Beating the 4.11% return on US treasury bonds, which are considered one of the safest options for conservative investors, is a tall task when using tradfi instruments outside of exceptionally performing stocks. Many investors are looking at the DeFi sector with hopeful eyes believing that they can make more than a HY bank account can produce in several years.
The problem with this particular idea is that the domain of decentralized finance promises a lot but may significantly underdeliver. Yield farming in particular is a hotly debated topic among crypto enthusiasts and investors. While it is possible to achieve incredibly high interest rates, the outcome of any investment in the DeFi sector is unpredictable.
Decentralized finance reached its peak popularity, so far, in 2021 when the number of active unique users reached 7.5 million. By different estimates, the crowd has somewhat dispersed since. On the other hand, on-chain analytics show that user activity is growing with the number of unique wallet addresses reaching an ATH in May 2024. In the first quarter, the growth was 281% year-on-year.
The most concerning factor is the combined TVL which has dropped by almost 55% from its peak value of $179.3 billion in November 2021 to less than $80 billion in August 2024. This decline, however, is an indication of something interesting happening in the industry. While the overall TVL is in a strong decline, separate protocols are gaining ground. For instance, LIDO is 7.1% up and Aave is 14.5% up in just one month! These are different from your high APY yield farming protocols with outstanding returns.
The capital allocation in the sector is shifting toward established platforms and safer investment options. There is still room for those who want to engage in slightly more profitable yet dangerous strategies. If you are interested in layering stakes, engaging in leveraged yield farming, or doing other forms of investing with high risk and high reward, you can find trustworthy protocols that can produce outstanding profits in the short term.
This particular method of investing is quite risky yet promises very high returns especially if you can time the exit well. The idea here is to stake stablecoins or layer-1 coins (other digital assets can be used too but they are less popular) to receive rewards in the protocol’s native tokens. For example, you can stake OVN-USD+ on Aerodrome (Base blockchain) and receive a 159% AERO reward APY. In August 2024, this pool outperformed expectations and delivered 180% on average.
The AERO token has been doing better than many other tokens issued by DeFi protocols. As of the time of writing, it had a solid $318 million market cap and the price was 500% up compared to the launch value in March 2024. Investors working with this decentralized exchange are still early in its inflationary cycle and can extract juicy profits from their stakes.
When it comes to building a consistently performing portfolio, it is important to have both low-risk and high-risk positions. DeFi investors are always searching for ways to increase potential yields. However, having stakes in pools with lower exposure can be a good way to balance the overall composition of your portfolio.
Here are some examples of relatively safe yield farming options:
Finding the right destination for capital allocation in the DeFi sector is a challenging task due to the overwhelming complexity of investment methods and the sheer number of options. On-chain analytics platforms track over 13,000 pools across over 1,600 different protocols. At least 3,000 pools can be classified as yield farming options by definition. These numbers can quickly become a problem for a newcomer.
Doing your own research is hugely important but a beginner does not even know where to start. We want to give you a couple of tips on how to search for a good DeFi protocol and provide examples of interesting pools that may complement your portfolio!
Time-tested platforms in this sector are rare beasts considering the age of the crypto industry. With many protocols having just a couple of years to establish themselves, finding a project that has been around for more than that is not that easy. Simultaneously, the number of pools offering sophisticated reward structures and multi-faceted investment schemes has skyrocketed in 2021 and 2022 leading to an overly complex environment where making a sound decision is quite hard even for professionals.
We want to give you a couple of useful tips on how to pick a good destination for yield farming:
Look for pools that suit your needs. Depending on which tokens you hold in your wallets, you should be looking for platforms that offer specific investment options. For instance, investors who want something safer while holding stablecoins should be focusing on lending protocols like Aave or Compound with lower yields and risks.
All strategies rely on which protocols you end up using. While it is possible to spread your capital across multiple DeFi projects, it is a sound approach only if you have sufficient funds to enter meaningfully large market positions on each of the selected protocols. Otherwise, it is a better idea to concentrate capital allocation.
The selection of investment platforms plays a huge role in the potential success of your operations. Consider the following tips when picking which ones to use:
To make the selection process easier for you, we decided to put together a list of interesting projects that have yield farming offerings. Note that we do not endorse any of the protocols and encourage you to research each of the options personally. Many newcomers will benefit from avoiding them altogether and working with platforms that are specifically designed to help beginners make better investment decisions in the DeFi ecosystem.
One such protocol is Rivo.xyz with its unique strategies and indexes for those who simply want to spread their capital across multiple promising projects. If you don’t want to use a helping hand, check out which platforms we believe to be among the best to explore in 2024.
If you are interested in maximizing gains without focusing on risk management, searching for protocols with the biggest number next to the abbreviation APY is the best approach. We have several interesting protocols that you should check out. We included only those protocols that have at least $5 million combined TVL.
Note that only a handful of them are deployed on Ethereum. It means that you might need to set up a new wallet to interact with them.
Base, Arbitrum, and Solana are the most popular destinations for developers who want to build Dapps. Here are some of the interesting platforms that you can check out in 2024:
Many investors believe that they should follow the crowd and invest in protocols that bathe in popularity. Several platforms stand out as favorites. We won’t be covering hugely popular projects like Aerodrome, Merkl, or Ekubo as they have been mentioned above. However, we still have several interesting options. We included only those protocols that have massive pools with over $15 million TVL indicating a high level of investor confidence and popularity.
Here are some of the most interesting protocols:
Lastly, we want to give you a selection of interesting new protocols that have emerged in 2024 or late 2023. We cannot say much about their long-term performance or credibility, but they offer generous rewards and seem to be gaining traction rapidly.
As a bonus and the final word on this topic, we want to give you a comparison between the biggest yield farming protocols and their flagship pools.
| METRIC | Convex Finance | Navi Protocol | Aerodrome |
| Blockchain | Ethereum | Sui | Base |
| Combined TVL | $990 m | $237 m | $575 m |
| Number of pools | 222 | 8 | 214 |
| Average APY | 9.51% | 6.57% | 53.02% |
| The best yield farming pool | WETH-ZUN | USDC | WETH-AERO |
| Reward APY | 211% | 9.49% | 604% |
| Reward type | CVX | SUI | AERO |
| Token market cap | $170 m | $2.16 b | $235 m |
| Token price since launching | -73% | -43% | +498% |
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