Yield farming is the hottest topic in crypto over the last several weeks and for good reason. Yields have at times exceeded 1000% APY and new platforms are springing up every week offering new and exciting opportunities to put your assets to work.
This will be a high level introduction to yield farming, how to do it, and some of the options available. This is not intended to be in-depth coverage of the technical components involved in yield farming, nor will it go in-depth into some of the risks involved such as impermanent loss. If you want a safe, secure way to beat bank returns with no effort or research involved, I would simply recommend putting your assets in BlockFi (full review here).
What is yield farming?
Simply put, yield farming is putting crypto assets to work to generate a return. Pretty straightforward, right? Where it gets complicated is that there's dozens of platforms, different collateral types, money marks vs. liquidity pools, varying level of risks and so on. But don't fret this guide will help you out.
How to start yield farming
Getting started varies a little bit by the platform you choose, which will be covered later, but you're going to want to have some assets to use. Stablecoins, such as USDC, DAI or USDT, are the most popular, have the most options for yield farming, and tend to be the safest tokens to use for yield farming due to avoiding impermanent loss. For a full understanding of impermanent loss, I suggest reading this, but put simply it's a temporary loss due to fluctuations in token price which can not only result in permanent losses but also potential liquidation events if a yield farmer is over-leveraged. Anyone just getting started in yield farming should stick to stablecoins.
So get your stablecoins - you'll be able to transfer them to the appropriate one in most platforms, but USDC is the most universal. I recommend starting with at least $1000 USD in stablecoins as there are Ethereum gas costs involved in moving your funds and setting up that will take weeks to earn back if you don't start with sufficient capital. Transfer them to an Ethereum-connected wallet like MetaMask or your Ledger as you'll have to connect your wallet and interact with smart contracts for all of the platforms.
Now that you've got your assets ready to go, the process is as simple as picking a platform and depositing your funds. Liquidity pools may require you to convert assets and stake liquidity tokens which will be covered later.
Where to yield farm for beginners
For beginners I recommend the following platforms as they have a good reputation, are based on stablecoins, and are easy to use.
mStable has a clean interface and is one of the easiest platforms to use. It also offers consistently high APY's, currently 20%+. To get started, go to app.mstable.org/mint and swap your stablecoin(s) for mUSD which you'll need to continue. Select the asset you want to swap, enter the amount, click Mint and your Ethereum wallet will ask you to approve the contract and send your funds. Once this is all done, you'll have mUSD.
Now that you have mUSD, go to the Save tab. Here you'll see the latest APY (currently 21.8%) and you can view analytics to see historical rates. Lastly, choose the amount of mUSD you want to deposit and click deposit. Again, your wallet will prompt you - once the transaction is done, you're good to go!
Any interest gained on your mUSD will be there when you want to withdraw. When you do wish to withdraw, just change the toggle to withdraw and confirm the transaction.
Curve is a tad more complicated than using mStable earn simply because there are more options. Also, the interface is a bit retro - some love it, some hate it.
At the bottom you can see there are a number of pools with varying APY's and underlying assets. Again, let's stick with stablecoins so that limits it to the first 5 pools. PAX and BUSD tend to have little to no volume and if you're going to use Compound, you might as well do it directly on the Compound platform as the interface is cleaner. Therefore your options are the Y pool or sUSD. Historically the Y pool has offered far higher APY (over 1000% when YFI rewards were being given) and the underlying asset is the yCRV token which is used in a number of yield farming ecosystems so I would recommend that, though you're free to choose whichever you wish. Note that although the APY is only 2.72% here, this is abnormally low and the CRV token is launching early this month - I can guarantee you this APY will skyrocket when it does as it will be given as rewards for providing liquidity.
Anyway, select a pool (in this case, Y), connect your wallet and go to the deposit tab.
Select the currency you want to leverage, gas price (stick with fast) and then there's a few options you can select. Most of them you can leave as is unless you're only wanting to deposit a partial amount, in which case unselect use maximum amount. Then click deposit, approve the contract, transfer your collateral and you're good to go! You'll earn yield without doing anything and whenever you wish to withdraw, simply go to the withdraw tab.
Other Options - Aave, Compound
Aave and Compound are probably even more widely used than either of these and are probably even easier to use. However, mStable and Curve are still incredibly easy and historically have offered far better returns so it's worth the tiny bit of effort.
Advanced Yield Farming
If you have experience yield farming and are looking for other, higher yield opportunities, the next logical step is probably Balancer Pools. I don't recommend these for beginners as the options are overwhelming and many have the risk of impermanent loss. Furthermore, APY's fluctuate drastically, there's changes coming to the Balancer protocol, and many pools require you to stake your balancer tokens after adding liquidity in order to gain yield in the form of another asset (like earning MTA from the mUSD/USDC pool). I won't go in-depth here (perhaps in another post) but at a high level you find an appropriate pool (predictions.exchange is a great resource), acquire the appropriate collateral (single asset deposit does work well, though may be subject to slippage) and add liquidity. Then you receive BAL tokens in return for the fees generated by the pool; as mentioned in some cases you can earn additional yield by staking the BPT, though this adds a few layers of complexity.
yVaults (powered by yearn.finance) are an interesting concept that has recently started to gain traction. I'm following it closely and expect it to emerge as one of the best options in the near future but they haven't been around long enough yet for me to feel comfortable leveraging them.
Summary
Hopefully it's clear now what yield farming is and how you can start putting your assets to work earning that yield. The peak yield frenzy is probably over - I'm not sure we see 1000%+ APY again - but I do expect CRV to drive another wave of APY increases and that will be coming in the next few weeks, if not days. Go get your yield farm on, it's a massively overlooked opportunity to generate significant earnings on your assets.
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