Decentralized Finance has taken crypto by storm providing holders with a wide range of options to earn high-yield returns on their crypto and stablecoin holdings. DeFi has not only led to huge rallies in the prices of governance and reward tokens like YFI and LEND but it has also given way to a new-found interest in cryptocurrencies.
The release of liquidity protocols like Uniswap and Curve gave way to an explosion in DeFi, with even institutional clients gaining interest in acquiring yield on their crypto holdings. Now, the subsequent explosion of yield-farming products like Yearn.Finance and Pickle.Finance has allowed for users to take advantage of multiple interest-generating protocols.
While some major DeFi tokens have seen accentuated price corrections recently, activity in the sector itself has been recovering following the sharp 40% drop on Sept. 18. While the total value locked dropped from $13.25 to $6.3 billion in just 4 days, it has now recovered to roughly $9.5 billion locked, according to data from DeFi Pulse.
Yield farming is harder than it looks
Yearn.Finance has become quite popular among Ethereum whales, especially after the launch of yVaults which allow users to deposit funds.
These vaults are essentially a set of automated actions that go through multiple protocols to open positions in the highest yielding stablecoin assets. Participants also benefit from the farming of additional tokens in the process and the account functions like a smart savings account, only much, much smarter.
yVaults have been shown to deliver incredibly high annual percentage yields (APY) to users, with some even reaching the four-digit percentages. However, these APYs can be somewhat misleading given that they only show the expected return for a variable rate at a given time.
Most yield farming ventures last only a few weeks or even days, whilst the displayed APY’s reflect the interest earned for an entire year.
This means investors who are not detail oriented may be lured…