The DeFi space is quickly becoming the fastest-growing asset class in the Cryptocurrency industry, boasting close to $70bn of assets locked in various platforms across the Polygon network. The rapid growth and increased popularity of the space are now being fuelled by investors looking to better leverage their assets and maximise their yields from their latent assets.
Many top yield farms exist on the Ethereum network, each providing DeFi solutions and yield farming opportunities for users of all experience levels. Due to their growing popularity in the industry, we’re going to cover the top yield farms on Ethereum, answer some important questions and cover some important terminology that will help you understand the DeFi space better.
In this Article:
- Important Yield Farming Terms
- Quick Questions About Yield Farming
- Top 5 Yield Farms on Ethereum
Important Yield Farming Terms
Before we get started on covering the top yield farms on the Ethereum network and answer some questions, let’s cover some slang terms and abbreviations that can help you succeed using 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).
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.
Quick Questions About Yield Farming
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.
On most platforms, users deposit their assets in a liquidity pool or stake their assets via a smart contract. In return for providing liquidity to the platform via their assets, rewards and yield are generated in the form of the denominated token or a DeFi platform’s native token.
Most popular yield farms utilise an Automated market makers (AMM) model, in which assets can be traded automatically on a permissionless basis by using liquidity pools instead of a traditional market of buyers and sellers.
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
Now we’ve answered some questions you might have about yield farming, let’s move on to our rundown of the top yield farms on Ethereum —
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 simply “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.
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. To ensure that the platform remains fully decentralised, Uniswap uses algorithmic equations to balance liquidity and ensure that the trading experience remains stable.
On Uniswap, 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. Uniswap has no native token, but each liquidity pair is represented by a unique ERC-20 token. All fees (0.3% per trade) are added to the relevant liquidity pool, meaning liquidity providers are paid in proportion to their share of the pool’s liquidity.
Uniswap currently has close to $7bn of locked assets and liquidity in their pool and is poised to remain as the most popular DEX available on the Ethereum network. However, it’s worth noting that Uniswap is better suited for more advanced DeFi users due to the complex processes involved in setting up the yield farming aspect.
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.
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 makes full use of 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 that lack experience in the space and those that 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 which offer rewards and yields in the pools 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.
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!