The DeFi space is rapidly becoming a dominant force in the cryptocurrency industry, marked by its growth and popularity fueled by investors seeking to leverage and maximize returns from their assets. Notably, numerous prominent yield farms on the Ethereum network provide diverse DeFi solutions and yield farming opportunities for users across various experience levels. This overview will focus on these leading Ethereum yield farms, addressing essential questions and key terminology to enhance your understanding of the DeFi sector.
Yield farming terminology
Before we delve into the top yield farms on the Ethereum blockchain network and address some key questions, let’s first familiarize ourselves with some slang terms and abbreviations. This knowledge will be instrumental in navigating and succeeding on DeFi platforms.
1. Total Value Locked (TVL)
The TVL on a DeFi platform is simply the number of collective assets that are locked in on the platform via smart contracts. It’s also a reliable indicator of the overall health of the yield farm. The higher the TVL, the better the platform.
2. Smart contracts
“Smart contracts” are programs that operate on the Ethereum network that can execute automatically when certain conditions are met. Smart contracts enable DeFi developers to build more advanced products and solutions.
3. Decentralized Apps (DApps)
A product that is built with and functions using decentralized technology.
4. Decentralized exchanges (DEX)
Online exchanges that enable users to trade cryptocurrencies directly without having to trust any intermediaries (Example: Uniswap).
5. Stablecoin
A cryptocurrency, pegged to the price of an outside asset (most commonly the US dollar) to reduce fluctuations in price.
6. Liquidity Pool
A smart contract that contains the collective TVL and funds secured on a platform. Those who contribute to liquidity pools are often referred to as LPs.
FAQs on yield farming on Ethereum
Now we’ve covered the terminology you need to know, let’s answer some important questions about yield farming.
What is yield farming?
Yield farming is a way to generate rewards and earn yields on your cryptocurrency assets by securing them on a DeFi platform. Users deposit assets in liquidity pools or stake them in smart contracts on most platforms. This provides platform liquidity, generating rewards and yield in the platform’s native token.
Popular yield farms often use the Automated Market Makers (AMM) model. This allows for automatic, permissionless asset trading using liquidity pools, bypassing the traditional buyer-seller market.
How much can I earn using a yield farm?
As there are so many platforms, the rewards you can earn vary. Most popular platforms offer anywhere between 10-50% yield on major assets such as Ethereum and other leading altcoins. Other platforms offer higher yield rewards when using the platform’s native token or more speculative assets. On the top yield farms on Ethereum, rewards can fluctuate based on price action and liquidity, so it’s worth ensuring the yield percentages offered are stable.
Yield farming rewards are calculated annually, meaning they’re displayed as the returns that you could expect over a year. The most commonly used metrics are Annual Percentage Rate (APR) and Annual Percentage Yield (APY). APY takes into account the compounding of your assets whilst APR doesn’t.
Top 5 yield farms on Ethereum
Having addressed your yield farming queries, let’s now explore the top yield farms on Ethereum.
1. Aave
Aave is a non-custodial liquidity protocol that specializes in the lending and borrowing of assets. On Aave, users can deposit their assets as collateral and “borrow” against them or “lend” them via deposits to Aave and generate yields.
Aave allows users to borrow and lend close to 20 leading cryptocurrencies, attracting a large portion of investors looking to maximize returns on their assets. Another benefit to users is how borrowers on Aave can alternate between fixed and variable interest rates.
Aave is heavily used by yield farmers and is the most popular DeFi platform on Ethereum, securing over $10bn of collective assets. Since the start of 2021, the price of AAVE, the platform’s native governance token, has increased rapidly following the flow of money into the DeFi space. Over 40,000 unique Ethereum users are now lenders on Aave, highlighting its strength and popularity with DeFi users.
2. Uniswap
Uniswap is the leading decentralized exchange (DEX) on the Ethereum network. Uniswap is primarily used for trading and swapping various assets using the AMM method mentioned earlier. The platform maintains full decentralization using algorithmic equations to balance liquidity and stabilize trading.
Investors can supply their assets to the vast liquidity pool and earn rewards and yields. Due to the large amounts of volume and assets secured on Uniswap, the yields generated are ample. It has no native token, but each liquidity pair is represented by a unique ERC-20 token.
“Uniswap is by far the most libertarian thing developed after BTC. It doesn’t fight nation states, it has a unicorn logo and its pink. You wouldn’t associate it with money laundering, yet it is perfectly capable of doing that. It’s the symbol of the DeFi revolution.”
@tanselkaya: X
3. SushiSwap
SushiSwap is known primarily for its DEX but has recently expanded its range of DApps to lending, staking, and yield farming solutions. Originally a fork of Uniswap, SushiSwap has grown considerably since the DeFi space exploded and remains one of the more popular platforms for novice and experienced DeFi users alike.
SushiSwap offers trading and liquidity pool options on over 1000 pairs and is consistently growing in both volume and TVL. Their TVL is currently close to $4bn and is slowly catching up to its “big brother” project, Uniswap. Their range of DApps is also attracting many more DeFi users to their platform.
Through the SushiBar, users can stake their SUSHI tokens in return for xSUSHI, which can be used to interact with other Ethereum-based protocols. They also recently released BentoBox, a lending and borrowing platform that provides highly competitive yields on popular assets and stablecoin pairings.
4. Curve
Curve Finance is another popular DEX and AMM solution, but this time, it’s specifically designed for swapping between stablecoins with low fees and slippage. In a similar vein to Uniswap, Curve requires more advanced knowledge to maximize returns for yield farming. However, it offers the most competitive yield returns on stablecoins and leading assets such as BTC and ETH.
Currently, Curve offers over 15 liquidity pools which are constantly changing based on market demand and the ever-changing landscape of DeFi. Curve incentivizes participation in their liquidity pools through integrations with external DeFi protocols and their available liquidity on their platforms.
Rewards on Curve are delivered through their native token, CRV, alongside fees and interest from trades made on the platform.
Curve’s current TVL stands at $7bn and remains one of the most popular platforms within the DeFi community for their novel stablecoin solution and their approach to a more stable, governance-focused DeFi space.
5. Yearn Finance
Our final mention in the top yield farms list is Yearn Finance, a DeFi aggregator that uses automation to maximize profits for investors from yield farming. Yearn fully uses various products and tools on their platform to act as an aggregator for DeFi protocols such as Curve, Compound, and Aave, bringing those who stake cryptocurrency the highest possible yield.
Yearn’s target market is investors who lack experience in the space and those who wish to maximize their returns, making it perfect for novice DeFi users. Yearn offers two key solutions: Earn, which identifies the highest interest rates users can earn lending an asset, and Vaults, A collection of investment strategies designed to generate the highest returns from other DeFi projects.
Through their vaults, DeFi users have easy access to a range of high-earning pools that offer rewards and yields in the pool’s denominated asset. It currently has almost $4bn in TVL secured on its platform due to the straightforward process combined with the high returns on yield, making Yearn the most popular aggregator on the Ethereum network.
Some notable mentions include Bancor, a DEX and AMM that provides high yields and returns on leading assets, and Maker, a protocol that uses deposited collateral to mint DAI, a highly popular and widely-used stablecoin.
Yield farming on Ethereum: A glimpse into the future
As the DeFi space continues to grow, new yield farming options will naturally arise as more and more investors look to put their assets to good use and maximize their returns. So, if you’re a novice DeFi user or a certified DeFi Degen, we know that our list of the top 5 yield farms on Ethereum has you covered! Happy farming!
Frequently asked questions
What is yield farming?
What is an example of yield farming?
Is liquidity mining and yield farming the same?
What is the best yield on ETH?
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