Annual percentage yields ranging between 3 – 27%
Yield farming was rocket fuel for the DeFi ecosystem. In essence, what it allowed investors to do is to make money with their money.
While yield farming activities have calmed down recently, there are still a lot of opportunities for users to benefit. Within this overview, we are going to analyze the top yield farming dapps in terms of liquidity pools and annual percentage yield (APY).
Key takeaways
- DeFi’s TVL has increased by just 5% in October compared to September
- High Ethereum gas prices are less convenient for smaller yield farmers
- The biggest Uniswap pools APY varies between 14% to 27%
- The biggest Curve pools APY varies between 3.59% to 17.08%
- The biggest SushiSwap pools APY varies between 3.59% to 17.08%
- The best pools by APY are PancakeSwap and Harvest
Total value locked surpassed $11 billion
Decentralized finance has shifted the traditional centralized financial system to peer-to-peer finance. This was successfully enabled by the smart contract protocol technology built by Ethereum.
The idea of lending and borrowing in decentralized finance is much the same as in the traditional finance world but without the middleman. Deals can simply be made through smart contracts.
As per DappRadar’s DeFi Page, there is $11.44 billion total value locked in the DeFi Ecosystem at the time of writing.
It is observed that the growth of DeFi was steady with a TVL of $9 billion at the end of September. By the end of October TVL increased by just 5% to $10 billion. This indicates that the hype of yield farming has calmed down.
The release of yield farming or liquidity mining in dapps like Uniswap, Compound, Aave, and Curve has given rise to an explosion in DeFi’s TVL and the active wallets.
Yield farming
Despite the current DeFi ecosystem growth, there are some drawbacks. The most important one is network congestion on the Ethereum blockchain. Although Ethereum gas prices decreased within October, they are still comparatively high. Users have to cough up huge fees to make transactions for yield farming.
This has lead to low capital farmers being priced out of the market as at peak times, transactions cost more than $50. It could be argued that minimum capital of $1,000 is needed to see some earnings in all protocols.
Although the amount of capital differs between pools the biggest ones would be more suitable for whale-type users while smaller ones are more suitable for users with smaller crypto holdings.
Uniswap – Top pools by liquidity
Uniswap is the biggest in terms of total value locked. Users who provide liquidity are called liquidity providers, they can deposit the equivalent amount of two tokens and create a market.
There are four big liquidity pools right now in terms of total value locked with APY rates varying from 14% to 27% yearly:
- ETH/WBTC
- Total value locked – $678 million
- APY – 14.23%.
- ETH/USDC
- Total value locked – $485 million
- APY – 19.89%
- ETH/USDT
- Total value locked – $481 million
- APY – 20.04%.
- ETH/DAI
- Total value locked – $358 million
- APY – 26.97%.
Although Uniswap suggests comparatively low yearly APY this is the best pool for the whale type investors. By providing $500,000 to the liquidity pool the user might be entitled to collect from $70,000 to $135,000 yearly in returns.
Curve Finance – Top pools by liquidity
Curve is a decentralized exchange for swapping stable coins. Yield farmers can swap the stablecoins in high volume without much slippage. Later farmers can use the stable coins in pools and earn rewards.
There are two big pools right now in terms of total value locked with APY rates fluctuating between 3.59% and 17.08%:
- renBTC-WBTC
- Total value locked – $236 million
- APY – 3.59%
- DAI-USDC,
- Total value locked – $112 million
- APY – 17.08%
By providing liquidity to the above pools in Curve, yield farmers will receive APY. In order to receive large returns, farmers need to stake liquidity pool tokens.
These pools are still more suitable for the bigger holders of Crypto assets. As suggested previously, to collect the essential amount of CRV.
SushiSwap – Top pools by liquidity
SushiSwap is a fork of decentralized dapp Uniswap. SushiSwap has the same feature as Uniswap: provide liquidity and earn rewards. The dapp has its own token $SUSHI.
$SUSHI is distributed to those who provide liquidity to specific pools in Uniswap. Liquidity providers can deposit their Uniswap LP token into SushiSwap staking contracts to start farming which will be earned in $SUSHI.
There are four big pools on SushiSwap in terms of total value locked with APY fluctuating from 13% to 25%:
- SUSHI/ETH
- Total value locked – $38 million
- APY – 24.57%
- DAI/ETH
- Total value locked – $34 million
- APY – 13.25%
- USD/ETH
- Total value locked – $29 million
- APY – 15.67%
- YFI/ETH and USDT/ETH
- Total value locked – $28 million
- APY – 15.92% and 13.48%
The best by APY
While bigger pools might be more suitable for whale users, there are some smaller ones to keep an eye on.
According to Coinmarketcap, there are multiple pools with high APY. While analyzing the top 5 pools by APY, PancakeSwap takes first place.
PancakeSwap runs on Binance Smart Chain and allows you to farm, stake, and swap. The return rate states 603.08% yearly. The reward is paid in CAKE tokens that are traded now for $0.30.
The second place belongs to Harvest Finance. Harvest Finance is a dapp built on the Ethereum protocol whose initial idea is to deploy strategies to move assets between different yield farming opportunities to maximize yield.
At the time of writing, the pool of FARM-USDC APY is 441.88% yearly. The reward is paid in two tokens FARM and USDC. The FARM value is currently about $130.
The third most significant position by APY goes to the Value DeFi Protocol. The protocol is a platform containing a suite of products that aims to bring fairness, true value, and innovation to decentralized finance.
The yearly returns are calculated to be 365.89% and rewarded in VALUE tokens. The token is currently trading around $2.22 now.
The fourth and fifth place goes to BakerySwap. It is another popular Binance Smart Chain dapp that allows farming, staking, and swapping. The return rates are stated as 295.86% and 263.62% respectively.
The risks of high APY and yield farming
APY is one of the metrics widely used to assess the project/pool returns within the DeFi ecosystem.
However, be aware that APY should be used cautiously. It is worth keeping in mind that these are only estimations and projections. Even short-term rewards are quite difficult to estimate accurately. Yield farming is a highly competitive and fast-paced market, and the rewards can fluctuate rapidly.
Secondly, the user should always keep in mind that the cost paid for a transaction should not exceed any return on investment.
