A typical return on investments in Overnight Finance OVN-USD+ pools on Aerodrome (BASE) is close to 200% in AERO tokens which are 613% up from the initial price. The market capitalization of the asset is $356 million in August 2024. All metrics seem quite good and the pool itself has a $34.17 million TVL backed by several thousand investors. USD+ is not the most consistent stablecoin out there but it is still pegged to the US dollar and allows investors to earn lucrative rewards.
Building a portfolio with high interest rates is a risky endeavor regardless of whether you do it using CeFi or DeFi platforms. The reason why interest rates are high is because someone wants to attract investors while knowing that the investment will be inherently risky. That is why it is called a “risk premium”.
When it comes to stablecoin farming risks and rewards, the very assessment process is slightly different since you receive incredibly high returns but denominated in a different asset, usually a native governance or utility token issued by the protocol you are investing with. In some cases, it can be incredibly profitable. On the other hand, you expose capital to a new set of risks which can be quite dangerous in the long term.
All popular protocols offer a variety of two-sided stablecoin pools. Some offer one-sided ones but with much lower rewards. Picking the right platform is crucial for the success of your operations if you are interested in working with stablecoins exclusively. The problem with the current DeFi landscape is that bridges are vulnerable and some stablecoin protocols deployed on Ethereum are at risk of losing funds when trying to move them to another blockchain. Selecting protocols based on which chains they support and whether the latter have native stablecoins is quite important.
The simplest way to give you a good understanding of this investment approach is to give an example:
While protocols may have different incentive structures and reward types, they generally work using this particular setup. For instance, DEXes need liquidity to ensure that swaps happen quickly. Since competition is quite fierce between decentralized exchanges, each has to come up with a reward structure that provides sufficient motivation to investors to keep their tokens in pools instead of going somewhere else.
Getting started with this investment approach is not a big challenge. You will need to use a wallet compatible with the chain that you are planning to invest in. For example, if you are interested in BUSD, check out Binance Wallet. If you want to work with USDC or USDT, MetaMask or any other ERC-20 wallet will work fine.
After visiting the protocol’s official website, you will be offered to connect your wallet. Check the domain name to make sure that you are connecting to the right platform and simply allow your wallet to establish a connection. All available assets will be displayed and you can use them however you like.
Let’s talk about tokens that are great for low-risk yield farming with stablecoins:
When getting started in the DeFi ecosystem, pay close attention to the structure of the sector and make sure to invest in protocols that have a good track record. Below are some tips that may help newcomers to create a better investment strategy:
The biggest reason to focus on these assets is the number of reliable pools and relatively safe options in the DeFi sector dedicated specifically to various stablecoins. While you can find investment opportunities with exorbitant interest rates, they are often focused on memecoins, unproven tokens, and other digital assets that expose you to a wide range of risks including smart contracts vulnerabilities, high volatility, and more.
Two-sided stablecoin-exclusive pools are offered by the biggest players in the market, namely Uniswap, Curve, Pancakeswap, and many others.
Compounded interest rates can reach impressive values and consistently beat CeFi options like HY bank accounts, US treasury bonds (4.11% in 2024), and the vast majority of stocks. For instance, DeDust, the biggest TON decentralized exchange, has a TON-USDT pool with a 1.38% base APY and up to 24.54% in reward APY reaching a solid 42.5% 30-day average in August 2024.
If you are interested in safer options, you will be looking at much lower rewards. The one-sided USDC pool on Navi Lending offers a 0.64% base APY and up to 12.36% reward APY. A similar pool on Across yields approximately 0.5% (base APY) and 5.48% in ACX rewards with 30-day averages consistently outperforming target metrics.
Profitability goals differ depending on the investor’s risk tolerance, capital size, and a variety of other factors. What some may consider incredibly generous interest rates, others may deem insufficient. For instance, conservative strategies usually involve investments in low-risk pools (high TVL, long history, good track record, etc.) that generally have lower APYs compared to newer, unproven yield farming options. MakerDAO’s DSR pool is one of the best with its 6% APY.
On the other hand, some investors are chasing higher returns and may look at riskier investment avenues. The OVN-USD+ pool on Extra Finance has a 470% mixed APY with TVL over $15.5 million. You will be receiving mostly OVN which is quite good considering the current trend in the market and the incredible resilience of the token.
The main focus of a contemporary investor should be on searching for the best risk-to-reward ratio. It is important to avoid investment opportunities that look too good to be true. In most cases, they are too good. Depending on your financial situation, different risk levels may seem acceptable. For example, people with limited capital may compromise their financial well-being in the long run by staking a sizeable portion of their portfolio in a risky pool with high rewards. However, a person with a large capital can allocate a relatively small share of their resources to the same pool and feel safe, effectively gambling on a good outcome.
Since risk management style depends on the ability of an investor to sustain losses and afford risky positions, it is impossible to find an ideal combination of target profitability and appropriate risk that will work for each individual case.
Despite all of the above, you can still use several guidelines to create a robust portfolio capable of outperforming any CeFi investment.
Here are some good techniques to use for stablecoin yield farming:
You can choose from over 170 pools with over $10 million in TVL that hold unwrapped and unstaked stablecoins. The number of all pools with stablecoins in them is close to 3,500 and counting. It is a massive number of investment options that have different performance metrics. Newcomers are struggling to find a good angle to approach this ecosystem without feeling overwhelmed.
We want to focus on the best protocols and pools that work as safe, low-risk stablecoin investments. Note that we do not endorse any of the protocols mentioned below. You are strongly encouraged to do your own research and use our suggestions as starting points in your quest to find the best yield farming strategy!
The methodology we use is quite simple. We pick protocols that have a good track record, have been around for several years, have native tokens that can be easily liquidated, and offer pools with TVL higher than $5 million.
Here are some interesting projects that you should check out:
As a bonus, we want to give you a comparison between three different protocols that offer rewards for stablecoin investments.
| METRIC | Merkl | DeDust | Pancakeswap |
| Blockchain | Arbitrum | The Open Network | Binance Smart Chain |
| Combined TVL | $341 m | $128.4 m | $1.63 b |
| Number of pools | 252 | 60 | 235 |
| Reward APY range | 0.49% — 1113% | 0.04% — 146% | 0.6% — 1626% |
| The best stablecoin pool | WBTC-USDC | TON-USDT | WETH-USDT (0.05%) |
| The best pool’s TVL | $12 m | $101 m | $17.92 m |
| The best pool’s APY | Reward APY 84.48% | Base APY 2.99%Reward APY 23.66% | Base APY 11.69%Reward APY 8.55% |
| Reward type | ARB | TON | CAKE |
| Token market cap | $1.79 b | $13.4 b | $476 m |
| Token price change since the launch | -61.5% | +919% | +33% |
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