Yield Farming For Beginners | CoinSnacks

Yield Farming For Beginners

yield farming

Even in a bear market, there are myriad options to passively earn in crypto, known as yield farming. And unlike finance, you don’t need to be a banker, MBA, or finance know-it-all to participate. The strategies we are covering today are open to anybody and everybody.  

We are specifically going to teach you ten different strategies that you can immediately use to earn yield in crypto. These strategies will run the spectrum of complexity. From staking on an exchange to providing liquidity for leveraged perpetual trades, there will be something that fits your skill level here. 

The best part? We’ve specifically chosen strategies that are here for the long haul. This means that you can try the more advanced strategies as you get more comfortable. It’s the guide that keeps giving.

Without further adieu, let’s begin with a discussion on the history of yield farming…

A Brief History Of Yield Farming

The Early Years

For the first decade of cryptocurrency’s life, the options for yield farming and earning a passive income left a lot to be desired. 

There were only two options for crypto investors to earn passive income: staking and lending.

Unfortunately for investors at that time, neither option paid very well. Moreover, because of how quickly crypto prices were rocketing up, nobody seemed to mind. People didn’t care about passive income. If anything, they wanted ways to borrow against their crypto and obtain leverage so that they could trade higher amounts. 

This ended when the ICO bubble burst and the 2018 bear market began. The result was an 85% reduction in crypto’s market cap and many previously valuable tokens sent to the grave. 

ICO bubble burst

People needed a way to make money besides just buying and holding. 

Native Token Yield Farming

The tides began to turn again in 2019. After a 2018 spent building, the projects that would form the backbone of decentralized finance (DeFi), Uniswap, Compound, Synthetix, and MakerDAO, were ready to take off.

The only problem was that they had no users. Survivors of the 2018 bear market hesitated to throw their money into these new Ethereum applications. Understandable considering many had lost considerable sums in the last set of Ethereum applications, ICOs.

These new DeFi projects needed to find a way to attract an initial set of users. Offering users a yield seemed to be the natural solution. However, it was impossible to offer a strong yield without already having users. It was an impossible dilemma. 

This is the exact problem that Synthetix faced. Synthetix, a synthetic asset platform, desired deep liquidity for their sETH/ETH liquidity pool on Uniswap. Deeper liquidity in liquidity pools is desirable because it makes swaps between the assets in the pool more efficient. For Synthetix, this is beneficial because it makes holding and using sETH, their native stablecoin, more attractive, as investors tend to like assets that are more liquid. 

The problem for Synthetix is that liquidity is difficult to attract with low rewards for liquidity providers. 

In 2019, Synthetix came up with a simple but effective fix for the liquidity problem: use the protocol’s native token to boost yields in the sETH/ETH liquidity pool. That way, people would have ample reason to deposit liquidity into the pool. 

Modern yield farming was officially born. 

By using SNX to boost rewards for liquidity providers, Synthetix attracted the deep liquidity it needed.

Compound saw Synthetix’s success and took things a step further. Unlike Synthetix, Compound didn’t care about liquidity on Uniswap. It’s not important to them as a lending/borrowing protocol. What’s important to them is the number of people lending and borrowing assets on their platform. 

In 2020, Compound unveiled the COMP token liquidity mining program to achieve these goals. Under this program, every user who borrows and lends on Compound would receive COMP tokens as a reward. The hope was that the COMP boosted yields would result in more people using Compound. 

It worked better than they could have imagined.

TVL of COMP
Compound’s Total Value Locked (TVL) in the days leading up to & immediately following the beginning of liquidity mining (5/29/20 – 6/22/20)

It wasn’t long before other projects saw Compound’s success and introduced their own liquidity mining programs. The result was an explosion in DeFi TVLs over the next two years.

DeFi TVL
Source: DeFi’s TVL

Times were great during the DeFi bull run of 2020-2022. Token prices were rising, it was not uncommon to find yield farms with Annual Percent Rate returns (APRs) in the 100%s, and everybody was making a lot of money. Things were going so well that some believed that we would never again have a bear market. However, underneath this gilded surface, serious issues were brewing.

DeFi’s TVL was heavily reliant on sky-high yields incentivizing usage. The problem was these yields were unsustainable. Why? Because they were reliant on native token prices and emissions.

This is the depressing story of almost every protocol that issued native token rewards over the last two years. 

  • Yield farmers would use the protocol in order to farm the token.
  • Investors would buy in, thinking that the protocol was popular.
  • Farmers would sell. 
  • The token price would then crash.
  • Which would crash the yield, causing more farmers to sell.
  • Etc, etc

As a result of this fake yield bubble bursting, many protocols are now worth a fraction of what they once were.

OHM Market cap
Market cap in ETH of Olympus (OHM)
Wonderland (TIME) marketcap
Market cap in ETH of Wonderland (TIME)
COMP market cap in ETH
Market cap in ETH of Compound (COMP)

#RealYield

The failures of native token yield farming gave birth to a new trend: #RealYield.

RealYield is a yield derived from protocol revenue, not native token emissions or prices. This makes it both more sustainable and more reliant on the protocol itself. If the protocol is good and attracts paying users, then the yields will also be good. If the protocol is bad and nobody uses it, then providing a RealYield will be impossible.

RealYield protocols have been some of the strongest projects during this bear market. Despite the market downturn, their consistently high APRs have led to many even growing their market caps and TVLs.

GMX market cap in ETH
Market cap in ETH of GMX
TVL of GMX
TVL of GMX
GNS market cap in ETH
Market cap in ETH of Gains Network (GNS)

Now that we know the history of yield farming, let’s discuss its current variations. 

Types Of Yield Farming and Strategies

1. Staking on Coinbase

  • Difficulty: 1/10 
  • Risk: 1/10
    • Any risks associated with the token staked
    • Counterparty risk with Coinbase. Because they are holding your tokens, any collapse in Coinbase would negatively affect your staked tokens.
  • Expected Profit: 0.15% to 5.75% APR, depending on the token. 
  • Yield Source: Rewards from participating in proof-of-stake blockchains. 
  • Payments: Paid in the same token as the staked token.

Staking on Coinbase is the most straightforward and beginner-friendly way to earn a yield. All you need to do is:

  • Sign up for an account on Coinbase.
  • Purchase the minimum amount for one or multiple of the eligible assets (as shown in image below):
  • And that’s it! You are now passively earning a yield that is automatically added to your Coinbase account.
Coinbase reward payout rate

Staking on Coinbase isn’t the most lucrative option around, but it is super simple and requires almost no work from the user, making it a great first option for novices.

2. Lending with Aave

  • Difficulty: 2/10
  • Risk: 2/10
    • Any risks associated with the token staked. 
    • Counterparty risk with Aave. 
    • Smart contract risk. 
  • Expected Profit: 0.03% to 15.48% APR, depending on the token being lent.
  • Yield Source: Interest payments.  
  • Payments: Paid in the same token as the staked token.

Aave is crypto’s largest lending protocol, and with a TVL consistently in the billions, it is  one of crypto’s largest protocols, period.

Aave offers users a yield in return for lending assets on the platform. Lending on Aave is simple:

  • Navigate to the Aave website. 
  • Connect your web3 wallet.
  • Select the token you wish to supply assets to.
  • Enter the amount of tokens you wish to lend.
  • Submit the transaction.
  • You then receive aTokens proportional 1:1 to the amount of assets that you staked. As you earn interest, your aToken balance grows. 
  • Redeem the aTokens when you are ready to claim your rewards.

Aave has been and still is wildly popular, and it is a strong option to those new to lending assets on-chain.

3. Staking with Lido

  • Difficulty: 2/10
  • Risk: 3/10
    • Any issues with the token staked.
    • Counterparty risk with Lido.
    • Potential slashing risk. 
    • Smart contract risk. 
  • Expected profit: 3.9% to 17.4% APR, depending on the token staked.
  • Yield Source: Rewards from participating in proof-of-stake blockchains. 
  • Payments: Paid in the same token as the staked token.

Lido is crypto’s largest liquid staking protocol. Since its launch in December 2020, Lido has staked $8.7 billion in assets and paid $242 million in rewards. 

Staking on Lido is one of the most popular ways to stake on-chain. Not only is it easy to do, but Lido also supplies stakers with liquid versions of their staked tokens. This means that not only can stakers earn the passive yield from staking, but they can compound their profits by using their liquid tokens in other DeFi apps.

To stake with Lido:

  • Navigate to the Lido website
  • Select one of the supported assets. Lido currently supports ETH, SOL, MATIC, DOT, and KSM.
  • Connect your web3 wallet. 
  • Choose the amount of token to stake. 
  • Press “submit”
  • Approve the transaction using your wallet. 
  • You will receive a liquid “stToken” version of the staked token. 
    • This stToken balance increases every 24 hours to reflect your earned staking rewards
    • It is also usable in other DeFi projects to maximize yield. For example, you can deposit your stETH into the stETH pool on Curve for an additional 2.9%. 

Because of its ease of use and potential for additional yield through their liquid tokens, Lido is an attractive first option for those new to staking on-chain. 

4. Use The Beefy Finance Yield Aggregator

  • Difficulty: 2/10
  • Risk: Depends on the Vault used
    • Some vaults are riskier than others.
    • Generally, the higher the reward the riskier the vault.
    • Beefy provides a safety score for each Vault.
    • Smart contract risks
  • Expected Profit: Depends on the Vault used. Currently, the median APY is 8.49%.
  • Yield Source: Depends on the Vault used.
  • Payments: Depend on the Vault used. 

Beefy Finance is a multichain yield aggregator and optimizer. What Beefy does is offers Vaults that automatically execute yield farming strategies. This way, users can easily partake in yield farming strategies they might not have otherwise been aware of or able to do themselves. 

To use Beefy:

  • Navigate to the Beefy app.
  • Connect your web3 wallet.
  • Select a Vault based on your desired APY and risk tolerance.
  • Deposit the required assets.
  • Periodically claim your rewards.

Yield aggregators are attractive because they automate most of the work and complexity in yield farming. All you need to do is select a Vault and deposit the required assets, and Beefy takes care of the rest. This makes it a great option for those who want options but also want a passive experience. 

5. Lend on Clearpool

  • Difficulty: 3/10
  • Risk: 4/10
    • Clearpool is an uncollateralized lending platform.
    • This makes it riskier for lenders than an over-collateralized lending platform like Aave. 
    • Smart contract risks
  • Expected Profit: >10% APR
  • Yield Source: Interest Payments
  • Payments: USDC, with additional CPOOL rewards on top.

Clearpool is a decentralized marketplace for uncollateralized institutional capital. Basically, Clearpool connects DeFi lenders with institutional borrowers. Because these institutional borrowers are so desperate for capital, they are willing to pay hefty interest rates. This results in very attractive yields for lenders.

To lend on Clearpool:

  • Navigate to the Clearpool app.
  • Connect your web3 wallet.
  • Select the pool you want to lend to.
  • Deposit the amount of USDC you wish to lend.
  • Submit and confirm the transaction.
  • Once the transaction is confirmed, you will receive cpTokens specific to the pool and your deposit.
    • These tokens appear as cpXXX-USDC in your wallet and accrue interest payments.
  • When you are ready to withdraw your liquidity and claim rewards, simply go to the pool page and redeem your cpTokens. 
  • CPOOL token rewards can also be claimed anytime by visiting the Rewards Accrued card on the Dashboard page. 

Because of its yield source of interest payments from institutional borrowers, Clearpool is a good example of a real yield project. This makes it an attractive option for those who wish to earn a strong real yield paid in USDC stablecoin. 

6. Staking on Trader JOE

  • Difficulty: 3/10
  • Risk: 4/10
    • Smart contract risk
    • Trader Joe usage risks. If nobody uses Trader Joe, the yields would be low.
  • Expected Profit: ~20% APR
  • Yield Source: Fees
  • Payments: USDC

Trader Joe is the largest decentralized exchange (DEX) on Avalanche. On Trader Joe, users can swap between tokens, lend tokens, provide liquidity, and, most importantly for us, stake Trader Joe’s native token JOE. By staking JOE for sJOE, users claim a share of protocol revenue, as a 0.05% is applied to every swap and distributed in USDC to sJOE stakers. 

To stake sJOE:

  • Purchase JOE tokens on Avalanche.
  • Navigate to the staking page.
  • Select sJOE.
  • Stake your JOE tokens.
  • Select harvest when you want to claim your rewards.

Because of Trader Joe’s status as the premier DEX on Avalanche, the 5th largest layer-1 blockchain, the swap fees add up to an attractive ~20% yield for sJOE stakers. 

7. Liquidity Provide on GMX

  • Difficulty: 4/10
  • Risk: 5/10
    • Risk of traders making money
    • Risk of index assets crashing in value
    • Smart Contract Risk
  • Expected Profit: >20% APR
  • Yield Source: Fees
  • Payments: ETH, with additional esGMX rewards on top.

GMX is a decentralized perpetual exchange on Arbitrum and Avalanche. GMX allows users to leverage trade popular cryptocurrencies, including BTC, ETH, and AVAX. To facilitate these trades, GMX uses the GLP liquidity token. GLP consists of an index of assets used for trades, and users who provide liquidity for GLP act as the counterparty to traders on GMX. For their service, liquidity providers earn 70% of GMX’s fees. 

To provide liquidity for GLP:

  • Bridge your assets to either Arbitrum or Avalanche. 
  • Navigate to the GMX Earn App
  • Click “Buy GLP.”
  • Select the token you want to use to purchase the GLP.
  • Purchase the GLP.
  • You will then automatically earn ETH/AVAX, depending on the network chosen, and esGMX, both of which are claimable at any time. 
  • The esGMX can either be staked for additional rewards, or vested, which will progressively convert them to regular GMX tokens.

The great thing about GMX is that it’s a real yield with minimal risk. Because you are acting as the counterparty to traders, you only lose money when the traders make money. Fortunately (or unfortunately, depending on who you ask), that doesn’t happen very often. This means that as a GLP holder, you can just sit back, relax, and earn fees. 

8. LooksRare

  • Difficulty: 3/10
  • Risk: 5/10
    • Yield is reliant on traders using LooksRare, which fluctuates wildly because of the volatility of NFTs
    • Smart Contract Risk
  • Expected Profit: >30% APR
  • Yield Source: Fees and LOOKS emissions
  • Payments: ETH and LOOKS

LooksRare is a decentralized NFT marketplace on Ethereum where traders can buy and sell NFTs. In addition to the NFT marketplace, LooksRare also offers generous yields sourced from trading fees and LOOKS emissions for LOOKS token stakers. 

To stake on LooksRare:

That’s all there is to it. It’s a very simple method and one that right now has very attractive yields. This is likely to fluctuate as the LOOKS emission rate slows but should remain strong as trading volume on LooksRare picks up. 

9. Staking CRV Into Convex

  • Difficulty: 2/10
  • Risks: 5/10
    • Smart contract risks
    • Yields are partially reliant on the price of CRV and CVX
  • Expected Profit: >15% APR
  • Yield Source: CRV emissions, CVX emissions, and Curve trading fees
  • Payments: CRV, CVX, and 3crv tokens

Convex is a yield booster built on top of the decentralized exchange Curve. It offers holders of Curve CRV tokens an attractive yield when they stake into Convex, as users will receive CRV token rewards, CVX token rewards, and Curve trading fees in the form of 3crv tokens. 

To stake CRV into Convex:

  • Purchase some CRV tokens
  • Navigate to the CRV staking page.
  • Connect your web3 wallet.
  • Select the amount you want to convert into cvxCRV (Convex CRV)
    • NOTE: You cannot convert your CRV tokens back once you convert them to cvxCRV. However, there are secondary markets where you can exchange cvxCRV for CRV.
  • Approve the conversion.
  • Convert and stake.
  • Periodically visit the claim page to claim your rewards. 

Staking into Convex is a great option for those who want to gain exposure to one of the dominant decentralized exchanges while also earning a respectable yield. 

10. Searching on DeFi Llama

  • Difficulty: Depends on the strategy selected
  • Risks: Depends on the strategy selected
    • Generally speaking, the higher the TVL and lower the APR, the lower the risk.
  • Expected Profit: Depends on the strategy selected
  • Yield Source: Depends on the strategy selected
  • Payments: Depends on the strategy selected

As the saying goes: “Give a man a fish, you feed him for a day. Teach him how to fish, you feed him for a lifetime.” So far, we’ve been giving you fish. Now, we’re going to teach you how to fish by showing you how to find new yield farming strategies. 

By far, the best way to find yield farming strategies is through the DeFi Llama yield page. There you can see the TVL, total APY, and the percent of APY that relies on token incentives for hundreds of yield farming strategies. 

To find yield farming strategies on DeFi Llama:

  • Go to the yield page
  • We suggest sorting the strategies from the highest TVL to the lowest TVL.
    • This allows you to pick strategies that are relatively proven and safe.
  • Scroll until you see a strategy with an APY that you like.
  • Click the pool for the strategy you like and you will be taken to a page with historic APYs and TVLs for that strategy.
  • Scroll down and click “website” to be taken to the website where the strategy takes place.
  • Do some research and execute the strategy.

DeFi Llama makes it that easy for you to sort through strategies and pick one that suits your yield desires. At that point, it is up to you to research and properly execute the strategy. 

Conclusion

In a market as volatile as crypto, it is important to have a source of consistent gains. This is especially true in a down market where it is almost impossible to profit from trading. 

Yield farming provides exactly that. 

The first nine strategies we shared are a great place to start your yield farming journey. They are battle-tested, profitable, and, although no strategy is 100% safe, reliable. 

However, the most important strategy is the final one. Crypto moves fast, and new strategies pop up all the time. Knowing how to find these new strategies will ensure you are profiting for years to come. 

Commit to learning as much as possible now while it is still early. Your future self will thank you. 

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