HELLO CAPPIES! It has been some time and we are back with more yield farming strategies! Here we go — Part 3 of our farming yield series! Let’s cut to the chase and share the learnings
Top alphas on yield farming
- What kind of liquidity pairs should I enter ?!?!
DINO-USDC
DFYN-ETH
ETH-MATIC
USDT-USDC
So many different types, and let’s clear this massive headache together.
RULE OF THUMB
DO NOT GET INTO ANY PAIR WITH NATIVE FARM TOKENS.
EXAMPLE: DINO-USDC OR DFYN-USDC
Even though rewards may be high (in the form of native farm tokens), you will suffer HUGE impermanent loss as the price of native farm tokens plummets to zero; and the other asset is being sold continuously to maintain the 50–50 balance in your pairing.
SUGGESTIONS:
1) Compare the amount of liquidity in the pool. If more money is inside, the rewards will be spread across more money. Hence, lesser yields
2) Do asset pairing for those which you are bullish in. For example,
ETH-MATIC / BTC-MATIC / LINK-MATIC / ETH-BTC
3) Go for stablecoin pairs to prevent impermanent loss
USDC-USDT / UST-USDC / DAI-USDC
Note: Avoid USDT as this stablecoin is rather unstable.. pun intended
(Read all about it here)
2. Watch out for the high APY rates!!
ALWAYS check and understand how the high APY rates are derived. I have a good case study below:
Case Study: CAKE
I have CAKE tokens and I am bullish on CAKE. I would like to put my CAKE to good use, invest them in farms to get me more CAKE.
Option 1: Swamp Finance
Total Returns: 115.85%
Farm APY: 112.35%
Swamp APY: 2.60%
Option 2: Yield Parrot
Total Returns: 156.65%
Farm APY: 98.55%
Yield Parrot APY: 58.10%
Conclusion:
Choose Swamp Finance even though they have the total LOWER APY. The farm APY is more critical for us as we would like to get more CAKE. No point for Yield Parrot to give us an APY of 156% but 58% of them are in their native farm tokens which will only go down in value!!
3. Autocompound your yields !!!
Invest in a good yield optimiser protocol. You can check out beefy finance, eleven finance, autofarm and also adamant finance. They optimise your yields by selling your rewards and adding into your LP positions, maximising your returns. Of course, this will only work in your favour if your LP is made up of assets which you are bullish on OR your LP is made up of stablecoins!!
TIP: Personally, I think its a pretty good strategy to invest in tokens of yield optimisers. Why? These protocols usually take take a small cut in the form of withdrawal fees or performance fees, ranging from 0.01% — 4% off profits they generate, that’s decent. We should view each protocol like a business, thus any protocol/business that can earn money with minimal risk is a good investment!
4. Leveraged farming (Beware of your borrows!!!!)
I am still relatively new in this. The possibilities of earning money are endless; And so are the pitfalls…
Understand the APR before investing. Take note of the yield farming rates, compared them against the borrowing interest. Discount the native tokens APR/rewards as much as you can! (No point giving you rewards of a depreciating asset…) If the total APR gives you a positive number, then we are good to go!
Note: Depending on the amount your leverage, you WILL be shorting the asset which you are borrowing. I will share more on this on another article.
Alright cappies! Hope these pointers are helpful in your yield farming journey. Do also consider market sentiments too. In a bear market, people tend to sell their farm tokens so invest in safer farms OR yield farm tokens which you are bullish on. Do share your experience below if any. As always, Google is your best friend and th3cappy is always here to help!
