Yield Farming Rates: The Best APYs in DeFI for 2024

The total number of DeFi users is estimated at 11,8 million in July 2024. This statistic is a significant overestimate since a single individual can use multiple addresses across several platforms and still be counted as a unique user. Experts supplying data to Statista have much lower numbers and report a below 6.5 million count.

What we can safely assume about the DeFi sector is that it is growing. The dip in user activity after the “crypto winter” was a temporary phenomenon that simply removed those who simply wanted to use their free money from government aid or experiment with a new investment instrument. Now, only those who are actually interested in using decentralized finance products are left.

What is DeFi yield farming and what are rates?

Any investment strategy that involves locking in assets in pools in an effort to receive rewards is a yield farming method. Contemporary investors have access to a wide range of different instruments that generate returns passively. These range from relatively safe like staking Ethereum to extremely dangerous such as memecoins and degen projects with exorbitant return rates.

A yield farming rate is the interest that you accumulate in target assets or native tokens depending on the reward structure. A strategy can have a cumulative interest rate with daily compounding already included (APY) or a simple interest rate without compounding (APR). You can also have different rates for individual projects.

It is hugely important to search for the best possible combination of investment instruments to achieve exceptional cumulative yields while avoiding risks. Finding the right balance between the degree of exposure and expected returns is the top priority for any contemporary investor.

Yield farming strategies to use in 2024

The diversity of investment tools in the sector allows investors to create sophisticated portfolios with different market positions that can achieve incredible results, better than anything one can hope for in tradfi. However, many of the strategies that we are going to discuss are associated with a high level of risk.

Below are some examples of interesting investment approaches commonly used in the DeFi sector:

• Staking layer 1 tokens. Ethereum is the biggest PoS network out there. The proof-of-stake mechanism substitutes validators holding large stakes for miners. They receive rewards for their contribution to the network and as compensation for holding assets locked in. As of the time of writing, the total volume of staked ETH was close to $95 billion according to Coinbase. You can expect 4% APY on average.
• Liquidity mining is a highly profitable endeavor for any contemporary investor as DEXes have some of the highest interest rates and offer large rewards to liquidity contributors. Usually, DEXes and bridges use two-sided pools with a pair of assets in equal ratio. Rewards can be paid as mixed APY, base APY on target assets, or native tokens. WBTC-WETH pool on Uniswap V3 has a base APY of 1.69% but paid 10.11% on average throughout August. TON-USDT on DeDust offers 1.37% in base APY and 23.96% in rewards with a 30-day average of 43.07%.
• Liquid staking. Some projects offer investors an opportunity to keep their assets liquid despite them being locked in a stake. In exchange for staked coins, some protocols like LIDO will give you stETH which is equivalent in value to ETH. You can use newly acquired tokens as collateral to take a USDC loan which can also be staked for an additional return. LIDO gives you a 2.95% base APY (3.18% 30-day average). You can stake USDC on Aave V3 for an additional 4.52% base APY (4.38% 30-day average).
• Lending stablecoins. Bitcoin, USDT, USDC, and DAI are the most popular assets for borrowing and have the highest utilization rates across the board meaning that many investors choose them as targets for lending strategies. The oldest lending platform is Compound, but you can choose from a variety of protocols including Aave, JustLend, Spark, and many others. Some numbers are quite impressive. For instance, you can get 27.14% (30-day average) in the GHO pool on Aave or up to 16.66% base APY in the USDC pool on Scallop Lend.

High-yield farming methods

Some investors believe that working with protocols that have APYs comparable with HY bank deposits and US treasury bonds is an insufficient reward for the risk of exposing capital to the crypto market in the first place. Some investment options in the DeFi ecosystem are designed to produce extremely high interest rates. For example, many DEXes are competing in a very dense market and have to offer lucrative incentives.

Without mentioning degen projects and memecoins, here are some of the most attractive options in the DeFi ecosystem:

1. Liquid restaking. Investors have an opportunity to use their stETH or other liquid staking tokens (LSTs) to support layer-2 protocols and bridges by simply restaking their capital. In theory, it means that you can double the interest rate without leaving the initial ecosystem. Some investors believe that it is a relatively safe option. Staking on LIDO will give you 2.95% base APY and restaking Kelp DAO produces an additional 3.04% APY bringing the total to 5.99% without the need to pay borrow APY like in the case of USDC borrowing in the example we used before.
2. Reward yields. Many protocols offer additional rewards to users who stake with them or provide liquidity. One of the most popular platforms for such strategies is Pendle. For instance, investing in the RSETH pool for buying Zircuit LP generates a 21.93% base APY and 0.63% in Pendle rewards. Some pools pay up to 25% in Pendle which is doing quite well and has a solid $513 million market cap. If you are not afraid of token inflation and believe in the project, supporting them in exchange for native and governance tokens can be quite profitable.
3. Going for leveraged positions. DeFi protocols may offer leveraged farming with incredibly high returns. For instance, the USDC-AERO pool on Extra Finance offers up to 115% (30-day average) APY and their OVN-USD+ is even crazier with 644% base APY.  Storm Trade is the newest The Open Network DEX that offers a wide range of instruments including commodities, stocks, and Forex pairs among many others. You can gamble on the chance of making a profit before retail traders using the advantage of SLP tokens given to you in exchange for TON or USDT coins with rewards reaching 44% APY and higher.

In some cases, investors even risk allocating their capital in a pool with memecoins like DOGS or PEPU to get a massive 1009% and 2189% base APY respectively on Solana-based protocols like ORCA. This particular blockchain is infamous for the deployment of multiple rug pull projects and worthless memecoins, but if you like high-stakes gambling, this investment strategy may be right up your alley.

Risks of yield farming

Such high potential returns are not like free cookies in a jar you found at your grandma’s house. All these methods of investment are associated with incredibly high risks and may cause significant losses. Experienced investors either completely ignore these strategies or engage them using only the money they can afford to lose without harming their future financial prospects.

Here are some risks strongly associated with chasing high yields and yield farming in general:

• Impermanent loss. This is a big issue for liquidity miners who invest in two-sided pools specifically. The loss occurs when the price of your target assets dips below the entry price creating a negative net value. Since it is possible for assets to recover, the loss is called impermanent. In two-sided pools, a certain ratio of assets must be maintained and any price fluctuations cause adjustments leading to a situation where losses become permanent. Some experts estimate that up to 60% of all Uniswap investors lose money due to this issue.
• Smart contract deficiencies. When protocol developers are honest about their platforms, you will always be met with a warning that technological risks are still quite significant. Smart contracts designed by responsible teams are vigorously audited by experts and the community. Nevertheless, they still can have exploits and bugs that nullify any gains that you might have expected from an investment. The problem is even more pronounced when you work with bridges. These cross-chain protocols lost from $1 to $3 billion, depending on whose estimate you use, in 2021 alone.
• Token inflation. When you invest in pools that pay interest in native or governance tokens, you have to expect that their value will drop since the supply is increasing all the time as more investors start allocating capital to pools. The influx of new tokens inevitably reduces its value if no deflationary mechanics are implemented. For instance, AERO, the native token of the Aerodome DEX, reached an ATH price of $2.03 just four months after the launch. As of the time of writing, three months later, the price is already at $0.65, a 72% drop.
• Rug pulls. One of the biggest unsolved issues with the DeFi sector is the prevalence of pump-and-dump schemes where investors are often left holding the bag without a chance to liquidate their holdings. In 2021, scammers managed to take $2.8 billion from investors, according to Chainalysis. Some investors realize that they are allocating capital to questionable projects but they hope to outsmart the market and pull out funds at the right time. Some yield farming tokens are issued by so-called degen projects where the price is determined by the funds accumulated in the pool meaning that these are effectively Ponzi schemes.
• Liquidity issues. Insufficient liquidity is a common problem for protocols that fail to attract enough users. In some cases, you won’t be able to exit a market position without taking a significant loss in the process. Some investors may think that this issue is not prevalent, but Messari conducted a survey in the sector revealing that roughly a quarter of all DeFi platforms regardless of their specialization suffer from insufficient liquidity.

We must also remember the sheer complexity of the DeFi ecosystem and the unfriendliness of many protocols that simply make the investment process too hard for newcomers. Binance Research surveyed the clients of the biggest centralized exchange and found that 22% of all users have experienced losses after making a mistake in selecting pools or calculating potential yields. In some extreme cases, failing to protect private keys or sending tokens to the wrong address can lead to direct losses of funds.

The best yield farming platforms

Searching for a good protocol to park your capital is not easy since you can choose from over 13,000 tracked pools across several hundred protocols deployed on over 20 chains. Without mentioning some of the riskiest and most questionable projects, we can talk about some interesting choices that you can make when hunting for the best yields:

1. Aerodrome is a central liquidity hub for protocols deployed on the Base blockchain. It is an interesting project with some of the best pools for rewards and base APYs. The protocol has degen pools with returns higher than 2,000% and stablecoin pools for automatic market-making with returns reaching 25%. The USD-AERO pool offers 68.77% APY in rewards. Since the AERO token is still doing fine, you can make a solid profit here.
2. DeDust is the premiere DEX on The Open Network offering huge rewards in the chain’s native tokens while attracting investors with sizeable capital. For instance, the TON-USDT pool has a 1.37% base APY and 23.96% in TON rewards with a 30-day average of over 43%. The TVL  is over $175 million making it a very interesting project for people who are not afraid of market volatility risks. The exchange offers a wide range of two-sided pools with different return rates.
3. Uniswap is still one of the best destinations for investors who want to see high yield numbers. The protocol has over $2.8 billion in TVL and offers 2308 tracked pools across versions 2 and 3. Yields vary greatly depending on the type of pool and its utilization. For instance, the USDC-WETH (0.05%) pool offers a hefty 16.04% base APY and has reached a 27.87% 30-day average in August 2024. On the other hand, the relatively stable DAI-MKR pool is giving a 5.93% APY on average.

These are some of the most popular emerging DeFi platforms for yield farming in 2024. You can also check out slightly more dangerous projects like Extra Finance, Storm Trade, Gains Network, Orca, Yearn Finance, and many others. However, it is important to remember that the goodwill of the community and an acceptable track record should be considered when picking a long-term investment protocol.

If a project offers exorbitant returns or pays in tokens that are not backed by reserves, an investment may quickly turn into a catastrophe. We strongly suggest doing your own research and spreading capital across multiple pools to diversify the portfolio by introducing different types of market positions.

Yield farming comparison

As a bonus, we want to briefly discuss some of the most intriguing yields available to investors in the DeFi sector in 2024. We are going to cover pools with TVLs over $500 million deployed on Ethereum as it is still the biggest chain in the crypto industry.

As you see, the difference between the largest and safest pools is relatively small. On a good day, they significantly outpace US treasury bonds (4.11% in 2024) and HY bank deposits. However, they can slightly underperform in certain market conditions.