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Best Yield Farming Strategies for 2021

What is yield farming?

Nowadays, many people are asking, what is yield farming? To put it into perspective, Decentralized Finance (DeFi) made it possible for yield farming, also known as liquidity mining, to exist by making more crypto with your crypto, Simply put, yield farming is an investment opportunity that allows you to deposit cryptocurrency and grow a profit through earning interest and fees or even tokens. 

Farming tools

Instruments like borrowing and lending platforms, Decentralized Exchange (DEXs) and liquidity pools, staking, and so-called “second-layer” farming are used for helping yield farming to gain the highest return. 

Lending and Borrowing 

Platforms for lending and borrowing lets the users obtain crypto money by earning interest like Ether (ETH), which acts as a deposit for a collateral. Yield farming using lending platforms is one of the safest and most reliable methods to earn rewards and liquidity providers to get different tokens for liquidity mining without having to buy them outright.

Liquidity pools & DEXs

Liquidity pools and DEXs that let people to trade between each other without any middlemen, includes applications like Curve and Uniswap. Smart contracts regulate and keep the pools balanced between different cryptocurrency and token trading pairs or groups. Often rewards are available for users who put their coins (or liquidity) into these pools with tokens from the DEX that earn fees for transactions made on the platform.

Staking and vaults

All you have to do is deposits or stake some liquidity in order to get added to the mining pool. By locking them into a smart contract, to earn passive rewards similar to stocks. Earnings you can make from staking will depend on how much you invest and for how long. The concept of staking is to limit a token’s market supply, thereby increasing demand, reducing selling pressure and incentivizing users to provide liquidity. YFI took staking a step further by popularizing vaults for stablecoins and offering up to 5% APY.

Second-layer farms
A growing number of farming projects are increasing daily. An investor must choose the right one so not to get scammed by them. Though there are always risks involved, you must learn to pick wisely.
A few protocols have found ways to farm more efficiently, or improve on the existing system. We can expect a lot more from second-layer applications, like Pickle Finance and CORE that build and improve upon existing DeFi architecture, and the next big project is always right around the corner.

Yield Farming Strategies

What makes a good strategy? The first thing to think about is whether it is helpful to the network? Secondly, do you have the token to do this or do you believe in it? Finally, how sustainable is it?

1. The sUSD Curve Pool Strategy

When you store your USD on Synthetix, you can have sUSD or Synthetic USD minted against it. Now when you deposit the acquired sUSD on the Curve sUSD pool, you get Curve tokens back in return, which you can then stake back on Synthetix.

The Benefits:

  1. Synthetix and Curve finance are both sturdy networks you can put your faith in.
  2. Both the Synthetix and Curve ecosystems provide great token appreciations to their LPs.
  3. This strategy is useful to Synthetix because you’d be providing sUSD liquidity to the Synthetix network, and thus doing your part in making SNX a valuable token to hold.
  4. The transaction costs you have to bear while converting USD into sUSD are practically insubstantial.
  5. Curve is currently going strong as an exchange platform, therefore Curve tokens might prove to be of great worth in the near future.

2. The sETH/ETH Balancer Pool Strategy

Say you hold 100 ETH. You stake 50 of them on Synthetix and get sETH in return, so now you have 50 ETH and 50 sETH. All you have to do is store them both inside the Balancer ETH/sETH pool, and you get BAL tokens in return.

The Benefits:

  1. The ETH/sETH pool is one of the best performing pools on Balancer, with an APR of around 30% as of July 2020.
  2. Even though the returns on Balancer are going down with time, they are still generally better than the returns on most of its contemporaries.
  3. You’re farming BAL tokens, which makes the platform stronger, and gives you the power to vote in future governance decisions.
  4. This strategy makes holding ETH even more beneficial than it already is.

Strategy #3: The cUSDC-cUSDT-COMP Balancer Pool Strategy:

This pool has an allocation ratio so that you’d have to supply 49% cUSDC, 49% cUSDT, and 2% COMP. So to employ this strategy, first you take your USDT and USDC, stake them on Compound and get cUSDT and cUSDC respectively in return. Now you invest them with COMP tokens in the Balancer cUSDC-cUSDT-COMP pool as per the required proportions and get BAL tokens as reward.

The Benefits:

  1. Both the Balancer and Compound networks are highly proficient and the returns are great.

  2. The usual smart contract risks you run while trading on a DeFi platform are minimal.

  3. BAL tokens are one of the most profitable DeFi tokens you can hold right now.

  4. Your yield farming helps both Balancer and Compound grow stronger as exchange networks, which ultimately increases your returns.

The bottom line

Yield farming, although complicated, has become a central pillar of decentralized finance. Learning how to navigate the DeFi ecosystem is no easy task, that’s why new users are intimidated in its such enormous task. It’s very easy to err while learning how to yield farm and lose your investment. Unfortunately, many have had to learn things the hard way to really get it. Those are justifiably concerned about putting their money on the line in something so new.

For that reason, YIELD bridges that gap and changes how users approach DeFi, simplifying and streamlining it to offer diverse investment plans and industry-leading optimal APY rates. A direct approach that eases the way the system works. The DeFi ecosystem takes it to its next logical step, by bringing it to the mainstream and making it accessible to all.