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What is Stablecoin Yield Farming?

Akshit Anthony
Nov 24, 2021

If you don't want to face any trouble with your crypto investments, stablecoins are an excellent place to start. The cryptocurrency market is quite volatile, any crypto investor who has been in the industry for a time would attest to this.

Bitcoin's price plummeted by 65 per cent in 2018 and then by 80 percent later that year. It is expected to fall by around 30% by 2020. It had dropped by around half by May 2021 and was still falling (along with several other coins).

The market might go very low, but it can also climb very high. As a result, crypto investments are excellent. However, diversifying your portfolio might assist you to avoid a catastrophic loss if the market crashes. Stablecoins are also beneficial for folks who can't manage the volatility of Bitcoin and other coins.

What exactly are stablecoins?

Stablecoins are crypto-assets whose value is linked to a fiat currency, such as the US dollar or gold. Because their value is connected to a relatively steady external asset, they do not face significant price fluctuations.

Stablecoins and Yield Farming

One may earn interest on your USD or EUR in a variety of ways. However, most of them favour high risk, high reward over low risk, low premium. Leaving them in the bank poses the slightest danger.

Keeping money in banks doesn't make people much money. They give banks the money so they can make more money, while you're probably getting 0.01 per cent - 0.50 percent APR.

One may make more with yield farming; the market for stablecoins often ranges from 10% to 80% APR. It's also safe in the sense that the stablecoins don't lose much value.

(Related Reading: 8 Most Stable Cryptocurrency in 2022)

The current situation of Stablecoins

According to the Glass node study, decentralized platforms hold more than 60% of DAI's total supply. DAI serves as collateral for on-chain assets, which may be loaned or received as rewards through yield farming activities, as we shall see later.

On the other hand, tokens such as USDC and USDT continue to have a considerably more significant value. It is because, in banned money, they have a much bigger total supply.

In any event, the value of Stablecoins in circulation has recently surged dramatically, particularly in the previous three months. According to Glassnode's study, there have been increases of more than $13.1 billion in USD.

These figures' primary drivers are the demand for market stability and the migration of stable assets to centralized platforms and exchanges. However, the primary cause for such massive changes is undoubtedly the ability to yield farming with Stablecoins.

They are earning rewards without overexposing themselves to the extreme volatility of specific assets.

(Related Reading: Introductory Guide to Decentralized Finance (DeFi))

Reason for implementing Stablecoin Yield Farming

You may earn much money by doing yield farming with your high-risk cryptocurrencies. However, when it comes to yield farming, you incur the danger of temporary loss.

To summarise, an impermanent loss is every yield farmer's worst nightmare. When you undertake yield farming using stablecoins, you may significantly reduce your risk.

Because stablecoins are linked to fiat money, their value does not fluctuate as much. Even when Bitcoin and other currencies plummeted significantly in May 2021, stablecoins fell just marginally (about 0.45 per cent – 3 per cent) and immediately recovered.

As a result, you will not only avoid dealing with huge temporary losses, but you will also be able to gain at least 10% of your money.

Yield farming for Beginners

Yield farming, in technical terms, refers to farming your cryptocurrencies inside liquidity pools, which are 'places' where investors offer liquidity. These are known as liquidity providers. They are eligible to receive a percentage of the fees paid while trading in a specific pair.

(Must Check: A Guide to Trading and Investing in Bitcoin)

After this somewhat difficult explanation, let's try to explain yield farming in layman's words. Before beginning, yield farming was sometimes referred to as liquidity mining since tokens are "mined" by providing liquidity (money) to finance transactions. You might want to take a look at our blog on Blockchain Mining.

Your funds are being held in a liquidity pool.

Each liquidity pool is specifically designed for a particular currency pair, such as ETH/USDT, ETH/DAI, ETH/USDC. Money put in these liquidity pools will be exchanged or borrowed by other users on other platforms.

They will pay commissions on each transaction performed by other users. You will get a portion of the commissions if the transaction occurs inside one of the pairings you have put in cash. In this sense, you will play the position of a liquidity provider, also known as a liquidity mining provider.

Take a look at our blog on Blockchain ETFs to understand more about this new concept.

It is also worth it that if you deposit in a liquidity pool, you will require both assets of a particular pair. If you have Ethereum and wish to deposit on ETH/USDT, for example, your ETH will be "split," that is, divided into percentages to meet the mining pool

That's all good, but the primary risk is the temporary loss. This form of loss reflects a temporary loss of cash due to significant price declines or increases. AMMs and some decentralized exchanges, i.e. the instruments used for liquidity mining, may have price updates that are delayed.

(Related Reading: What are Flash Loans in Decentralized Finance?)

Professional investors might thus take advantage of this position to benefit from centralized to decentralized transactions.

(Must Check: Digital Currency and Cryptocurrency: Types and Benefits)

How to Calculate Interest Earned Through Yield Farming

Before embarking on a yield farming approach, one must first understand the concepts of APR and APY. Annualized percentage return (APR) is an abbreviation for annualized percentage return. On the other hand, the annualized percentage yield is the economic return in the form of compound interest.

Compounding interest is depositing, getting good, withdrawing, and depositing again to capitalize on increased capital and earn more. Compounding with minor quantities would be unprofitable, especially on Ethereum, where commissions would destroy you.

(Must Check: 5 Types of Market Capitalization)

For this reason, many small shops choose to use the new Binance Smart Chain which has substantially lower costs. However, the most remarkable aspect of yield farming is the amount of interest, which is far more than that of a typical bank.

You might want to take a look at our blog on Binance Coin

For Stablecoins, for example, you may earn interest ranging from 3% to 30% just by depositing your assets on several yield farming services. Let's have a look at the two of the most well-known yield farming systems. We will specifically look at Aave and harvest.

(Related Reading: 8 Top Stablecoins in 2022)

Finance, an automated application that allows you to optimize yield by minimizing manual processes and, as a result, save money on commissions (commonly called AMM).

How to Farm Yield using Stablecoins

With stablecoins, you can provide liquidity and farm returns on pools. There are various stablecoins on Ubeswap, including the Moola market mcEUR and mcUSD coins. As we saw in our lesson, you'll need some of those coins to offer liquidity in that particular stablecoin pair. In addition, if you earn high APRs on your other assets, you may convert them to stablecoins and farm yields on them.

Top Platforms for Stablecoin Yield Farming:

Top Platforms for Stablecoin Yield Coin farming

PoolTogether

Pool Together is a platform for stablecoin yield farming. The estimated return is between 8% – 32% (depending on the coin), with a possibility to win a weekly reward. PoolTogether has over five pools, including the DAI and USDC pools.

By putting DAI in the DAI pool, you have a chance to win the weekly reward, which was $66k at the time of writing, and earn 13.93% in POOL tokens. By investing USDC into PoolTogether, you will receive 15.37 per cent in POOL tokens and the opportunity to win a portion of the $37k grand prize of the total $58k weekly reward.

Even if you never win the weekly reward, the returns on your stablecoins are substantial considering the value of POOL tokens. That is not possible with a regular bank's savings account.

Curve

Curve website is a platform for stablecoin yield farming. APY is expected to range between 20% and 50%. The Curve is a pioneer in the stablecoin yield farming industry and was created to make it easier to exchange stablecoins like USDC and DAI for Ethereum-based bitcoin tokens like WBTC.

The Curve is a platform for pooling stablecoins if you wish to make significant dividends on your money.

Curve offers a percentage of trading fees, which is customary in liquidity mining. However, it also provides additional incentives on top of the trading costs. Companies such as Synthetix will compensate users who provide liquidity to pools with their currency. The CRV token (Curve's governance token) for all individuals who engage in the Curve pools.

As a consequence, you might earn a high rate of return on your stablecoins. Keep a watch out for the USD pool (DAI+USDC+USDT+sUSD). In that pool, you may gain an 11 percent APY on trading costs, up to 18 per cent CRV (token) incentives, and roughly 3 percent in SNX.

KeeperDAO

KeeperDAO is another platform for stablecoin yield farming. Expected return: 9–10% KeeperDAO is a protocol used in Defi to manage liquidations, rebalances, and arbitrage. By utilizing KeeperDAO, you may make a large dividend on your stablecoins (USDC and DAI). On the platform, there are also options for ETH and BTC.

KeeperDAO benefits from its pool of deposited crypto assets by exploiting arbitrage profits and returning them to the protocol's liquidity provider tokens. Additionally, investments are loaned on different Defi protocols to earn interest, guaranteeing that the platform constantly makes profits for its liquidity providers.

Although its APY for stablecoins isn't as high as Curve's, it's still a good option for returns on fiat-based assets.

mStable

mStable is a platform for stablecoin yield farming. The expected return ranges from 18% to 68%. mStable is a system that generates yields by combining loan revenue with trading fees. Users may either preserve their money for high returns or invest them in a liquidity pool.

There are two areas for its pools on its app: the pool section and the earn section. The stablecoins may be found in the pool section: presently USD and other stablecoins in pairs. You can find pools that reward MTA (mStable's governance token) in the crypto ecosystem in the earn section.

mStable has a high APR. However, only 33% of the MTA earned in stablecoin pools is instantly claimable. The remaining 67 per cent are locked and streamed linearly over the next 26 weeks.

Conclusion

Yearn Finance and Rari Capital, in addition to the platforms discussed, are two more platforms you may use to develop your USD, Euros, and other currencies. When you perform yield farming using stablecoins, you may greatly reduce your risk. Because stablecoins are linked to fiat money, their value does not fluctuate as much. However, caution must be taken while performing this farming so as to ensure your money remains safe with you and do not get caught in scammer's software.

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What is Stablecoin Yield Farming?

What exactly are stablecoins?

Stablecoins and Yield Farming

The current situation of Stablecoins

Reason for implementing Stablecoin Yield Farming

Yield farming for Beginners

How to Calculate Interest Earned Through Yield Farming

How to Farm Yield using Stablecoins

Top Platforms for Stablecoin Yield Farming:

PoolTogether

Curve

KeeperDAO

mStable

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