Yield farming platforms and protocols

How can you earn these yield farming rewards? Well, there isn’t a set way to do yield farming. In fact, yield farming strategies may change by the hour. Each platform and strategy will have its own rules and risks. If you want to get started with yield farming, you must get familiar with how decentralized liquidity protocols work.

We already know the basic idea. You deposit funds into a smart contract and earn rewards in return. But the implementations can vary greatly. As such, it’s generally not a great idea to blindly deposit your hard-earned funds and hope for high returns. As a basic rule of risk management, you need to be able to remain in control of your investment.

So, what are the most popular platforms that yield farmers use? This isn’t an extensive list, just a collection of protocols that are core to yield farming strategies.

Compound Finance

Compound is an algorithmic money market that allows users to lend and borrow assets. Anyone with an Ethereum wallet can supply assets to Compound’s liquidity pool and earn rewards that immediately begin compounding. The rates are adjusted algorithmically based on supply and demand.

Compound is one of the core protocols of the yield farming ecosystem.

MakerDAO

Maker is a decentralized credit platform that supports the creation of DAI, a stablecoin algorithmically pegged to the value of USD. Anyone can open a Maker Vault where they lock collateral assets, such as ETH, BAT, USDC, or WBTC. They can generate DAI as debt against this collateral that they locked. This debt incurs interest over time called the stability fee — the rate of which is set by MKR token holders.

Yield farmers may use Maker to mint DAI to use in yield farming strategies.

Synthetix

Synthetix is a synthetic asset protocol. It allows anyone to lock up (stake) Synthetix Network Token (SNX) or ETH as collateral and mint synthetic assets against it. What can be a synthetic asset? Practically anything that has a reliable price feed. This allows virtually any financial asset to be added to the Synthetix platform.

Synthetix may allow all sorts of assets to be used for yield farming in the future. Want to use your long-term gold bags in yield farming strategies? Synthetic assets may be the way to go.

Aave

Aave is a decentralized protocol for lending and borrowing. Interest rates are adjusted algorithmically, based on current market conditions. Lenders get “aTokens” in return for their funds. These tokens immediately start earning and compounding interest upon depositing. Aave also allows other more advanced functionality, such as flash loans.

As a decentralized lending and borrowing protocol, Aave is heavily used by yield farmers.

Uniswap

Uniswap is a decentralized exchange (DEX) protocol that allows for trustless token swaps. Liquidity providers deposit an equivalent value of two tokens to create a market. Traders can then trade against that liquidity pool. In return for supplying liquidity, liquidity providers earn fees from trades that happen in their pool.

Uniswap has been one of the most popular platforms for trustless token swaps due to its frictionless nature. This can come in handy for yield farming strategies.

Curve Finance

Curve Finance is a decentralized exchange protocol specifically designed for efficient stablecoin swaps. Unlike other similar protocols like Uniswap, Curve allows users to make high-value stablecoin swaps with relatively low slippage.

As you’d imagine, due to the abundance of stablecoins in the yield farming scene, Curve pools are a key part of the infrastructure.

Balancer

Balancer is a liquidity protocol similar to Uniswap and Curve. However, the key difference is that it allows for custom token allocations in a liquidity pool. This allows liquidity providers to create custom Balancer pools instead of the 50/50 allocation required by Uniswap. Just like with Uniswap, LPs earn fees for the trades that happen in their liquidity pool.

Due to the flexibility it brings to liquidity pool creation, Balancer is an important innovation for yield farming strategies.

Yearn.finance

Yearn.finance is a decentralized ecosystem of aggregators for lending services such as Aave, Compound, and others. It aims to optimize token lending by algorithmically finding the most profitable lending services. Funds are converted to yTokens upon depositing that periodically rebalance to maximize profit.

Yearn.finance is useful for farmers who want a protocol that automatically chooses the best strategies for them.