knowledge of financial markets lose money to previously unseen risks. For instance, impermanent loss causes up to 60% of UniSwap investors to eventually lose money. In the long run, predicting potential price recoveries is close to impossible and losses quickly become real.
On the other hand, you can focus on creating a balanced portfolio that will have some resilience against volatility, smart contract vulnerabilities, and other risks commonly associated with the DeFi ecosystem. Doing so manually is difficult for the reasons we have roughly outlined above. However, there is a solution… Even, multiple.
It is hugely important to focus on achieving the right balance between risks and returns. The problem is that many individual investors are simply not equipped with the necessary knowledge, technical skills, and other unique qualities to navigate the DeFi sector successfully. Doing everything manually is a very hands-on approach that requires investors to keep their hand on the pulse of the market and regularly adjust positions to improve gains.
Automation is a good answer to this problem as it allows many investors to actively participate in the investment process and choose the right approach to allocating capital without the need to do mundane things like compounding, switching between pools, and even deciding when to enter and exit positions.
A great way to offload some of the managerial load is by using services from specialized providers and protocols. Selecting a good strategy without any guidance is close to impossible for someone who did not spend years monitoring the market, exploring blockchain developments, and using the technology in its earliest days. In essence, you have to be a knowledgeable professionals.
Interestingly, the experience and expertise are insufficient to create a really strong portfolio in the DeFi sector. For instance, the ecosystem offers over 11,000 different pools scattered across unique platforms operating on over 90 chains. Picking the right combination of capital allocation destinations without analyzing dynamic interest rates, types of rewards, asset prices, and more is not an easy task.
Rivo is a company offering a wide range of strategies created by experts who monitor the market using a variety of tools including artificial intelligence. Some of their offerings are incredibly lucrative:
Aggregators are always looking for the best way to allocate assets while taking into consideration a variety of factors including blockchain fees, interest rates, opportunity costs, and many others. Note that their main task is to create a balanced portfolio and manage a portfolio in your stead. On their own, aggregators do not produce outstanding results. Individual pools are usually less attractive compared to what you can get by investing in target pools directly.
However, this is a great way to automate many investment activities and improve asset management without overpaying for a service offered by an underprepared, so-called expert. Some yield aggregators have great instruments for you to check out:
InstaDapp is a protocol operating across 5 chains. The TVL here is over $123 million. The platform is strongly focused on ETH and plans to branch out into other digital assets like stablecoins. The massive $123 million ETH pool here is a great choice for investors interested in utilizing their layer 1 coins efficiently. You can expect an impressive APY of 6.19%.
Contemporary crypto investors have access to a wide range of investment products that have different perks and downsides. Managing a portfolio that has a plethora of positions can be incredibly difficult even for experienced veterans. Newcomers can completely lose their way and fumble promising investment opportunities due to their inability to switch between different platforms quickly or react to unforeseen circumstances effectively even if they know what to do.
Harvest Finance is a decentralized application that offers a result-oriented way of managing digital assets and investments in pools across the DeFi sector. The Dapp supports 4 chains including Ethereum, Base, Arbitrum, and Polygon. Currently, it has a respectable TVL of over $27 million and features 192 pools (farms).
The protocol is focused on yield farming through a variety of investment methods such as liquidity provision, lending, or staking. Harvest spreads the capital collected from its users across a variety of pools allowing users to quickly switch between different investment options and take full advantage of the native digital currency distributed among users. The main goal of this protocol is to create a multi-functional asset management platform that can be used effectively by newcomers.
Harvest Finance is interested in attracting users. In September 2021, the FARM token was launched to provide incentives to capital holders. The emmission of the token is controlled with a small amount issued each week.
Below is the breakdown of tokenomics:
Note that FARM is not only a utility asset but also a governance token that can be used to vote. By week 5, users voted to cap the supply at a memorable 690,420 FARM with the emission reducing by 4.45% each week until August 2024. The token is publicly traded on Binance, Coinbase, Kraken, and some other CEXes.
Since September 2024, the emission has been officially halted as the token has reached its maximum circulating supply. Now, the protocol is no longer relying on governance mechanisms to decide how to deal with critical issues. The consensus is achieved through contributor proposal and communal discussions of various issues and their potential solutions.
Users of the platform cannot acquire new FARM. If you are interested in buying these tokens for various purposes, it can be done through swapping on centralized and decentralized exchanges.
To achieve balanced performance and consistent returns, users of the protocol are constantly searching for new yield farming opportunities. To ensure that the new pool deserves the attention of investors, any new potential addition to the list of strategies available on Harvest Finance goes through several distinct stages:
Note that the protocol collects fees. For example, users from Ethereum pay 15% on rewards collected by the platform. Arbitrum, zkSync Era, and Base users pay 10%. Polygon’s users pay the lowest commission of 8%.
One of the biggest problems with yield farming pools is that they do not have a fixed APY with rates changing depending on market conditions, third-party platforms, and other factors. Any APY number you find is relevant only for the particular asset locked in a pool. For instance, you should not expect a yield of 200% on an asset like USDT or ETH. These rates are usually paid in lesser tokens in two-sided pools.
Harvest Finance can boost APY numbers by simply increasing the amount of rewards paid for contributions to certain pools. Comparing these numbers is not the best way of approaching the analytical process. The uncertainty created by variable APYs led to investor funds coalescing in the main ETH pool.
As of the time of writing, the ETH pool by Moonwell on Harvest Finance is over $5.21 million. In fact, only 6 pools (ETH, USDC, cbBTC, iFARM, USDC, and GENOME-ETH) have TVL over $1 million.
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