Meanwhile, the daily volume indicates the popularity of the platform. Finally, the yield you receive today may not be the yield you receive tomorrow. High yields tend to compress as more yield farmers start to move funds into a high-yielding farm, affecting your returns. Those who are making huge returns often have a lot of capital behind them. But those wanting to take out a loan have access to cryptocurrency with very low interest rates—sometimes as low as 1% APR.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now. Yield farming has similarities to some established concepts in traditional finance. Another is selling stock options, a way to earn money on stocks you own by lending them to others. The investing information provided on this page is for educational purposes only.

Harvest Finance

It supports Ethereum, Polygon, Avalanche, Optimism, and Arbitrum. Compound is a decentralized crypto lending platform where you can lock and lend your cryptocurrencies to make gains. It has a variable rate of interest based on the current market conditions. Moreover, your potential yield farming profits are highly dependent on the price of the protocol token you receive as your yield farming reward. Should the value of the protocol token drop, your yield farming returns could easily dwindle.

yield farming platform

It still supports most of the largest cryptocurrencies, including BTC, Ethereum, Ripple, DOGE, Stellar Lumens and all ERC-20 tokens. If you are looking for a software wallet to use with the DeFi ecosystem on Ethereum or store supported cryptos on other protocols, Coinbase Wallet is a fantastic choice. Hardware wallets (or cold storage wallets) are often touted as the safest option for storing cryptocurrencies because they are mostly invulnerable to cyberattacks. None of the information needed to access the contents of the wallet is stored on the internet. While hardware wallets are the safest place to keep cryptos, they are usually slower and a bit more cumbersome to use. If your main goal is to hold crypto tokens and you don’t plan on trading it or depositing it into DeFi projects, hardware wallets are probably the best storage solution for you.

The risks of crypto yield farming

Alternately, liquidity providers may be given new liquidity pool (LP) tokens. This kind of asset is called a governance token, and it offers holders voting rights that give them power over platform changes. Interest in the token jump-started its popularity and moved Compound into the leading position in DeFi. Thoroughly research the platforms, tokens, and strategies you plan to use for yield farming. Investigate the team behind the project, the platform’s security measures, and the tokenomics of the coins you plan to farm. Although yield farming can offer significant returns, it’s essential to be aware of the risks involved.

yield farming platform

Now you should keep a watchful eye out for major price fluctuations in case it incurs impermanent loss. DeFi yield farming uses the innovative technology of smart contracts, which in essence are automatically executing coded contracts that run on platforms like Ethereum. Yield farming has grown as an investment strategy along with the technology that enables it. It can be risky, and scams are still part of the ecosystem, but the best platforms already have proven their worth.

ETHDYDX

It is therefore advised that users really familiarize themselves with the risks of yield farming and conduct their own research. Prospective yield farmers should prepare for the potential of total loss before getting started. But those who successfully navigate the risks sometimes Foreign Exchange Vs Crypto secure returns higher than those offered at a bank. As a number of Ethereum developers have told Decrypt, certain yield farming projects won’t last and are simply not sustainable. These projects often raise huge amounts in a short period of time and are then forgotten about.

yield farming platform

One of the largest risks in yield farming is the volatility of digital assets being used to farm with. Even if you make 25% APY on a token, if the token depreciates 50%, you’re significantly down on your investment after 12 months of farming. Impermanent loss is the difference in value you would have had by simply holding your 2 assets instead of staking them for interest.

Market Overview

Yield farming is placing cryptocurrency assets in a liquidity pool or other decentralized finance (DeFi) platform to earn a higher return. It was once the most significant growth driver of the fledgling DeFi sector, but it lost most of its 2020 hype after the collapse of the TerraUSD stablecoin in May 2022. Some platforms offer additional yield optimization tools that can potentially generate better gains.

yield farming platform

CoinMarketCap presents a beginner’s guide to yield farming and how much is at stake by providing your hard-earned coins to DeFi platforms in return for financial rewards. Successful yield farmers often engage in complex investing strategies, using the reward tokens from one pool to invest in another. Crypto yield farming can be an effective way to earn passive income, but it requires careful planning, research, and risk management. Diversify your investments across various platforms, cryptocurrency pairs, and strategies to spread risk and increase the likelihood of earning stable returns. Stablecoin pools can offer more predictable returns and lower volatility since they involve coins pegged to stable assets like fiat currencies. By focusing on pairs containing stablecoins, you can potentially reduce your exposure to market fluctuations and enjoy steadier returns.

If the price is met, the exchange enables the transaction between multiple users. Users can lock up cryptocurrencies such as Ethereum and USDT on DeFi protocols, which can be used by others to perform swaps. The fee that’s given for providing liquidity is called yield farming.

  • Finally, the yield you receive today may not be the yield you receive tomorrow.
  • Ethereum co-founder Vitalik Buterin himself has said he will be staying away from yield farming investments.
  • In the loan example, cost considerations consist of the original cryptocurrency put up by a lender, the interest and the value of the in-house governance token reward.
  • Many of these liquidity pools are convoluted scams which result in “rug pulling,” where the developers withdraw all liquidity from the pool and abscond with funds.

Stablecoin pools are especially safe as long as the tokens don’t lose their peg. Because their prices won’t change dramatically compared to each other, impermanent loss can be completely avoided. Like all DEXes, using Curve comes with the same risks — impermanent loss (though it’s less likely in many Curve pools) and smart contract failure. This is why some cryptocurrency enthusiasts advocate for keeping your crypto away from exchanges—you might have heard the saying “not your keys, not your coins”. Binance is the world’s largest cryptocurrency exchange in terms of both user count and trading volume. Users can earn yield on assets like ETH, DAI, USDC and many other popular crypto assets.

Don’t miss out on leveraging these powerful tools for your projects. CropperFinance’s specialized CRP/SOL farming pool provides an estimated APY of over 370%. An active development team backed by a strong community indicates a committed and, in theory, more trustworthy platform. Many or all of the products featured here are from our partners who compensate us.

Best Yield Farming Crypto Platforms in 2023

This differs from centralized exchanges, which match buyers with sellers to discover prices and carry out trades. Liquidity pools provide the financial backing behind these algorithms, enabling a customer’s transaction to be fulfilled upon request. That’s different from DeFi platforms, such as Curve or Aave, where you instead choose from many options known as liquidity pools. Next up is yearn.finance, which works to move users’ funds between different lending and liquidity protocols (Compound, Aave and dYdX) to get the best interest rates.