Generating passive income with liquidity mining, staking, or lending can be viable. However, coins and yields on them offered by DeFi protocols vary wildly. Searching for the right combination of assets and platforms is crucial for the long-term success of your investment activities. The problem of capital allocation in the sector appears to be challenging for over 60% of investors who claimed to not fully understand blockchain technology despite investing in it.
In the contemporary decentralized finance (DeFi) ecosystem, an investor is presented with a rich selection of cryptocurrencies that can be staked or collateralized. APRs vary greatly with some pools achieving over 5,000% 30-day average APY (ORCA’s SOL-DOGS) or steadily hovering around 3% (LIDO’s stETH). The blockchain type also plays a huge role. For example, many high-yield protocols are deployed on Solana or BASE which are often criticized for having too many questionable projects.
Picking the right cryptocurrency is an essential part of the investment process. The combinations of risk and reward come in all shapes and colors. An investor should never chase high percentage rates disregarding the dangers of the market.
Contemporary investors see a plethora of avenues that can be taken to produce good returns using various types of crypto assets. With some platforms offering incredibly lucrative investment products, losing the right path is almost too easy. The right combination of appropriate target asset selection, adequate pools, and robust risk management can help you achieve consistent profits with outcomes effortlessly beating tradfi offerings.
Here are several yield farming techniques that you can employ:
Combining these methods while balancing risks is a valid approach to building high yield strategies on crypto. It is necessary to search for protocols that offer good returns on digital assets that do not experience extreme volatility. Seeing your accumulated holdings losing massive chunks of value due to price fluctuations is devastating.
From several examples above, we can see that yields vary depending on the target asset. Due to inflation and price drops, tokens like GHO have to be paid out in massive quantities to keep investors interested. Stablecoins usually have much lower yields and less complicated reward structures since they appear to be more valuable and have to be pegged to a reference. DAI is one of the most profitable coins from this category as it is backed by other crypto holdings and can be pegged to the US dollar more efficiently than some other tokens.
The outcome of investment activities depends on the selection of two things:
The period of selecting the pathways for investing is a hard one for any investor. Opportunities appear to be endless while economic uncertainty often tarnishes an otherwise perfect prospect. If you know which assets to target, picking the right protocol is only a matter of finding those that support the choice and have a good track record.
DeFiLama has over 11,000 tracked pools and over 100 projects. Data aggregators often support different blockchains and platforms making the total number of available destinations for capital allocation hard to calculate precisely. Thankfully, the vast majority of pools are either too risky or too inefficient to attract investors in the first place.
Let’s talk about several leading protocols that offer unique investment avenues to their users.
An investor can find pools with yields over 100%. For example, ORCA on Solana, Merkel on Arbitrum, and Extra Finance or Aerodrom on BASE. However, these blockchains have been heavily scrutinized by the community with many conservative investors preferring to stay away from them. These can work well for smart capital holders willing to take on some risk.
If you want higher returns on a slightly more reliable protocol, Aave is a good choice. The total value locked on V3 is $3.19 billion as of the time of writing. You can expect to earn roughly 25% in GHO rewards. Stablecoins are also good choices with 30-day average APYs ranging from 4.11% (DAI) to 5.78% (USDE). In total, Aave supports 44 different tokens including from 8 chains. Real returns can be lower than expected due to the volatile nature of the market. It is important to have a first-hand experience.
If you are one of the investors seeking the balance between risk and reward, it is important to have access to financial instruments that focus on a diverse set of assets. Uniswap is a hugely popular destination for people excited by the opportunity to allocate crypto holdings efficiently. At the time of writing, Aave had over $21 billion in TVL and offered impressive yields on some of the most popular coins like USDT, USDT, DAI, and many others. It is also possible to restake wrapped coins for additional returns.
Uniswap is the biggest decentralized exchange with a good track record making it a solid pick for investors who prefer time-tested products. We have to warn our readers about the dangers of investing on platforms like Uniswap where impermanent loss is a significant risk. Some studies indicate that over 60% of all Uniswap stakers lose money in the long run.
One of the top performers in the crypto market during the last two years has been the $TON token issued by The Open Network previously developed by the team behind Telegram. Many emerging projects in the ecosystem offer interesting instruments to users. DeDust is an excellent DeFi protocol providing a variety of ways to earn $TON and yields on crypto holdings. The TON-USDT pool has over $215 million in TVL and has been hovering above 52% real APY giving out roughly 28.25% in native tokens.
If you are looking for interesting platforms to earn popular niche coins, DeDust is a great choice. The protocol operates as a decentralized exchange with expanded functionality allowing for effortless bridging and staking as well as portfolio tracking. It is a functional platform that tries to attract users with its high APYs and cross-chain asset swapping.
You can also focus on yield aggregators and auto-compounding platforms that make it easier for investors to take holdings efficiently and amplify gains. These Dapps do not take investors’ funds into custody and provide a more transparent environment for investing unlike tradfi brokerage service providers and investment banks.
This platform is all about providing opportunities for layering. The main product is Ether.fi Stake which is a liquidity mining tool that allows investors to receive eETH. The resulting token can also be staked using the Liquid Vaults product offering a variety of pools for eETH and other tokens on top of automated reward compounding. Joining the platform and depositing ETH results in yields from the mainnet (2.2% on average) minus fees. weETH staking provides an additional 3.13% APY (30-day average). Since these tokens are equal in value, the total rate is about 5% — 5.5%.
This Dapp positions itself as one of the leading yield optimization tools in the market. Released on Binance Smart Chain, it is a flexible instrument capable of inter-chain transactions and on-chain data gathering. Beefy supports multiple chains and tokens. You can receive BIFI as a reward for staking and earn additional yields on them. As of the time of writing, the biggest supported pool is DOLA-USDT on Aerodrom with 18.86% base APY and over 24.62% (30-day average). The platform has a nice interface and useful analytical tools on top of other functionality like automatic reward collection and restaking.
This Ethereum protocol has a functional DAO with many active members. The platform offers several features that allow investors to optimize yields while working with a variety of tokens including stablecoins, wrapped ETH and BTC, and many other interesting financial instruments. You can receive significant yields on CRV (the best in the industry) with average rates reaching 38% or more under certain circumstances. yETH is a risk-adjusted pool that offers good APYs (up to 7% with 4.48% base and 4.12% reward APY).
Selecting the right target digital asset is a very important step when you are trying to design a good method of investing. There are several rules that you should use to analyze assets suitable for yield farming:
The best crypto income strategies employ holistic analytical methods and use on-chain data to find the most valuable target assets for yield farming. You don’t have to run a concentrated portfolio that focuses heavily on a single token. It can be a good strategy if you plan to stick to conservative approaches by staging stablecoins or ETH for consistent rewards. However, it is a good idea to try and optimize yields by spreading out investments across multiple tokens and even throwing in some meme coins just for the chance of “winning the lottery”.
Proactive investors hoping to optimize their gains should look for reliable platforms that feature different pools for stablecoins (DAI, USDT, USDC, DOLA, etc.), speculative assets and memes (DOGS, MIGGLES, etc.), and governance tokens (MKR, veYFI). It is also a good idea to partner up with a yield aggregator and experiment with layering staking positions by utilizing wrapped and staked versions of coins.
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