The Best DeFi Projects for Stable Income: Overview and Recommendations

Creating a balanced portfolio that can perform well under all possible market circumstances is the dream of any investor. Unfortunately, the perfect strategy does not exist. Any investment effort is affected by a multitude of factors. Luck plays just as big of a role as careful analysis, preparation, informed adjustments, and a strong psyche. However, you can reduce potential risks and try to build a robust composition of digital assets just like you would in the tradfi environment.

Creating a stream of stable income in DeFi is a tough task yet it can be achieved with enough dedication and research. Many newcomers fail to identify good targets for capital allocation due to the lack of exposure to the crypto industry. Another issue is the overabundance of information that can overwhelm a beginner. We will give you several examples of great protocols that deserve your attention and can act as reliable starting points in your journey through the DeFi ecosystem.

Sourcing passive income from decentralized finance

Contemporary investors have a variety of instruments to create robust portfolios. You may try to build wealth by actively trading, investing in different pools, or simply by staking digital assets. However, it requires some preparation and dedication on your part to identify the best opportunities in a timely manner and act upon them decisively. Doing research personally and having first-hand experience are both incredibly valuable but exploring available options through educational materials like this one is also important.

Traders often engage in dollar-cost averaging (DCA) to slowly build up a massive amount of assets. This is a valid approach to investing tested by centuries of continuous practice by thousands of successful investors. On the other hand, this method is great over long spans of time requiring consistency and systematization of trading activities. To achieve the best outcomes, many retail traders have to use advanced instruments. Automated strategies involving DCA and grid bots are commonly employed by individual and institutional investors.

The DeFi ecosystem also relies on various forms of automation. Modern investors do not have to monitor the market manually, searching for the finest investment prospects. Instead, they trust platforms like Rivo.xyz and similar providers offer excellent strategies designed by the joint effort of AI, smart algorithms, and professionally trained experts.

What is a good DeFi investment?

The quality of any given investment is defined by only two metrics: investment horizon and ROI. While other aspects, such as risk level, dividends, and more, should be accounted for during the planning phase, they ultimately do not matter when analyzing the outcome of an investment operation. In essence, you either make a profit within a certain period or not.

The DeFi sector is full of different options and incredibly lucrative multi-chain opportunities due to the expansion of leading protocols and branching out through the whole ecosystem. Unfortunately, the industry is still not mature enough to provide sufficient data for analysis. Historical performances are all over the place and relying on the data collected by monitoring thousands of portfolios is not the best course of action.

You will have to improvise a lot and focus on searching for DeFi protocols that seem to be performing well right here and right now.

How do you choose a good investment option?

Selecting a good project is quite challenging even for experienced individuals due to multiple reasons:

• The DeFi sector has many up-and-coming projects developed by anonymous teams. Often, the information about the credibility of founders is simply absent
• Historically, many promising projects failed to deliver a product performing according to expectations and quickly fell apart.
• The speculative nature of the crypto market prevents investors from making informed decisions about the possible behavior of native tokens in the near future.
• Blockchain technology is complex. An average user may not understand fully how novel financial instruments work and how efficient they can be.

On the other hand, technically savvy investors can check out source codes of different protocols and inspect smart contracts personally as many projects simply publish everything on GitHub. Even if you don’t have any experience with technology on an intimate level, you can still follow several tips to identify a good platform to invest in:

• TVL (Total Value Locked) is a hugely important metric. It represents the amount of digital assets locked in different pools and protocols securing their ability to operate normally. Higher TVL numbers indicate the level of investor confidence in the project and help newcomers find places respected and valued by more experienced peers. For example, one of the biggest lending protocols out there is Aave with a massive $16.77 billion TVL.
• Protocol insurance is offered by many projects specializing in insuring holdings or simply providing some means of protection to users interested in safer investment options. Note that projects offering insurance may not cover some specific digital assets, types of investments, or even whole blockchains. The absence of coverage does not mean that the project is unreliable but it adds a level of security to protocols that offer it.
• Publicly available audit reports also make any protocol appear trustworthy. One of the issues with the DeFi ecosystem is the use of autonomous mini-apps that conduct many operations and make protocols functional. These apps create a trustless and permissionless environment where all market participants can safely interact with each other without considering the counterparty risk. These applications are called smart contracts and they can be faulty. Protocols that employ responsible development practices, conduct audits, and run bug bounty programs should be prioritized by users.
• User activity is another hugely important metric. This information is publicly available as all operations are settled on the chain allowing any observer to verify the integrity of records. Using trackers like DeFiLlama or De.Fi is a good way to monitor projects. While TVL numbers matter, other metrics can be telling too. Operational volumes, revenues, collected fees, TVL changes, asset utilization, and other factors paint a better picture of how the protocol is perceived by users and investors.
• Potential profitability is hard to gauge properly since many protocols are using variable APYs making any APY comparison futile. However, these are still good reference points and can be used for estimates of how well your investments will perform in the future. 30-day averages are often better indications as they provide context and perspective to any analysis by offering a bird’s-eye view of the APY dynamic. For example, the projected APY on STETH at Lido is 3.22% but the 30-day average is 3%.

Knowing all of the above, we can try to form a list of interesting projects that deserve your attention. Note that we do not endorse any of the projects listed below and encourage our readers to do their due diligence and research all protocols they are planning to invest in.

Liquidity provision for the win!

Providing liquidity to DEXes and other protocols requiring it can be an excellent source of passive income for many crypto holders. Decentralized exchanges are in constant need of liquidity. They have to offer generous interest rates, large shares of collected fees, and rewards in native tokens to compensate providers better than their competitors.

Below are some of the biggest and most popular exchanges from different blockchains:

1. Uniswap is a massive Ethereum-based exchange operating across 26 chains including Arbitrum, Polygon, Optimism, and many others. The TVL is the highest in the sector as it has been above $5.7 billion for quite a while now. The protocol generates $23 million in fees weekly and processes over $23 billion in trading volume. Uniswap operates 3,290 pools averaging 28.78% APY. One of the best options right now is the USDC-WETH (0.05%)pool which promises 25.55% base APY and has a 30-day average of 25.78%.
2. Raydium is the biggest DEX on Solana. This particular chain is home to many memecoins, questionable digital assets, and fraudsters due to the low costs of operating protocols. However, it is still one of the most popular networks as many projects quickly go from rags to riches. Raydium has a solid $2 billion TVL, processes over $24 billion in trading volume weekly, and has a variety of pools with variable APYs and RAY rewards.
3. PancakeSwap is another Ethereum-based protocol. It is a direct clone of Uniswap albeit with some horizontal improvements and unique features. The protocol has $1.8 billion in TVL, operates 317 pools across 9 chains, and provides an average APY of 36.04%. One of the best choices for investors is the WETH-USDT (0.05%) pool on Ethereum with an impressive 14.94% base APY and up to 7.96% in CAKE rewards.

When it comes to yield optimization, DEXes and their pools should be included in any portfolio as these are some of the most productive investments with an acceptable level of risk. Investors should be aware of impermanent loss and be quick to switch pools if they see a better offer from another protocol.

Investing in lending protocols

You can focus on different assets to achieve a consistent performance from your portfolio. Stablecoins are some of the best choices as they are pegged to a reference currency (usually, the US dollar) which will make any investment more comprehensible to investors used to working in the world of tradfi.

Searching for the best stablecoin yield can be challenging even for seasoned veterans since all lending protocols and DEXes offer them. On the other hand, you can concentrate the attention on single-sided stablecoin pools usually offered exclusively by lending projects. Below are some of the biggest ones:

1. Aave is a massive player in this sector with a TVL of $17.2 billion and over $9.66 million in weekly fees. The platform has pools with high utilization offering unique perks to investors willing to provide funding to borrowers. Currently, the protocol operates 145 single-sided pools with some of the most reliable stablecoin pools in the ecosystem. For instance, you can invest in the USDT pool on Ethereum and enjoy a 4.27% variable base APY with a 30-day average reaching 4.95% in November 2024.
2. JustLend on Tron is another massive lending platform that has over $5.1 billion in TVL and offers investors 18 pools averaging 0.67% APY. Here, investing in the USDD pool yields 0.14% base APY and up to 6.1% in TRX rewards. You can also focus on the premiere stablecoin of the network USDT and enjoy 2.93% APY. Many investors are using the TRX pool to hold tokens and reduce gas fees on the mainnet.

Yield aggregators

Many investors do not want to actively manage their assets or spend all their time monitoring the market and searching for the best investment opportunities. Protocols that aggregate yields do all that for you and allow many contemporary investors to increase profitability in the long run despite offering slightly lower APYs (in many cases) compared to investing directly.

You can use these protocols for risk diversification by investing in different digital assets to ensure that you are optimizing profitability. Below are some of the most interesting protocols in this category:

1. Beefy Finance is the most known protocol in this category judging by the social media sentiment as it is one of the most discussed aggregators on Reddit and other social media platforms. The project operates across 8 chains, has a solid $288 million TVL, and features 811 pools averaging 2,144% APY. You can invest in the BIFI pool for 12.66% APY.
2. Yearn Finance is an Ethereum-based protocol with a $221 million TVL and 156 pools averaging 537% APY. One of the best and most reliable choices here is the DAI pool that promises 6.16% APY which is higher than when you compare it to investing directly with MakerDAO. You can also take your chances with the YCRV pool with a solid 18.45% APY.

The main takeaway

When trying to find a good project to invest in, remember to analyze its TVL, average APYs, and other metrics. Do not forget risk management and focus on safer investments that may not promise outrageous returns but will produce profits consistently. Use suggestions from this article as a starting point and experiment with different investment options.