DEFI YIELD FARMING
Overview
Earn yield on crypto holdings by providing liquidity, lending, or staking in DeFi protocols. Yields can significantly exceed traditional savings but come with smart contract risk, impermanent loss, and token reward volatility.
Setup
- 1.Obtain a self-custody wallet (MetaMask or similar) and fund it with ETH for gas fees
- 2.Research protocols thoroughly: audit history, TVL trend, team reputation, token economics
- 3.Start with the most established protocols: Aave, Compound, Curve, Uniswap
- 4.Supply a single asset to a lending protocol (lowest complexity, no impermanent loss) to start
- 5.If providing liquidity to a pool, understand impermanent loss using an IL calculator first
- 6.Monitor positions regularly — interest rates and risks change; set alerts for large TVL drops
Max profit
Variable — yields range from 2-3% APY on stable assets to 50%+ on newer/riskier protocols. Token rewards can multiply returns during incentive programs.
Max loss
100% — smart contract exploits can drain entire protocols. Impermanent loss can erode returns. Token rewards losing value can make net return negative.
Breakeven
Depends on yield rate vs opportunity cost and impermanent loss
When to use
When holding crypto long-term and want to put idle assets to work. When you understand the specific protocol's risks deeply. Start with stablecoin lending to minimize price volatility risk.
When to avoid
Without thoroughly reading the protocol's documentation and audits. With funds you cannot afford to lose. In unaudited or brand-new protocols chasing the highest yields.