Pros and cons of Yield Farming
In the case of yield farming, the main advantages of this strategy are:
- It is a strategy that can be carried out today with different targets or spaces. Currently, there are several DeFi protocols dedicated to yield farming, some of them with several years of operation and proven robustness.
- It allows farmers to obtain quite pronounced benefits in their "harvests". Generally, these harvests occur in periods of 6 months to 1 year, and are reinvested to generate higher levels of profits. Indeed, yield farming is a strategy that favors cryptocurrency whales.
Among the cons we can mention:
- It's a complex strategy and only recommended for people with advanced financial knowledge.
- The implementation of the strategy favors those who have large amounts of capital to deploy, that is, whales. A person with little capital may not receive any profit at all, and in fact, he may lose money by paying commissions.
- Another serious problem is the security of the smart contracts of the yield farming platform. If the platform has not been properly audited, there is a risk of theft of funds and the partial or total loss of them. This is not something isolated, in fact, cases like what happened in dYdX or bZx demonstrate this point.
Platforms to take advantage of Yield Farming
Now, let's know some platforms in which we can put this type of strategy into practice:
MakerDAO is one of the largest and oldest DeFi projects in the crypto world. Under its umbrella is the Maker and DAI protocol, a stablecoin anchored to the price of the dollar and whose operation is completely decentralized. And all this running on a series of powerful smart contracts on the Ethereum blockchain.
Another great project in which we can put these two strategies into practice is Compound (COMP). This project that runs on Ethereum created a governance token called COMP, and at the same time a series of liquidity pools of currencies such as ETH, DAI (also SAI), USDC, REP, SAI, WBTC, ZRX, and BAT.
The objective of this platform is to use the liquidity within these pools to offer loans from the platform, and to provide earnings in the form of interest and rewards to those who inject liquidity into the protocol. You can even carry out cryptocurrency exchanges between users of the platform, as if Compound were a stock exchange.
AAVE, formerly known as ETHLend is one of the first DeFi protocols to exist in the world of cryptocurrencies. Its launch was on par with MakerDAO, born from an ICO that managed to raise more than 17 million dollars at the end of 2017.
The idea behind AAVE is to create a market where the interest rate is algorithmically defined by supply and demand practically to the second to lend or borrow assets. The most financial definition would be money markets (market money).
His time in the crypto space and his quality have earned him to position himself today as one of the great DeFi projects in the world. In fact, at the time of this writing, it has a locked value of more than $ 1,5 billion.
One of the newest players in the DeFi world is Balancer. This is an automated market maker protocol with certain key properties that make it function as a weighted portfolio and a self-balancing price sensor.
Balancer turns the concept of an index fund upside down: Instead of paying fees to portfolio managers to rebalance their portfolio, they charge fees to traders, who rebalance their portfolio by following arbitrage opportunities.
Curve Finance is one of the most curious DeFi products on our list. The purpose of Curve is to create liquidity pools and bond curves that serve to provide high efficiency stablecoin trading and low risk returns for liquidity providers.
In this way, Curve protects users from the price slippage they would normally face in DEXs when trading from one stablecoin to another.
Uniswap is a protocol that handles a decentralized exchange (DEX) that allows us to carry out exchanges with a wide variety of tokens such as Ether, Maker, DAI, USDC, BAT, among others. With a close resemblance to Curve, Uniswap seeks to create a quick and easy means of exchanging value between different protocols, even in the midst of bear markets and making a profit on such exchanges.
It is a platform that relies on the value of its network token, the SNX. This platform provides a protocol by which synthetic assets or Synths can be traded on Ethereum. Synths are tokens that represent real world assets such as gold, Bitcoin, US dollars, Euros, among many other assets.