Profitable DeFi Strategies: How to Earn in Decentralized Finance

The unfortunate and uncomfortable truth about the DeFi ecosystem is that roughly 60% of all investors lose money due to various risks including technological inefficiencies, impermanent loss, and more. While some experienced professionals are min-maxing the investment game, newcomers feel overwhelmed and scared to make a move.

Building profitable DeFi passive income strategies is a tough task even for seasoned veterans but it is possible to create a reliable system that produces outcomes that eclipse whatever the tradfi sector can offer. For instance, the average return on US Treasury bonds in 2024 was roughly 4% while high-yield bank accounts usually offer rates ranging from 4.5% to 6%.

The stock market had an uneven performance. Investors buying indexes and a handful of tech giant stocks managed to receive solid returns. However, other industries struggled to impress capital holders. The DeFi sector also has weak and strong performers. The last year’s cash influx indicates that the larger community of investors is very interested in the decentralized finance ecosystem and sees the potential to earn money.

Exploring crypto earning opportunities

Grand View Research estimates that DeFi’s CAGR will be close to 46% leading to the total increase of the market to $232 billion by 2030. Fortune Business Insights prognose a lower CAGR of 28%. One thing is certain among various researchers: the industry is going to grow at a steady pace and produce value for all participants.

Capital holders observe the ecosystem with a visible interest. The combined Total Value Locked (TVL) increased by over 120% compared to the end of 2023. Currently, the number varies between $110 and $120 billion indicating a healthy degree of participation from investors.

The issue here is the incredible diversity of the sector that has over 5,200 protocols. With over 11,000 pools to choose from and a rich selection of other investment options like direct staking, RWA, CDPs, and more, creating a balanced portfolio can be challenging.

Many newcomers face difficulties in multiple aspects of DeFi investment. Here are some of the biggest problems:

• Security concerns. Catherine Carpentier-Desjardins et al. conducted a study by analyzing 1141 crime events in the DeFi ecosystem. Over 52% of all cases were targeting DeFi investors with damages from observed events comprising a massive 83% share of all losses in the sector. Smart contract inefficiencies can also lead to safety problems.
• Difficult onboarding. According to industry surveys, up to 65% of all investors interested in DeFi cite steep learning curves and the lack of easy-to-digest education as the main hurdles. For many people, even liquidity mining basics can be quite challenging to master. However, many protocols are doing their best to remedy this particular issue.
• The lack of readily available information. Over 53% of all DeFi investors rely on advisory services and financial guidance from influencers, educators, and analysts. While the “DYOR” (Do Your Own Research) motto is still repeated by all enthusiasts, it is quite hard to find good information on DeFi protocols. Using services like DeFiLlama or Zerion can be a good solution.

Other risk factors that concern investors include novel dangers, such as impermanent loss or smart contract breaches, the high volatility of crypto assets, and challenging investment processes due to low interoperability between many chains.

Effective blockchain investment techniques

Contemporary crypto investors have access to a rich selection of investment instruments that can be utilized well in any portfolio. Some options are safer than others. By assessing potential dangers and contemplating them while considering personal preferences and available capital, one can create a balanced portfolio capable of performing under all sorts of market conditions.

One of the most appealing factors about the contemporary DeFi ecosystem is the variety of strategies for money-making. Every single category of DeFi protocols has options that can be quite profitable in the short or long term.

Here are some of the most popular methods of capital allocation:

• Various yield farming mechanisms. Many investors consider this instrument a novel invention of the DeFi sector. Investors can provide liquidity to exchanges, AMMs, bridges, and other protocols and aim for higher returns by receiving incentives like native, governance, and utility tokens that can be sold for profit. Platforms specifically focused on this particular investment strategy are represented by over 530 tracked protocols with a solid combined TVL of over $9.5 billion.
• Liquid staking can be very effective if you are looking for safe options to park your funds for a long period. These protocols allow you to stake directly on mainnets and give you staked versions of tokens in exchange. You can use them on lending protocols to take out loans or trade them despite having a stake that continues to generate returns. This is by far the most popular option among smart contract investments and has over 200 protocols and $60 billion in TVL.
• Lending is a good idea for investors seeking low-risk capital allocation methods that can generate rewards and pay above high-yield bank accounts and fixed-income assets like US treasury bonds. Aave is one of the biggest options for investors as it has a massive $22 billion TVL and offers 142 pools averaging a respectable 2.8% APY. Investing in the USDT pool here yields 6.48% with a 30-day mean average in January 2025 of 7.48%. Other notable options are Justlend, Compound, Kamino Lend, and Spark.

By utilizing your digital assets well and investing them using well-established protocols like Aave or Lido, you can achieve a high level of crypto asset optimization to enjoy consistent returns and beat the tradfi sector by a large margin. Riskier protocols can produce incredible profits. For instance, Aerodrome on Base offers 336 pools with an average APY of 93%. Investing in the USDC-AERO pool yields over 40% in Aero rewards which can be sold for a massive profit.

Maximizing decentralized finance profitability

To build a portfolio that performs well, you must be ready to spend time researching the ecosystem and experimenting with various investment instruments personally. It is also a good idea to follow some simple tricks to avoid excess risks and pick good target protocols:

• Make informed decisions. Exploring the world of DeFi can be quite difficult and time-consuming. Nonetheless, you must always compare the numbers. For example, if you plan to stake directly on mainnets, using staking rewards calculation results and comparing them to each other is a great idea.
• Do not chase the biggest number. Many protocols offering sky-high APYs do so to quickly capture audiences or by working with shady projects like memecoins. Make sure to double-check smart contracts and terms when investing in protocols that have suspiciously high APYs. For example, many DEXes on Solana offer very high yields but pay them in memecoins.
• Diversify target protocols. It can be useful to explore the DeFi ecosystem and invest in various tokens across the sector. Cross-chain earning strategies offered by Rivo can be used to optimize the efficiency of investments and diversifying positions across multiple blockchain networks.

We strongly recommend learning the ins and outs of the DeFi ecosystem as best as you can and make decisions based on personal experience. The decentralized finance sector has a lot to offer!