However, despite the decline in popularity, yield farming still remains quite an attractive investment practice and a way to earn “passive” income in crypto.

Today, we provide you with a comprehensive overview of crypto yield farming, including its mechanics, risks, and rewards. 

More importantly, we include several juicy opportunities and the exact steps you can follow to take advantage of them in the current market.

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results. 

---

What is crypto yield farming?

Yield farming is a method of earning passive income from cryptocurrency holdings. It can involve lending, staking, or providing liquidity to DeFi platforms in exchange for interest, fees, or other rewards. 

This practice leverages blockchain technology's decentralised nature to create financial products that are not dependent on traditional banking systems.

Yield farming operates on the principle of liquidity provision. Investors deposit their crypto assets into a liquidity pool/vault, which is then used to facilitate various financial activities within the DeFi ecosystem. 

The rewards can come from several sources:

• Interest: When investors lend their cryptocurrency, they earn interest from borrowers.
• Transaction Fees: Liquidity providers earn a portion of the fees generated from transactions on the DeFi platform.
• Token Rewards: Some DeFi platforms issue their own tokens as rewards for liquidity providers. Token incentives are one of the most common instruments used to attract capital.

Yield farming strategies

There are several strategies employed in yield farming:

• Liquidity Provider (LP) tokens: Investors deposit their assets into a liquidity pool and receive LP tokens in return, which can be staked or used to earn additional rewards.
• Staking: Investors lock their cryptocurrency assets to support the operations of a blockchain network and earn rewards in return.
• Lending: Investors lend their cryptocurrency to borrowers and earn interest on the loan.
• Yield aggregators: These platforms aggregate most of the yield opportunities in the market under one interface and automatically manage investors' funds in farm strategies to auto-compound and maximise returns.

These tools are quite helpful for auto-compounding token incentives. Most of the governance tokens used as incentives are worthless in the long term. 

Yield aggregators automatically sell them for the LP assets, compounding the yield earned and removing exposure to governance tokens.

As a result, yield farming using aggregators can sometimes be quite juicy.

Airdrop farming vs yield farming

New projects often use airdrops to raise awareness and attract users to their platform. To participate in an airdrop, users may need to complete certain tasks, such as joining a Telegram group, following the project on social media, making a transaction on the platform, providing capital, etc. 

Airdrop farmers aim to be eligible for as many tokens as possible, which can then be sold or held for potential future value once teams distribute tokens.

Yield farming, on the other hand, involves providing liquidity to decentralised finance (DeFi) protocols in exchange for rewards. 

The rewards are typically a percentage of the fees generated/incentives by the protocol or the liquidity pool. Yield farming is often seen as a way to earn passive income from cryptocurrency holdings.

One of the key differences between airdrop farming and yield farming is the certainty of risk-reward involved. 

Airdrop farming can be uncertain, as there is no guarantee that you will be eligible. Secondly, the ROI is much more apparent in yield farming, as the protocol displays historical APY for providing capital.

Airdrops can, although not often lately, result in asymmetric returns. However, many protocols have recently abused the airdrop/points meta. Concurrently, yield farms have lost popularity. As a result, many high-yielding opportunities went unnoticed. Therefore, this report draws our users' attention to the under-the-radar opportunity that yields provide.

So here are some of the interesting plays in yield farming.

---

6 exciting yield farming opportunities

Here are some top-yield farming opportunities that we currently see in the market

LayerZero (ZRO)

LayerZero is an interoperability protocol enabling cross-chain communication and data transfer, leveraging a novel technique to connect different blockchain networks.

ZRO-WETH 

• 66% APY on Arbitrum, over 40% on Base.
• If you are bullish on both ZRO and ETH, this vault provides maximum exposure to these markets. 
• If the general market performs well, the upside is both price appreciation and yield on top.
• However, if the prices of underlying assets underperform, potential losses are possible despite the high yield. 
• However, we believe the risk-reward ratio here is quite good due to the high yield.

Action plan: 

1. Go to Beefy vault.
2. You can enter the vault with any asset, but having ZRO and/or WETH is beneficial because of the potential slippage when entering with external assets.
3. Autocompound and let the time work for you
4. Happy farming

ZRO-USDT

• Earn 75% APY on Optimism and over 48% on Arbitrum.
• This is a slightly more conservative strategy compared to the ZRO-WETH strategy
• The downside is protected due to ZRO being paired with stablecoin and the yield on top
• The upside is arguably slightly less. However, that massive yield can compensate for it

Action plan: 

1. Go to Beefy vault
2. Enter the vault with any asset, but having ZRO and/or USDT is beneficial because of the potential slippage when entering with external assets
3. Autocompound and let the time work for you 
4. Happy farming

---

LIDO (LDO)

Lido (LDO) is a decentralised finance protocol offering liquid staking solutions on Ethereum and other Proof of Stake blockchains. Users can stake their tokens without minimums or the need to maintain infrastructure. Staked assets are managed by professional node operators, and users receive stETH, a token representing staked assets, enabling continued on-chain activity and potential return compounding.

LDO-WETH

• 100% APY on Arbitrum
• If you are bullish on Ethereum ETF, LDO and ETH are very attractive assets to play
• If the general market performs well, the upside is both price appreciation and yield on top
• However, if the prices of underlying assets underperform, potential losses are possible despite the high yield
• However, we believe the risk-reward ratio here is quite good due to the high yield

Action plan:

1. Go to Beefy vault
2. Enter the vault with any asset, but having LDO and/or ETH is beneficial because of the potential slippage when entering with external assets
3. Autocompound and let the time work for you
4. Happy farming

LDO - USDC

• 158% APY on Arbitrum
• Slightly more conservative strategy compared to the previous one
• The downside is protected due to LDO being paired with stablecoin and the yield on top
• The upside is arguably slightly less. However, the massive yield can compensate for it

---

Meme plays (Pepe, Popcat)

Memecoins have emerged as the unexpected stars of the 2024/2025 bull run. Once dismissed as jokes on the fringes of the crypto market, these digital assets have skyrocketed in value and popularity, outperforming the coins of many fundamentally sound projects

PEPE - WETH

• 79% APY on Arbitrum
• Another way to play ETH ETFs. When the ETFs were approved back in May, Pepe was one of the outperformers, cementing its status as a strong ETH beta
• Therefore, this yield farm is quite an attractive opportunity here
• However, if the prices of underlying assets underperform, potential losses are possible despite the high yield 
• However, we believe the risk-reward ratio here is quite good due to the high yield

Action plan:

1. Go to Beefy vault
2. Enter the vault with any asset, but having LDO and/or ETH is beneficial because of the potential slippage when entering with external assets
3. Autocompound and let the time work for you
4. Happy farming

POPCAT - SOL

If you are hyper-bullish POPCAT, entering this farm will probably result in underperformance compared to just holding POPCAT. However, during times of range or if you are conservative/sceptical about meme plays but still want exposure, entering this farm is a safe and easy way to get exposure and earn massive yield on top.

Action plan:

1. Go to Kamino vault
2. Enter the vault with SOL and/or POPCAT
3. Autocompound and let the time work for you. 
4. Happy farming

Risks of yield farming

Yield farming, while offering the potential for attractive returns, is not without its risks. Here's a more detailed look at some of the key risks associated with yield farming:

Variable APY

APY in yield farming is not constant and can fluctuate significantly depending on various factors such as market conditions, liquidity, and the performance of the underlying protocols and pools. 

This makes it difficult for farmers to accurately predict their potential returns, which can lead to unexpected losses or opportunity costs. 

Therefore, it is important to avoid farms where you wouldn’t hold the underlying asset. It is better to focus on established and quality assets such as ETH, SOL, POPCAT, and others.

Slippage

Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. 

In yield farming, slippage can occur when a farmer wants to enter or exit a liquidity pool. 

High slippage can result in losses for the farmer, especially in volatile market conditions. 

For example, if the entry and exit result in 1% slippage in the 12% APY pool, just to break even, it would take two months of farming before making a profit. 

Therefore, yield farming platforms display slippage, and checking it before entering with size is important.

Market risks

Yield farming is inherently tied to the performance of the market unless you are yield farming on stablecoins. 

If the market experiences a downturn, the value of the assets being farmed can decrease, leading to potential losses for the farmer.

However, if you are bullish on underlying assets in the long term, temporary fluctuations are just a noise.

Nevertheless, it is important to note that sometimes yield farming can result in losses even when yields accrue.

Smart contract risks

Yield farming relies heavily on smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. 

If a smart contract has bugs or vulnerabilities, malicious actors can exploit them, resulting in the loss of funds.

However, yield farming has been around for quite some time. It has been rigorously battle-tested through multiple cycles, and yield aggregators typically use very robust security measures.

Cryptonary’s take

Cryptocurrency yield farming remains a viable yet complex strategy for generating passive income through the DeFi ecosystem. 

While the attraction of yield farming has fluctuated with market trends and the emergence of alternative strategies like memecoin trading and airdrop farming, it still offers substantial opportunities for informed investors. 

Our report highlights the lucrative prospects in yield farming and underscores the inherent risks, such as fluctuating APYs, market volatility, and potential smart contract vulnerabilities.

To minimise risks, users looking to engage in yield farming should prioritise established platforms and quality assets. 

We have provided multiple yield farming opportunities that you can take advantage of now.

Cryptonary, OUT!