What is Yield Farming?
Decentralized Finance (DeFi) has added a fresh layer of enthusiasm for crypto. And within DeFi, new trends like yield farming and liquidity mining have been gaining more popularity by providing crypto investors with new ways of generating returns in the crypto markets. Right now, yield farming is one of the biggest growth drivers of the still-nascent DeFi sector.
Broadly, yield farming is any effort to put crypto assets to work in order to generate the most returns possible on those assets. Yield farmers have several ways of earning income including staking, lending and providing liquidity. Yield farmers also have the opportunity to move around assets within protocols (like Compound, Aave) and between protocols, constantly chasing pools that offer the best APY from week to week. Though moving between pools could expose the yield farmer to riskier pools, the higher returns can be enticing to the yield farmer.
Most yield farming protocols now reward liquidity providers with governance tokens. This form of yield farming where the DeFi protocols entice users to their platform by giving them free tokens is called liquidity mining.
Best Yield Farming Protocols
Yield farmers use a variety of DeFi protocols to maximize their returns. The rapid growth of DeFi and the increasing interest in yield farming has led to several DeFi protocols being built on a variety of blockchains including Ethereum, Binance Smart Chain and Polygon.
Best Yield Farms on Ethereum
Compound is a decentralized algorithmic money market protocol built on Ethereum blockchain. It utilizes lending pools to facilitate lending and borrowing in a variety of cryptocurrencies. Borrowers can take out collateralized loans while the lenders earn income by providing liquidity to the pools. Compound is a hugely popular yield farming protocol and it uses COMP as its governance token.
MakerDAO is a decentralized finance platform that lets borrowers use volatile cryptocurrencies as collateral for loans of DAI, a stablecoin pegged to the US Dollar. It is one of first and most well-known DeFi projects. MakerDAO is built on the Ethereum blockchain and it uses Ethereum smart contracts to facilitate the crypto loans that it provides.
Yearn.finance is a suite of products in DeFi that provides lending aggregation, yield generation and insurance. One of the most interesting aspects of Yearn.Finance is its ability to use various lending protocols like Aave and Compound for generating the highest yield. The protocol algorithmically seeks the most profitable yield farming services and moves around the fund to generate a high return. Yearn.finance uses YFI as its governance token.
UniSwap is a hugely popular Decentralized Exchange (DEX) and Automated Market Maker (AMM) that makes it easy for users to swap almost any ERC-20 token for another without the need of a centralized intermediary. Liquidity providers are compensated with a trading fee for providing liquidity on the protocol as well as the UNI governance token.
Harvest is an automatic yield farming protocol that takes advantage of the latest DeFi protocols with the highest yields. Harvest is ideal for new and small investors as they collate capital from various yield farmers and use that amount to yield farm more effectively, saving time and money. Just like Yearn.finance, the protocol automatically farms the highest yield available and optimize the yields that are received using the latest farming techniques. FARM is the governance token for Harvest.
Best Yield Farms on Binance Smart Chain
Venus is a money market and stablecoin protocol that operates exclusively on Binance Smart Chain. The protocol was forked from MakerDAO and Compound. It introduces a simple-to-use asset lending and borrowing solution to the DeFi ecosystem, enabling collateral backed borrowing at high speeds and maintaining low transactions fees. Users of the protocol can deposit assets like Binance Coin, Ethereum and stablecoins to earn interest. VAI is Venus’s stablecoin.
PancakeSwap is a Decentralized Exchange (DEX) and Automated Market Maker (AMM) built on the Binance Smart Chain (BSC). The protocol allowed its users to exchange tokens, provide liquidity via yield farming and earn returns. Liquidity providers of PancakeSwap earned pool tokens that in turn were staked to earn CAKE. PancakeSwap is a leading AMM with several high yield farms. Binance Smart Chain also has a much lower transaction fee compared to Ethereum.
3. Pancake Bunny
Pancake Bunny is a DeFi yield aggregator for Binance Smart Chain and Ethereum. The protocol gives yield farmers the opportunity to reap the benefits of auto compounding. The actual farming takes place on PancakeSwap and Venus. Pancake Bunny also has a partnership with PancakeSwap which enables their liquidity providers to stake CAKE on PancakeSwap to earn BUNNY. Note: BUNNY suffered a flash loan attack on May 20th.
Autofarm is a cross-chain yield farming aggregator running on BSC and Huobi ECO Chain (HECO). Autofarm supports yield farming of Venus, PancakeSwap, bDollar and MDEX. The protocol has an efficient and reasonable cost-pricing model alongside an optimal compounding strategy which has helped Autofarm become one of the best yield aggregators in terms of final APYs. AUTO is the governance token of Autofarm.
Best Yield Farms on Polygon
Aave is a leading Ethereum liquidity protocol that is now live on layer-2 solution Polygon. It is a non-custodial protocol that helps the users earn interest on deposits and borrow a number of assets. Aave distinguishes itself by the range of cryptocurrencies in which loans are available. The availability of around 20 leading cryptocurrencies and the option of choosing between fixed and variable interest rate has made Aave popular among investors. It is one of the most popular DeFi platforms on Polygon.
QuickSwap is a leading DEX and AMM on the Polygon network. The protocol was forked from Uniswap. The users of QuickSwap are able to send any ERC20 assets at a lightning-fast speed with near-zero gas costs. The liquidity providers on QuickSwap receive LP tokens and earn rewards in the native token, QUICK. QuickSwap has several liquidity pools that provide highly competitive yield returns, along with a simple-to-use interface.
SushiSwap is also primarily known for its Decentralized Exchange (DEX). But recently, it has expanded its range of DApps to lending, staking and other yield farming solutions. It was originally forked from UniSwap and remains one of the most popular yield farms on Polygon and is used by novice and experienced users alike. SUSHI is the governance token of SushiSwap.
Dfyn is an AMM and DEX which is being built to be an inter-connected multi-chain AMM with nodes spread on different blockchains. This will enable Dfyn to share liquidity across multiple chains and seamlessly perform asset trades on several blockchains from a single interface. Dfyn is a top yield farm on Polygon and is also ultra-fast and gasless. They also provide extremely competitive yield returns on leading assets. Yields are paid out in their native token DFYN.