In our previous article, we discussed yield farming, its importance, how it works, and various risks associated with it. In this article, we will see some of the most popular protocols and platforms that provide yield farming services.
Yield farming strategies may change by the hour. Each platform and strategy have its own rules and risks associated. If you want to get started with yield farming, you must get familiar with how decentralized liquidity protocols work.
Top 10 yield farming platform and protocol
This isn’t an extensive list, just a collection of protocols that are core to yield farming strategies. These platforms offer variations of incentivized lending and borrowing from liquidity pools -
1. Compound Finance
Compound is one of the core protocols of yield farming. Compound is a money market like a bank where users can lend and borrow assets. Anyone with an Ethereum wallet can supply assets to Compound’s liquidity pool and earn rewards that immediately begin compounding. The rates are adjusted algorithmically based on supply and demand. Compound also provides governance token COMP as a reward to its lenders.
Compound is backed by the best VC and investment firms like Andreessen Horowitz (a16z), Coinbase Venture, Bain Capital Venture, etc.
Maker is a decentralized credit platform that supports the creation of a DAI token, a stablecoin algorithmically pegged to the value of USD. Anyone can open a Maker Vault where they lock collateral assets, such as ETH, BAT, USDC, or WBTC, and earn interest in form of stability fees.
Aave is an open-source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets. Aave is a decentralized lending and borrowing platform to creates money markets, where users can borrow assets and earn compound interest for lending in the form of the AAVE (previously LEND) token. Aave is also known for facilitating flash loans and credit delegation, where loans can be issued to borrowers without collateral.
As a decentralized lending and borrowing protocol, Aave is heavily used by yield farmers.
Synthetix is a derivatives liquidity protocol that allows users to create synthetic crypto assets through the use of oracles for almost any traditional financial asset that can deliver reliable pricing data. It allows anyone to lock up (stake) Synthetix Network Token (SNX) or ETH as collateral and mint synthetic assets against it.
Anything that has a reliable price feed can be treated as a synthetic asset and this allows virtually any financial asset to be added to the Synthetix platform.
Uniswap is a popular decentralized exchange (DEX) and automated market maker (AMM) that enables users to swap almost any ERC20 token pair without intermediaries. Liquidity providers deposit an equivalent value of two tokens to create a market. Traders can then trade against that liquidity pool. In return for supplying liquidity, liquidity providers earn fees and UNI governance tokens from trades that happen in their pool.
Uniswap has been one of the most popular platforms for trustless token swaps due to its frictionless nature. This can come in handy for yield farming strategies.
6. Curve Finance
Curve Finance is a decentralized exchange (DEX) protocol specifically designed for efficient stablecoin swaps. Unlike other similar protocols like Uniswap, Curve allows users to make high-value stablecoin swaps with relatively low slippage.
As you’d imagine, due to the abundance of stablecoins in the yield farming scene, Curve pools are a key part of the infrastructure.
Balancer is a liquidity protocol similar to Uniswap and Curve that distinguishes itself through flexible staking. It doesn’t require lenders to add liquidity equally to both pools. This allows liquidity providers to create custom balancer pools instead of the 50/50 allocation required by Uniswap. Just like with Uniswap, LPs earn fees for the trades that happen in their liquidity pool.
Due to the flexibility, it brings to liquidity pool creation, Balancer is an important innovation for yield farming strategies.
Yearn is an automated decentralized aggregation protocol that allows yield farmers to use various lending protocols like Aave and Compound for the highest yield. Yearn.finance algorithmically seeks the most profitable yield farming services and uses rebasing to maximize their profit. Yearn.finance made waves in 2020 when its governance token YFI climbed to over $40,000 in value at one stage.
Yearn.finance is useful for those yield farmers who want a protocol that automatically chooses the best strategies for them.
Blockchain is immutable by nature and most often DeFi losses are permanent and cannot be undone. It is therefore advised that users really familiarize themselves with the risks of yield farming or any other crypto trading methods before getting into it.