The DeFi boom crypto investors experienced during the summer of 2020 completely revitalized the market. Furthermore, it removed any bearish fear that investors previously had, ensuring them that cryptocurrencies are finally ready for another bull market.
The complete market reconstruction was made possible by groundbreaking yield farming platforms which turned liquidity into the rocket fuel of DeFi. In this article, we will show some of the most compelling yield farming platforms that completely changed the scene.
According to DeFi data aggregator DeFi pulse, yield farmers locked $9 billion worth of collateral at the end of August. On June 1, DeFi only had $1.05 billion in locked assets, resulting in a 757% increase in mere 3 months.
As platforms constantly evolve and deliver new structures for reward distribution and at times even governance, it is hard to keep track of them. Sometimes investors even tend to miss out on worthwhile chances because the market is overcrowded. Despite this, there still are LP platforms that every farmer should have heard of.
Various pros and cons define each yield farming platform and none is yet perfect. With that in mind, knowing the platform you choose is the first step towards being a profitable farmer. Luckily, we created a list of five leading projects that every yield farmer should know.
Anyswap represents a newly launched open-source decentralized cross-chain swap protocol. The platform is based on Fusion’s Decentralized Control Rights Management technology (DCRM) and offers token swaps on any blockchain that adopts ECDSA or EDSA signature algorithms. The DCRM system adopts private key sharding to make asset storage even safer for investors.
Yield rates for liquidity providers are automatically set and automated by the liquidity engine depending on currently available liquidity. Anyswap provides a unique governance token named ANY based on the Fusion Chain which holders can use to vote for various decisions. Token holders can vote to add support for new blockchain, change governance rules, and elect Anyswap Working Nodes (AWN).
ANY functions both as a governance and utility token. The native token has a total supply of 100 million, while the platform launched with a starting supply of 15 million. 10 million ANY are allocated to the Anyswap community and team. The team receives the other 5 million tokens.
The platform distributed the remaining 85 million tokens along the Fusion blockchain network. AnySwap sensibly distributed and allocated the tokens for AWNs, liquidity rewards, team rewards, shareholders, and special funds used to motivate swap traders.
Transaction fees for swapping tokens cost 0.4% per transaction. 0.3% of that fee is rewarded to yield farmers while AnySwap receives 0.1%. Farmers who use bridges to lock wrapped assets are charged with an additional 0.1% gateway fee. The fee supports AWNs which manage transaction fees on the specific blockchain network.
As for gas fees, AnySwap farmers pay the lowest fees on any yield farming platform. While others provide the same gas fee rate for all transaction sizes, Anyswap makes it easier for even smaller farmers to participate as fees cost less than $0.0001.
The decentralized protocol was launched on July 22 with no presale or fundraise. It is the first fully decentralized project capable of cross-chain swaps. Only a day after the launch, AnySwap reached a liquidity pool worth $3.53 million with an average yield rate of 548%. Here is the official data from the team on the day of the launch:
Based on data from July 23 2020
At the time of writing, AnySwap offers Fusion, ANY, USDT, and Ether liquidity pools. Likewise, traders can swap between the aforementioned tokens. AnySwap plans to provide more liquidity pools in the future, including BTC, XRP, LTC, and many more options. Currently, the exchange hosts around $6.58 million in locked collateral with a yield rate of 430%.
Anyswap enjoys a mutual partnership with centralized exchange Hotbit. The exchange provided Anyswap with $1 million in liquidity for the purpose of creating a shared DeFi ecosystem. Hotbit is a Hong Kong-based cryptocurrency exchange created in January 2018, which gives the AnySwap DEX significant legitimacy in the DeFi field. This makes it a potential hidden gem waiting for DeFi enthusiasts to uncover it.
Yearn Finance (also known as yearn.finance and yEarn) stood at the spotlight of this summer’s yield farming boom. The project was successfully launched in mid-July with no premine and DEX offering. It reached $350 million in TVL after only a week. A month later, yield farmers revived the project by locking almost a billion dollars in collateral.
Developed by DeFi software developer Andre Cronje, yEarn’s design provides a seamless and almost automatized experience. Cronje intended to make the platform as comfortable as possible for new users, creating it so that farming only takes a few clicks.
However, behind the ease of use and minimalistic interface behind Yearn Finance lies a difficult and risky set of farming pools. Experts regard the project as one of the most complex yield farming platforms in the industry. Nevertheless, farmers still continue reaping YFI (the native governance token) rewards.
The ace Cronje had up in his sleeve is definitely the focus yield rates. What attracted farmers were yEarn vaults, which are liquidity pools designed to provide the highest rewards and lowest risks at the same time. Currently, yield farmers can select from a variety of different pools including Ether, YFI, Curve, DAI, USDT, LINK, USD Coin, and TUSD.
Curve Finance is a liquidity pool and exchange similar to Uniswap. The difference is that Curve focuses on stablecoins. Farmers are safer off with stablecoins as they provide low slippage and almost zero impermanent loss. Investors can choose between DAI, USDC, USDT, TUSD, BUSD, sUSD, and PAX stablecoins.
The use of stablecoins minimizes trading fees by trading specifically between two pairs instead of using Ether as an intermediary. For example, traders can swap USDT for DAI and that’s it. Platforms like Uniswap force you to trade a token for Ether which the exchange later swaps for the token you finally want to receive. The process basically doubles fees and make it expensive for small-time traders.
For liquidity providers, Curve offers small risks and fees as well. Their integration with iEarn and Compound allows for higher yields. Moreover, offering only stablecoins protect farmers by providing them an environment almost completely free of impermanent loss.
However, yield returns on Curve liquidity pools tend to be volatile. Pools that are at one moment highly attractive can turn into low yield pools after some time. This makes it hard for farmers to provide liquidity as they have to manually choose a different pool and supervise yield rates daily.
Since last week Uniswap is the king of DeFi based on total locked collateral. The DEX and LP platform overthrew Aave and now stands at a 19.88% dominance. Currently, investors locked $1.76 billion worth of assets into Uniswap. Not only is the decentralized exchange king in DeFi, but Uniswap also achieved higher trading volume compared to leading centralized exchanges such as Coinbase Pro.
Uniswap owes its success to the platform’s automatic market maker (AMM) protocol, the first in DeFi. Essentially, AMMs allow investors to trade with smart contracts instead of real people. Uniswap calculates and automates all parts of the trading process. Uniswap offers a fixed yield rate of 0.3% distributed to LPs for every transaction.
Uniswap boomed as it offered the community to list any token they wish without any listing fees or requirements. The horrible aspect behind this is that many scammers listed fake tokens. Nevertheless, Uniswap fixed the issue by creating Token lists. With lists, traders and farmers can preselect a list of community-curated tokens that are verified through the token’s contract address.
The main issues with Uniswap are volatile slippage rates, high fees, and risk of impermanent loss. While these problems are usually kept to a minimum during times of low-to-medium activity, farmers faced a lot of trouble in the past two weeks.
As a result of high activity across the board, investors would deal with failing transactions and extremely high fees which the Uniswap engine could not handle. Moreover, Uniswap’s decision to use a third-asset when swapping tokens makes it even more expensive for investors to get out of a token. The crypto community considers Uniswap as a platform that primarily serves whales and other high-profile investors. Simply put, it is far too expensive to use for the average yield farmer.
Aave is an open-source non-custodial protocol that offers lending and borrowing to DeFi users. The project quickly gained traction in July after reaching $500 million in locked collateral. Later in August, Aave’s locked collateral rose to $1.66 billion making it the highest-ranking project in the sector.
The DeFi lending protocol owes its success to a new set of features such as flash loans, uncollateralized loans, and rate switching. Its native LEND token represents a utility token used to provide lower fees. Moreover, the team also plans to introduce governance features.
Developed by Stani Kulechov in 2017 under the name of ETHLend, Aave’s development progressed a long way. Notably, farmers chose Aave for its wide range of token offerings at the time and compelling liquidity. Furthermore, their adoption of DeFi insurance protocol Nexus Mutual allowed them to minimize the risk from smart contracts.
Flash loans represent the project’s strongest selling point. The special loan type requires zero collateral. Instead, borrowers must repay the loan within the time the issued loan’s block is still available. Moreover, Aave benefits from the interest in flash loans as the project charges 0.3% per loan. The additional revenue stream is then used to develop and fund other features within the platform.
As for rates, Aave’s novelty is that it offers flexible instead of fixed rates. Moreover, a rate-switching feature allows users to switch between rate types. The flexibility attracted users as some wanted to have the ability to choose higher-risk or stable rates depending on market conditions. While Uniswap managed to dethroned Aave for a short period, the project managed to regain its first place in DeFi in September.
SushiSwap is the highly notorious Uniswap copy-cat that plagued Crypto Twitter last week. Compared to the original, SushiSwap markets itself as a better alternative with higher rewards. Yield farmers earn 0.25% fees instead of 0.3%. The catch is, the platform distributes 0.05% of transaction fees to SUSHI holders. This mechanism made SushiSwap a yield farming project with one of the highest returns. At one moment, farmers enjoyed a 1500% APY rate.
It’s ‘vampire-like’ protocol practically fed off from Uniswap, resulting in a huge TVL spike for DEX. Ironically, it pushed Uniswap to become the most adopted protocol in DeFi despite the fact that SushiSwap seeks to replace it.
On launch day, Binance mysteriously decided to list SUSHI on its exchange, which surprised the entire community. Trading for a dollar only days before launch, the Binance listing catapulted SUSHI to $15 at one point. However, the token quickly plunged after several audits revealed vulnerabilities in the code. Even worse, the Twitter community found out that the dev wallet contains $27 million worth of SUSHI. The wallet had no time-lock restrictions or other smart contract capabilities that would prevent the founder from selling all his assets.
A week later, the SushiSwap founder decided to leave the project as a result of community disapproval. The main developer sold half of his assets contained within the developer wallet, leading to a 50% price drop. Thought to be a dead project, the situation quickly changed as FTX CEO Sam Bankman-Fried made a deal and acquired SushiSwap.
The world of yield farming is increasingly complex throughout each day. New projects come and go and leading smart contract auditing firms reveal which ones are safe to use or not. To make matters even harder, yield rates significantly fluctuate and investors keep locking and unlocking their assets.
However, the process is not as bad as it seems. Farmers determined to make the best returns with their assets will always seek the best liquidity pools. As we already mentioned, some protocols even provide users with an automated engine that changes where you lend your assets based on yield rates.
We also learned that some platforms provide higher or lower risks for yield farming depending on which system they use. Impermanent loss is the number one enemy for any respectable farmer and preventing losses should be his highest priority.
Another cool detail to focus on is the use of governance tokens. Decentralized Autonomous Organizations (DAO) that employ governance tokens turn transparency and decentralization into the pillars of a platform. If token holders can vote, they hold the keys to the future of the platform. In that regard, we can consider yield farming protocols that adopt governance tokens far safer to use.
Even though the sector has slowed down for a while due to the entire market cooling off, there is still a chance to participate in a future second hype wave. Remember, DeFi investors are so far the only people who participate in yield farming. Imagine the yield rates you can make when Bitcoin officially enters a bull run and retail starts joining the rest of us. With that in mind, consider yourself lucky that you are still an early adopter.