Building a strong portfolio with DeFi investments is not an easy task even for experienced veterans. This ecosystem is incredibly diverse. It offers a host of unique instruments that may be faulty or extraordinarily effective. In many cases, the only decisive factor is luck. However, a cautious investor can create a solid strategy that brings in exceptional profits.
We will discuss some of the most efficient methods of capital allocation, high-yield protocols, and many other interesting investment options available to contemporary crypto holders.
Exploring the world of decentralized finance
Decentralization can be useful when building a fair financial environment with wider accessibility. The advent of blockchain technology created the necessary opportunities for the growth and expansion of DeFi. Many investors used to tradfi instruments are flocking to this evolving space simply because the idea of decentralization seems appealing enough to abandon traditional asset classes like stocks and bonds in favor of promising digital assets.
Before we dive into the ecosystem, we have to address some risks that will seem novel to tradfi investors. When it comes to stocks and other tradfi asset classes, we are used to things like economic uncertainty, regulatory issues, inflation, and other factors that can dramatically affect the outcomes of our investment activities. These are relevant to crypto holdings but there are many other unique risks that you must be aware of:
- Impermanent loss is a big deal. Some reports indicate that up to 60% of all Uniswap liquidity providers lose money due to this phenomenon occurring when the price of the principal asset in the stake drops below the entry value. For example, you can stake ETH at $3,200 for 5% APY. Over the next week or month, the price may drop to $3,000. The 5% annual growth will be immediately wiped out by the price depreciation. However, the loss is not realized until you exit a position.
- Gas fees should be accounted for when estimating potential returns on investments in the DeFi sector. Some protocols operate on mainnets like Ethereum, Solana, and Tron where fees can be expensive. For instance, the price of a single ETH transaction was close to $22 when the results of the US presidential election went public. Tron’s fees have been close to $4 per transaction for a while in 2024. While some layer 2 solutions significantly reduce costs per transaction, you still must be aware of potential commissions that must be paid to enter and exit a position.
- The lack of regulation. Many crypto enthusiasts shout at the top of their throats that they are happy to exist in an ecosystem where authorities cannot control the flow of assets or prevent participants from actively engaging in financial markets. This freedom attracts libertarians and conservatives but creates a lot of problems for newcomers who are not politically charged. Beginners often feel vulnerable and rightly so. The lack of regulation means no protection from scammers and no government-backed insurance.
- Smart contracts and their vulnerabilities. All decentralized protocols use smart contracts to automate various operations and create a trustless and permissionless environment for their users. Having an autonomous mini-app as the main driver of financial activity has proven to be useful. However, these applications can have critical vulnerabilities, exploits, and bugs that may lead to massive financial losses. It is crucial to work with protocols that conduct third-party audits and run bug bounty programs to ensure that their code is reliable and free of bugs.
If these risks do not frighten you, diving into the world of DeFi won’t be something scary. Let’s talk about various types of investment strategies and platforms that can be used by crypto investors to achieve excellent cryptocurrency returns.
Different types of protocols
The popularity of the DeFi sector is stabilizing. Many newcomers who joined the ecosystem back in 2022, during its all-time high, did not find success and left. The sharp decline in TVL numbers and user activity across the board happened in 2023. Year after, we are seeing the results of the maturation of the sector that now attracts serious investors and people who have been in the crypto game for a long time.
From cross-chain DeFi investments on Uniswap or Beefy to narrowly focused protocols like Aerodrome, you can find all sorts of interesting ways to allocate capital effectively. You can invest in decentralized exchanges, bridges, lending platforms, liquid staking projects, and stablecoin issuers like MakerDAO or Aave. Selecting the right DeFi platform to achieve the highest possible ROI is quite difficult. We are here to give you a good starting point.
Note that we do not endorse any of the projects listed below and offer an overview of the DeFi ecosystem as a source of inspiration for newcomers seeking surface-level education about the sector and its many investment opportunities.
Liquidity mining on DEXes
Providing liquidity is one of the best ways to earn interest or receive rewards from protocols desperately seeking additional liquidity to stay operational. The fierce competition in this sector leads to great boons for investors who can put their tokens in liquidity pools and receive excellent returns. If you own stablecoins like USDC, USDT, or DAI, your returns will be even higher!
Below are some of the most prominent DEXes that have good pools for crypto holders:
- Uniswap is the biggest protocol out of 1,435 tracked DEXes. With a massive $5.58 billion TVL, it is by far the most popular and influential platform that operates across 26 chains including Ethereum, Optimism, Arbitrum, Gnosis, and many others. Uniswap has 3,294 pools with an average APY of 31.2%. Investing in the USDC-WETH (0.3%) pool on Ethereum yields 83.49% base APY with the 30-day mean average in November being close to 48%.
- Aerodrome Finance is the biggest DEX on the Base network offering generous AERO token rewards. This is a great destination for users interested in farming yields since all pools have high-reward APYs and low or non-existent base APYs. Currently, Aerodrome has a solid $1.4 billion TVL and operates 274 pools averaging 51.37%. You can invest in the promising USDC-AERO pool with a massive $145 million TVL and 49.54% reward APY.
- Balancer is one of the most popular DEXes on the Ethereum network. It has a respectable $842 million TVL and features 379 pools on 9 chains. The average APY across all available tracked pools is 2.78% in November 2024. One of the best pools here is the RDNT-WETH pool on Arbitrum with a solid 1.75% base APY and up to 20.8% in BAL rewards.
These protocols are some of the best targets for investment if you are interested in short-term gains. However, investors must be aware of impermanent loss and other risks associated with locking in assets.
Lending protocols
Financing investment operations in the DeFi sector is quite easy since you can always use available digital assets as collateral to take out loans in many assets like stablecoins and layer 1 tokens. It means that you can use a variety of staked, wrapped, and otherwise utilized tokens to increase exposure to gain higher yields. Recently, the rise of platforms offering flash loans that do not require collateral made the whole sector even more appealing to both lenders and borrowers.
Lending protocols are some of the safest options for conservative investors who provide funding to capital holders who are ready to increase exposure. Below are some excellent lending protocols:
- Aave is the biggest lending project with a massive $16.77 billion TVL as of the time of writing. The protocol operates across 13 chains and offers 145 pools with an average APY of 3.2%. You can invest in a variety of interesting pools including WSTETH at 0.01% or WBTC at 0.03% to utilize wrapped versions of tokens in other ventures. Putting money into stablecoins is also a great idea considering APYs going up to 4.46% (USDC) and 30-day averages often exceeding 5.5%.
- Compound Finance is the oldest player in this sector. Currently, it has a solid $2.4 billion TVL and 110 pools averaging 1.43% APY across 6 different chains including Ethereum, Optimism, Base, and Arbitrum. One of the incentives here is the option to invest in pools with COMP rewards. For instance, you can put money in the USDC pool on Ethereum for an excellent 7.7% base APY and up to 0.28% in rewards.
- Venus is a project on Binance Smart Chain that works on 5 chains. The list of pools here is limited to 29 options averaging 3.8% APY. However, it is a great choice if you are interested in working with mainstream coins like BTC, ETH, USDC, DOGE, and others. Binance users will be happy to invest in the WBNB pool offering an outstanding 20.88% base APY. The USDT pool on BSC is also a great choice with a solid target base APY of 11.2% and a 30-day average close to 8.15%.
Yield farming
The concept of receiving various types of digital assets in exchange for liquidity provision is relatively novel. Many DEXes and lending platforms are competing for liquidity and offer generous rewards to investors willing to provide it. Proactive investors will be happy to receive these rewards as they can carry additional utility, improve yields, or otherwise positively affect their portfolios.
For instance, the aforementioned Aerodrome Finance on Base is one of the best options for users interested in farming yields. Here, you will receive governance tokens as rewards. AERO users can lock in their rewards to receive benefits based on the lock-in period:
- Locking in tokens for 2 years gives you 50% efficiency. You will be voting at half the power (100 tokens will give you 50 votes) and receive only 50% of the fees collected by the protocol.
- If you lock in AERO for the longest period of 4 years, you will vote at 100% efficiency (100 tokens will give you 100 votes) and collect 100% of fees collected by the DEX.
Similar advantages are enjoyed by investors working with other DEXes like PancakeSwap, Balancer, or Raydium. It is important to understand the tokenomics of each protocol and take time to do your due diligence before investing.
Below are several great yield farming platforms:
- ORCA is the main haven for all memecoins and questionable digital assets. The reputation of the platform is shaky, to say the least. However, it is a great place to allocate capital if you are interested in high-risk/high-reward investment opportunities. The protocol has a solid $330 million TVL and focuses on assets like HMSTR, RABBIT, PEPU, and many others. You can also farm rewards in SOL, ORCA, and other tokens. For example, you can invest in the SOL-SAMO pool for an outstanding 659% base APY and up to 12.23% in ORCA.
- Aerodrome is the pitch-perfect example of a yield farming platform where users provide liquidity in exchange for governance tokens. We have already explained how AERO tokens work. Now, let’s talk about some of the best pools for farming yields in AERO. Among 274 pools, you will find some that have outrageous numbers. For example, the WETH-AERO pool has a massive 819% reward APY while investing in the ION-WETH pool yields 244%! The latter has a solid $7.92 million TVL indicating a high level of investor confidence.
- Pendle is an Ethereum-based protocol that offers a wide range of pools across 5 chains including Mantle, Arbitrum, and BSC. With total value locked across 110 available pools being close to $3.3 billion, it is one of the biggest protocols out there. It offers pools with fixed maturation periods. By investing in the SUSDE pool (March 2025), you will be enjoying 20.13% base APY and up to 4.22% in PENDLE rewards. You can work with a variety of digital assets including USD0, LBTC, STETH, and more!
The main takeaway
These platforms are some of the best choices for an investor who wants to allocate capital to a reliable and trustworthy protocol. However, an inventive crypto holder can find a variety of other ways to maximize gains. We strongly recommend doing your own research and using the aforementioned platforms only as starting points in your journey through the world of decentralized finance.
