With the massive rise of DeFi, yield farming has grown in popularity and created quite a buzz. Investors are coming up with new strategies to increase their yield on their crypto assets. The emergence of new DeFi applications during this summer is offering various avenues for yield farmers to multiply their rewards, thus driving users in mass, hoping to get a cut of the yield on offer. Subsequently, rising the demand and pushing the project’s value and tokens upwards.
Today, we’ll be looking at the different yield farming platforms where users can benefit from this DeFi project. These platforms popped up during this DeFi summer, making use of technologies such as AMM (Automated Market Maker) algorithms, P2P lending & borrowing, DEX (decentralized exchange), etc.
Thanks to yield farming, Uniswap has become one of the largest decentralized exchanges exceeding $1 billion in 24-hour trade volume. Farmers can invest their crypto assets in a range of liquidity pools offered by the platform to earn UNI V2 tokens.
It’s a permissionless automate liquidity provider platform built on top of the Ethereum blockchain. Uniswap single-handedly revolutionized the whole DEX space by replacing the order books with liquidity Pool. Currently, it enjoys the top position in the list of the biggest DeFi platforms. As of now, a total value of over $2.75 billion is locked on the platform.
By locking their assets in the liquidity pool on Uniswap, yield farmers can earn a 0.3% fee on all trades on Uniswap (in the given pair) proportional to their share of the pool.
The whole game of yield farming can be attributed to Balancer. As they say, Balancer is the OG of yield farming. It is also an automated market maker platform leveraging the Ethereum blockchain.
Balancer allows yield farming to create and add liquidity to customizable pools and, in exchange, earn rewards. The platform offers two types of liquidity pools – private pool and shared pools.
As the name suggests, adding liquidity to a private pool allows you to have full control over the pool and tweak its parameters as per your liking. The sharing pool, on the other hand, comes with its fixed set of fees. Thus, the pool creator has no special privilege over the pool.
Compound.finance is another big player in the DeFi world. It is also a part of the Ethereum ecosystem offering an algorithmic, autonomous interest rate to users. Thus the interest rates on the platform are automatically kept in check as per the demand and supply. It is another money market enabling users to earn interest on their idle crypto assets.
The platform uses one of its native tokens – cToken to represent the supplied assets. Once you lock your crypto assets as collateral, the platform allows you to borrow 50-75% of your cTokens’ value. However, that also depends on the quality of the underlying asset. The platform’s other native token, COMP, is a governance token.
Curve.finance is another Uniswap-like decentralized exchange for stablecoins. The platform focuses only on stablecoins, thus offering low slippage to users and practically no impermanent loss to liquidity providers.
It supports only a handful of pairs, including DAI, USDC, USDT, TUSD, BUSD, and sUSD. It supports BTC pairs as well. It also improves on Uniswap by enabling a direct token to token swap, thus saving on slippage. Uniswap, on the other hand, swaps tokens against ETH first, resulting in more slippage.
Yield farmers can add liquidity to the given pools on Curve.finance and earn rewards without the fear of impermanent loss.
Synthetix is a decentralized derivatives market. It is a token trading platform allowing the creation and trading of real-world assets in a tokenized manner. Based on the Ethereum ecosystem, it enables users to create a synthetic ERC-20 token of a real-word or a crypto asset. It is thus allowing users to bet on an asset without actually holding it.
Yield farmers can lock their assets in the form of the platform’s native token SNX as collateral and borrow synths or synthetic assets such as sUSD. Here, the value of sUSD is pegged on USD. The platform is also collaborating with Chainlink’s Oracle network to bring real-world information onto the blockchain.
Yearn.finance is basically an aggregator for DeFi applications. The platform’s goal is to offer a simple interface in one place for all of DeFi products. It utilizes a range of lending services (Aave, Compound, Dydx, etc.) to optimize your token lending. By making use of smart contracts, the platform moves funds across these platforms to ensure the highest interest rates for users.
The platform offers a range of products such as Vaults, Earn, Zap, and Cover to choose from and maximize your return. Yield farmers can lock their assets in one of the yearn products to maximize their yield.
SushiSwap is a hard-fork of Uniswap that apparently made a vampire attack and gained over $1 billion in liquidity within a week of its launch. A vampire attack is a methodology of stealing liquidity from another platform. It is done by first encouraging the users to stake their LP from the first platform and then migrating staked LP tokens to a new platform. It basically launched a hard-fork (bi-product) of Uniswap with an addition of its native token. It’s worth clarifying that at the time of SushiSwap’s launch, Uniswap’s UNI token was not launched yet.
However, it’s worth noting that Sushiswap has been in controversy for a while. At the same time, the platform’s native token Sushi’s value kept plummeting, mainly when the platform’s creator sold his entire stake. Subsequently, the Sushiswap’s creator, who goes by the pseudonym Chef Nomi, was also called out for pump & dump schemes.
Aave is another player in the Ethereum ecosystem leveraging automated market maker algorithms. It’s a non-custodial protocol and offers decentralized services, including lending, borrowing, swapping tokens, flash loans, etc. This enables yield farming to deploy strategies to earn rewards by moving their assets around these services.
Farmers often invest their assets in liquidity and lending pools to earn their share of reward from the market maker fee or interest rate. As of now, the total market size of the AAVE protocol is over $1.2 billion.
Similar to Synthetix, UMA is another Ethereum based protocol for building synthetic assets. It allows users to create their own interest-paying synthetic tokens and earn rewards.
UMA, short for Universal Market Access, enables users to create an ERC20 token for synthetic crypto or real-world asset exposure in an ETF-like format. The protocol’s native token UMA is currently among the top 10 DeFi tokens by market capitalization. The token has already bypassed COMP, SNX, YFI, among others.
Recently launched by the team behind Tomochain, Luaswap is a new Defi platform, similar to Uniswap. As of now, Luaswap offers around 15 different liquidity pools. Farmers can lock their assets in these liquidity pools on Uniswap to get UNI-V2 LP tokens. Further on, they can earn LUA tokens by staking their UNI-V2 LP tokens on Luaswap.
Luaswap is among the newest players in the town and currently offering huge APR as high as 1400%. Therefore, it’s advisable to do your research before investing your money in these pools.
So, these were the Top 10 Yield Farming platforms. Besides these, users can harness many other platforms to make a profit in yield farming. However, users should always keep in mind that yield farming comes with its set risks such as Smart Contract failure, loopholes, impermanent loss, rug pull scams, etc. Therefore it is advisable to do your research before investing your hard-earned money in the risky ground.
Disclaimer: This is not financial advice.
Written by Narender Charan