How DeFi Enables Passive income
DeFi has opened up many opportunities for passive income. This has been made possible through smart contracts and blockchain technology, enabling complex financial products without the need for intermediaries like banks. Financial products such as crypto lending, staking, yield farming, and options trading allow investors to earn passive income, though the interest rates and rewards may vary.
In DeFi, smart contracts actually perform the operations, and all transaction data is securely stored on the blockchain, which is a decentralized network. Through these platforms, users can lend or stake crypto, and provide liquidity to earn passive income. Another interesting financial service is yield farming, where you deposit your assets, which may then be used for multiple operations such as funding liquidity pools, lending, and blockchain staking. The rewards that are generated depend on how your assets are utilized in trades and other activities like lending/borrowing. Some platforms also provide the ability to automatically reinvest rewards into other liquidity pools to earn even more rewards, which is known as compounded yield.
Furthermore, many DeFi platforms now offer yield farming bots, which automatically deposit your assets in specific pools and reinvest the rewards into others to maximize your earnings. Just like centralized crypto services, decentralized finance also offers flexibility for many passive income and portfolio management methods.
Choosing the best platform
Yield farming has undoubtedly become one of the most popular methods to earn passive income with crypto, and many DeFi platforms have emerged that provide this service. In this review, we compare factors such as user-friendliness, available liquidity pools, reward rates, safety, and risks, and provide a list of top DeFi platforms that you can use for yield farming. Some platforms also offer unique strategies like yield bots and yield optimization, which may be more suited for advanced investors. If you are a beginner, you can start with simpler yield products before moving to advanced strategies.
✔ This platform automates your yield farming using smart vault strategies.
✔ Earn competitive APYs on stablecoins and crypto assets.
✔ Save time with hands-off portfolio management.
⭐ 4.8/5
Developed in 2020 by software developer Andre Cronje, Yearn Finance has gained popularity as one of the best yield farming platforms. It primarily focuses on yield optimization, offering competitive yields for crypto users. Its core offering is vaults, which are tools that search for the best yield opportunities across various DeFi protocols and automatically deposit users’ assets into them.
Beginners may struggle to use this platform, especially the vaults, which require prior knowledge of yield optimization strategies. Yearn Finance also gives the option to stake yCRV tokens, with boosted APR rates depending on how long you stake. Moreover, users can stake other tokens like yETH and yPrisma to earn interest.
The top product is v3 vaults, which identify the best yield opportunities across various DeFi protocols. These vaults may lend crypto, deposit assets in liquidity pools, or perform other complex operations on DEXs and lending platforms to generate rewards for users. Vaults work automatically, so users do not have to actively manage their investments most of the time.
✔ Maximize stablecoin yields with low-slippage swaps.
✔ Earn CRV rewards through liquidity provision and staking.
✔ Lock CRV tokens to boost your stablecoin farming rewards.
⭐ 4.6/5
Curve Finance is a decentralized exchange that was developed by Russian software developer Michael Egorov in 2020. Its unique approach to the AMM system (Automated Market Maker) enables high liquidity and reduces slippage for stablecoin trading. A wide range of pools are available, especially stablecoin pools, where you can deposit crypto assets to start earning rewards as a liquidity provider. Reduced slippage makes it ideal for both traders and liquidity providers, allowing execution of large trades with minimal impact on asset prices.
Curve Finance primarily uses the deposited assets to provide liquidity for its AMM system. The rewards that users earn are a combination of trading fees and CRV token incentives. Apart from yield farming, some Curve-based strategies allow integration with other DeFi protocols for additional yield. Users can also borrow or lend crypto assets on other platforms to earn interest. Overall, Curve Finance is a robust platform for yield farming and earning passive income with crypto.
✔ Earn rewards from multi-chain yield farming opportunities.
✔ Stake SUSHI tokens for governance rights and fee sharing.
✔ Trade and farm across Ethereum, Polygon, Arbitrum, and more.
⭐ 4.4/5
SushiSwap is a popular decentralized exchange built on the Ethereum blockchain for crypto trading. It has gained popularity as a reliable DEX with a large user base. The platform offers a wide variety of liquidity pools, some of which provide profitable APRs for liquidity providers, though high APRs often reflect SUSHI incentive rewards and low liquidity in certain pools. Users also have the option to stake liquidity tokens to earn staking rewards alongside trading fees, and they can also stake SUSHI tokens.
SushiSwap has introduced smart pools, which increase capital efficiency for liquidity providers by allowing users to concentrate their liquidity within specific price ranges, including upper and lower price boundaries. This mechanism reduces price slippage and impermanent loss, offering advantages to liquidity providers. It’s also worth noting that this feature is not available on all yield farming platforms.
✔ Farm with ultra-low fees on the BNB Smart Chain.
✔ Earn CAKE tokens through yield farming and staking.
✔ Access a wide range of pools with flexible APR options.
⭐ 4.3/5
PancakeSwap is one of the most popular decentralized exchanges, known for low fees and fast transactions. It uses an AMM system to facilitate trading and ensure high liquidity for its trading pairs. PancakeSwap’s liquidity pools, also known as farms, can provide very high APRs compared to other yield farming platforms due to PancakeSwap’s incentive mechanism. For example, one pool has APR up to 985%, reflecting low liquidity participation and CAKE token incentive rewards. It’s important to note that such extremely high APRs are often temporary and influenced by low liquidity.
Liquidity providers can stake their LP tokens to earn additional rewards. PancakeSwap allocates a portion of CAKE emissions as incentive rewards, which, combined with trading fees and LP staking rewards, provide boosted yield for liquidity providers. Overall, PancakeSwap is suitable for both beginners and experienced DeFi users looking to trade and farm crypto.
✔ Provides concentrated liquidity, allowing LPs to set target price ranges.
✔ Uses NFT-based LP positions, giving each liquidity position unique characteristics.
✔ Offers custom fee tiers, enabling LPs to choose rates based on trading pair volatility.
⭐ 4.1/5
Being one of the world’s largest decentralized exchanges, Uniswap has high trading volume and very high liquidity for a wide range of crypto assets. Thanks to a large community of liquidity providers, this platform has sustained high levels of liquidity to facilitate trades between crypto investors. Traders can enjoy fast trades with minimal price slippage, made possible due to deep liquidity.
Uniswap has a wide range of liquidity pools with varying APR rates. Users also have the option to concentrate their liquidity in a specific price range and select fee tiers. This feature improves capital efficiency, reduces price slippage, and allows liquidity providers to earn more fees with less capital. You can simply deposit specific amounts of tokens for a pair and start providing liquidity to earn rewards. With concentrated liquidity, you would not earn any rewards if the market price moves outside the range you have determined, which is an important point to remember.
Concluding Remarks
DeFi provides numerous opportunities to earn passive income with crypto, made possible through smart contracts and AMM systems. Several DeFi platforms have pioneered the AMM model, replacing the traditional order book system and allowing investors to trade with high liquidity while earning rewards as liquidity providers. On these decentralized platforms, you can trade crypto, stake coins, and provide liquidity to earn more tokens.
However, reward rates or APR are not fixed and may change depending on platform policies, liquidity or staking participation, and other factors. Returns are not guaranteed because the crypto market is volatile. That’s why we recommend allocating some capital to stablecoins or stablecoin staking for low-risk, predictable returns, alongside investing a portion in yield farming strategies for potentially higher rewards.
