Ever heard about Yield farming? If we are being honest, we can univocally say that yield farming is one of the best things that happened in the DeFi space. Don’t know much about Yield farming? Here is how you can understand it in simple terms. You know how traditional banks work right? When we deposit some amount in the savings, we will earn interest on the deposited amount. Yield farming more or less works in the same way. Instead of regular currency, you will deposit the cryptocurrency you have in liquidity pools. Just like you earn interest in banks here you earn rewards in exchange for locking up your cryptocurrency for a certain amount of time. The rewards you get in this process would usually be more cryptocurrency.
Yield farming is also known as liquidity farming. This usually involves an investor who stakes their coins by depositing them in a lending protocol using a dApp. The coins thus deposited in the pool can be borrowed by other investors and can be used to speculate and make profits for themselves. The initial investors who lent their coins to the pool will be rewarded for providing the coins for others to use. This way they would still own those coins but instead of just sitting in the wallet they could be used to make some money.
Did you know that currently 1.9 billion dollars are locked in the Decentralized Finance? Not a surprise, of course, more and more people are investing in the DeFi space each day, and it is no wonder that it holds so much money. Since the topic of our discussion is Yield farming. A simple way to understand it is that it is a method to get the highest yield with the cryptocurrency you have and also a way to earn more cryptocurrency with your cryptocurrency without losing either.
Now that yield farming has your attention, let’s go ahead and explore the best DeFi Yield farms there are.
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Uniswap
Uniswap is currently the second-largest DEX(Decentralized exchange). The platform allows its users to swap with ETH and several ERC 20 tokens and also a staking opportunity to join liquidity pools. The people who provide coins to the pool are called liquidity providers and they will earn a percentage of the trade fee according to the number of coins they provide to the pool.
Uniswap is providing ~20% to 50% APR. Although you should be cautious as the interest rates differ according to the fluctuations. Currently, there is more than $5.5 billion locked up in the platform. The platform is currently available in two main versions V2 and V3.
Curve Finance
Curve Finance is the largest Decentralised Exchange followed by Uniswap. The platform is providing 2.5 per cent to 25 per cent APR. it has over $7.9 billion locked up in the platform. You can say that Curve Finance puts the funds to better use than other platforms. They have a unique market making strategy that could benefit both the liquidity providers and the users.
One of the main reasons that made Curve Finance the largest is that it has many stable coin pools pegged to USD. This is comparatively safer than other coins as Stablecoin pools doesn’t dramatically change and nor are they so volatile. This could be just the thing you need to avoid impermanent losses that you might come to face.
PancakeSwap
Like Uniswap, PancakeSwap is also a decentralized exchange. While Uniswap is built on the Ethereum Blockchain, this one functions on the Binance Smart Chain. The platform works more or less the same as Uniswap. The platform holds a total of $7 billion which is the highest of all the DeFi projects on the Binance Smart Chain.
The platform also offers skating pools, BSC token swaps and also a gambling space to predict the future of BNB and NFTs. When it comes to the risk of impermanent loss, PancakeSwap also has a similar risk to that of Uniswap.it provides 8% to 250% APR
Aave
Aave is no doubt the forerunner in the field. It has a total of about $10 billion. Because a lot of investors deposit high amounts in the pools, Aave offers low-interest cryptocurrency borrowing. It has one of the best APRs in the market 0.01 to 15% APR in general and the borrow APRs range from 3 per cent to 7 per cent for stable coins.
Even though it is unlikely the investors should be cautious about the failure of smart contracts to avoid risks.
Yearn Finance
Yearn Finance is famous for the unique yield farming & aggregation tool it offers. The platform has an active development team that is continuously working on new strategies that could help the users earn higher yields.
Yearn Finance has more than 30 pools of Yearn and Curve integrated pools that allow the investors to deposit one of 5 cryptocurrencies ETH, DAI, WBTC, USDC or USDT into the smart contract which deposits the pool on Curve Finance. Yearn Finance like the other yield farms also poses the risk of smart contract failure and impermanent loss.
Wrapping Up
Yield farming has become famous in the crypto world in recent years as investors explore the tools available to them to put their crypto to use and earn more in the form of interest. Although a lot of people show interest in Yield farming, like with all kinds of investing, Yield farming too has its own risks. For example the volatility of the coins, smart contract failures, impermanent loss, Fraud etc. So the investors must be cautious about these before investing in the liquid pools. Apart from those, Yield farming is the most preferred method of earning rewards by most investors. Hope you found this article helpful. For more such articles visit Postling.
