Our 5 favourite yield farms in 2021

Our 5 favourite yield farms in 2021

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Mike
Mike

An editor at Coincrop


08 Dec 2021 | 9 min read
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ield farming has become a very significant part of the decentralised finance industry with many different organisations offering the possibility of crypto exchange and earning.

You may think that once you have purchased a crypto currency, holding the asset and waiting for it to appreciate are the only way of increasing value.  Not true! There are a number of options for growing that asset and one of those is yield farming.

In this guide:

Disclaimer: All of the information written on Coin Crop is without influence and based on our analysis. No guarantee is offered concerning the accuracy of this information and therefore, any individual following up on it does as such completely at their own risk. Rates are correct at time of publication.

What is yield farming?

Yield farming is a process in decentralised finance (DeFi) in which individuals allocate their crypto currency assets to DeFi protocols in order to (a) earn a return from lending or (b) facilitating token swaps on decentralised exchanges.

When people ask me what is yield farming I find the best explanation is to draw a parallel with the real world of currency conversion.

Consider the last time you were in an airport and you wanted to convert your home currency into the local currency of your destination – maybe you are going on holiday from the USA to Mexico and need to convert your US dollars into Mexican Pesos.

In the airport you will find currency conversion stores such as Travelex. The customer service individual will have access to a drawer of currencies: US dollars, Mexican Pesos, Canadian dollars, British pounds etc. When you come to convert your currency, Travelex will charge a fee for the conversion and deduct this from the final currency that you receive.

Now, back to how this relates to yield farming! In the decentralised finance world, exchanges exist that facilitate the conversion between two digital assets – e.g. Ethereum (ETH) into Binance USD (BUSD). This process is only possible because holders of digital assets have put forward their own assets into ‘farms’.

Holders of digital assets that are willing to lend their own tokens into these farms are rewarded with part of the transaction fee that is charged to individual that is exchanging their assets.

Let’s take the following example:

 

  1. Adam has $5,000 of Ethereum (ETH) and $5,000 of Binance USD (BUSD). He deposits those assets into a yield farm which pays an average APR of 25%.

  2. Bill has $500 of Ethereum that he wishes to convert into Binance USD (BUSD). He finds the exchange and begins the process of conversion. As part of the conversion, he is charged a small transaction fee. Part of this transaction fee is paid to Adam as his ‘reward’ for providing the ‘liquidity’.

  3. At some point in they future Adam decides he wants his liquidity back. He withdraws it from the yield farm and receives it back to his wallet.

What can I earn from yield farming?

In describing the returns from yield farming, we refer to the annualised percentage yield or APY.  The APY refers to the rate of rate (averaged to be an annual figure) on an asset investment taking into consideration the effects of compounding returns.

In terms of returns, its not unusual to see APY rates of return greater than 100%.  However, keep in mind that in order to achieve such returns you may have to hold assets that are more volatile.  A key part of yield farming is proactively monitoring asset valuations and returns in order that reallocations can be made where necessary.

What are the risks/disadvantages of yield farming?

Having reading everything in our guide to yield farming so far you are maybe thinking that this sounds like an amazing way to make money. Well, it comes with a number of caveats.

Slippage – When you put digital assets into a yield farm, you typically deposit 50% of each asset in the pair. However, when you come to withdraw the two assets you may find that you no longer have exactly 50% of each asset – it could be 48% of one and 52% of the other. This is referred to as ‘slippage’ and is a potential effect of yield farming. Despite the shift in asset allocations, the other wall value of the yield farm should remain the same.

Rug pulls – In the event that a decentralised finance (DeFi) exchange fails (either through hacking or theft by the operators), depositors of assets in the yield farms risk losing those assets. This is referred to as a ‘rug pull’.

 

Our 5 favorite yield farms in 2021

 

PancakeSwap is the king of the decentralised exchanges (DEXs) with an almost 20% share of the market. It has daily volumes over $1.5 billion USD and has established itself as the most popular exchange.

The project went live in September 2020 and was put together by an anonymous group of developers. Much of its early success was down to running on the Binance Smart Chain (BSC) which brought about faster transactions and cheaper fees. Its growth during 2020 at the height of the decentralised finance (DeFi) frenzy was largely down to the high GAS (transaction) fees incurred on the Ethereum blockchain. Reduced fees and faster transactions on BSC meant traders could work much more efficiently.

Unlike traditional centralised exchanges, PancakeSwap has no order book. The service instead uses the automated market maker (AMM) model where buyers and sellers order from others in a liquidity pool.

Associated with PancakeSwap is a utility network referred to as CAKE. This token is issued as a reward for individuals that provide collateral into the many liquidity pools (LPs).

The PancakeSwap platform offers the following features:

- Exchange between tokens
- Add your own collateral into liquidity pools and earn a return
- Stake tokens in pools to earn a return
- Gamble by predicting BNB prices
- Lottery
- NFT marketplace

Below are examples of rates that can be earned from PancakeSwap yield farms:

AssetTermsAPY Rate

+

PancakeSwap (CAKE)

+ Pancake Bunny (BUNNY)

Flexible

1,221%

PancakeSwap (CAKE)

Flexible

84.1%

+

PancakeSwap (CAKE)

+ Pancake Bunny (BUNNY)

Flexible

73.8%

Duelist King (DKT)

Flexible

65.2%

+

PancakeSwap (CAKE)

+ Pancake Bunny (BUNNY)

Flexible

62.0%

Mines of Dalarnia (DAR)

Flexible

59.9%

Binamon (BMON)

Flexible

59.1%

Defina Finance (FINA)

Flexible

59.1%

X world Games (XWG)

Flexible

59.1%

Santos FC Fan Token (SANTOS)

Flexible

58.8%

 

Uniswap was one of the first decentralised exchanges (DEXs) created and began life back in November 2018 by Hayden Adams. Unlike many of the other decentralised exchanges, a legal entity was created which went on to raise funds from several venture capital firms.

The platform runs using two simultaneous smart contracts – an “Exchange” contract and a “Factor” contract. These contract can be thought of as computer programs that execute functions when particular conditions are met.

It was Uniswap that pioneered was has now become known as the “Automated Market Maker” model in which users supply Ethereum tokens to “liquidity pools” with algorithms setting market prices based on demand and supply.

Uniswap runs on the Ethereum blockchain and manages a liquidity pool of ERC-20 tokens.

In May 2020 Uniswap version 2 for launched with a new crypto called called UNI launching in September of that year.

Today Uniswap accounts for over 33% of the DEX market with daily volume in excess of $2.5 billion USD. At the time of writing, Uniswap is the second largest DEX.

The opportunity for earning comes in supplying tokens into Uniswap liquidity pools by users and thus enabling the peer-to-peer trading. Anyway can supply liquidity to these pools and can either list their own tokens.

Despite the popularity of Uniswap, potential users should keep in mind the high GAS (transaction) fees when moving tokens around the Ethereum network. This can making trading on Uniswap very expensive.

Below are examples of rates that can be earned from Uniswap yield farms:

AssetTermsAPY Rate

USD Coin (USDC)

Flexible

0.00%

Polygon (MATIC)

Flexible

0.00%

 

Below are examples of rates that can be earned from Sushiswap yield farms:

AssetTermsAPY Rate

 

Raydium is another automated market maker (AMM) but with some differences to the more established decentralised exchanges (DEXs). Raydium operates on the Solana blockchain which brings advantages in terms of lower fees and faster transaction times. Features of Raydium include:

• Earn rewards for contributing liquidity.
• An orderbook allowing users to place market and limit orders.
• DEX with liquidity from its own pools.
• Staking rewards for holding RAY tokens.
• A launchpad for the latest Solana projects.

Today Raydium has a 5% market share of the decentralised exchanges with a daily transaction volume of over $370 million USD.

Below are examples of rates that can be earned from Raydium yield farms:

AssetTermsAPY Rate

Raydium (RAY)

Flexible

78.0%

Raydium (RAY)

Flexible

35.2%

Raydium (RAY)

Flexible

28.7%

Raydium (RAY)

Flexible

24.2%

Raydium (RAY)

Flexible

21.3%

Raydium (RAY)

Flexible

20.3%

Raydium (RAY)

Flexible

18.3%

Raydium (RAY)

Flexible

17.8%

Raydium (RAY)

Flexible

13.6%

Raydium (RAY)

Flexible

12.5%

 

QuickSwap went live back in October 2020 and has already occupied 2% of the decentralised exchange market share.

It runs on the Polygon network, a chain that is a level-2 scaling solution for Ethereum – this brings the benefits of near zero transaction fees and much faster transactions. The scalability of the solution supports up to 65,000 transactions per seconds.

Associated with the project is a utility token known as QUICK with two purposes: governance and staking. Individuals that stake the QUICK token receive a share of protocol fees from transactions on the exchange. Additionally, token holders can vote on changes to the protocol.

The exchange supports ERC-20 Ethereum tokens running on the Polygon chain. The platform is a fork of Uniswap V2 and so inherits the features. Liquidity pools are used to facilitate trading with users who contribute collateral (in order to enable trading) are rewarded with QUICK tokens.

Below are examples of rates that can be earned from QuickSwap yield farms:

AssetTermsAPY Rate


Mike

Mike

An editor at Coincrop
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