DeFi

Yield Farming: Juiciest opportunities in the market

Updated: Dec 23, 2024

Published: Dec 20, 2024

There are many types of yield farming in DeFi, ranging from simple but safe stablecoin yields to sophisticated plays that result in over 100% APY on average. We are certainly taking advantage of it, and in this report, we are sharing our secret plays with our readers. Let’s dive in…

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.

Stablecoin yield

Let’s start with the yield on stablecoins, as they are the least volatile play when it comes to yield farming, and we will start with Ethena.

Ethena

As we covered previously, Ethena is a synthetic dollar protocol built on Ethereum. It aims to provide a crypto-native solution for money that is not reliant on traditional banking system infrastructure. It also offers a globally accessible dollar-denominated savings instrument called the 'Internet Bond.' Ethena's protocol is designed to be decentralised, capital-efficient, and stable.

Ethena's approach is quite distinct; rather than backing its stablecoin with traditional fiat, it employs a sophisticated strategy known as delta hedging. This involves securing collateral in crypto assets while simultaneously taking short positions in futures markets. As a result, it maintains neutral market exposure and can keep the peg of its stablecoin in both directions.

What's interesting is that in a bull market environment where funding rates can go crazy, the yield generated by this strategy can be substantial. The yield achieved by Ethena has reached a whopping 27% annually. Imagine holding a stablecoin that generates a 27% real yield; you would outperform most hedge funds with little to no volatility. Sounds cool? We definitely think it is…

Benefits

12-27% yield on stables, depending on market conditions
Easy and straightforward
The yield is higher than the average of most hedge funds
Backed by industry giants

Action plan

Go to Jupiter
In the search bar, type “sUSDe”. Make sure that it has a Jupiter tick (verified) next to the ticker.
Swap your SOL or USDC to sUSDe
Simply keep it in your wallet. The price of sUSDe will grow as per yield
Happy farming!

Here a step-by-step tutorial:

Risks:

The strategy used by Ethena can be dangerous in Bear markets because sometimes funding rates can be negative
A lot of reliance on Centralised exchanges and market makers
For the full set of risks, check out our deep dive

Concentrated liquidity

Here are some new things you might learn from us. Concentrated liquidity is a mechanism in DeFi where liquidity providers (LPs) can allocate their capital to a specific price range within a trading pair rather than having it spread across the entire price spectrum. This concept was popularised by platforms like Uniswap V3, which allows for more capital-efficient liquidity provision.

Here are some benefits:

Capital efficiency: By focusing liquidity within a narrow price range, LPs can earn higher fees from trades that occur within that specific range.
Increased returns: Concentrating liquidity in areas where most trades are expected to occur can lead to higher fee earnings for LPs.

However, unlike traditional liquidity provision, there is a risk that the price of pairs might go out of your range, which will result in capital becoming idle and it will stop earning yield. Also, just like in any liquidity provision, your position might be subject to impermanent loss. However, if you set the range right, it can result in a yield that was previously unheard of.

SPX-USDC

You can use the action plan we will share essentially with any pair. However, pairs that are not yet listed on major Centralised Exchanges (CEXes) typically result in better returns because most of the volume happens through pools on-chain rather than on a CEX. Additionally, you need to look at the ratio between volume and liquidity provided: the lower the liquidity and the higher the volume, typically resulting in higher yield.

Out of all our picks, SPX typically results in a higher volume-to-TVL ratio, which results in better yield. This pair is also good for demonstration because of how SPX was stuck in a range for quite a while:

Therefore, we demonstrate based on SPX-related pairs, but you can choose any other pair you are most bullish on.

Benefits

The yield is paid to the separate contract in SPX and USDC. So, you will have a passive yield that is not subject to impermanent loss or, in the case of USDC, to the market risk.
A moderately wide range can result in somewhere between 200%-500% on average paid out in SPX and USDC.
You still retain the upside potential from SPX while protecting your downside.
Conservative but asymmetric strategy: great if you are worried about market corrections but still want to have exposure to it.

Action plan:

Go to Tradingview or dexscreener.
Identify the range of the pair; you can follow our on-demand TAs or market directions if not experienced.
Go to ORCA and choose SPX-USDC pool.
Choose “Custom” liquidity range, not “Full range”.
For “Min Price”, insert $0.44; for “Max Price”, insert $1.
Check the ratio of each asset needed and make sure you have them. (use Jupiter if you don’t for swaps)
Insert the amount of SPX-USDC you are willing to deposit.
Click “Deposit” and confirm the transaction.

Here is a step-by-step tutorial:

Risks and notes:

The given range is for demonstration purposes, even though some Cryptonary team members use this range based on their risk tolerance.
As the price approaches the max price, your SPX will be gradually sold to USDC so that when it is $1 you will have 100% of our position on USDC. The reverse applies to the minimum price as well. When SPX falls to $0.44, 100% of your position will be on SPX.
These can result in impermanent loss if you have to sell at that price.
If you are bullish on SPX, you can choose a higher max price that fits your targets. However, the narrower the range, the higher the yield. Typically, if you get the range right, the yield from the position can be greater than impermanent loss.
The yield isn’t guaranteed; it can vary based on market conditions and volumes. But again, typically, the yield is high.
Narrower ranges can result in even juicier yields; however, there is a higher chance of getting out of range.

SPX-SOL

If you want maximum exposure to the market with gradual profit-taking into SOL while earning a yield during market turbulence. SPX-SOL is less conservative than SPX-USDC; however, it provides maximum upside

Benefits

Over 100% APY paid in SPX and SOL separately from the position, meaning no impermanent loss on your yield
Retain full market exposure to SPX and SOL
Gradual profit taking into SOL as SPX outperforms

Action plan

Go to Tradingview or dexscreener.
Identify the range of the pair; you can follow our on-demand TAs or market directions if not experienced.
Go to ORCA and choose the SPX-SOL pool.
Choose “Custom” liquidity range, not “Full range”.
For “Min Price”, insert 0.0018; for “Max Price”, insert 0.007.
Check the ratio of each asset needed and make sure you have them. (use Jupiter if you don’t for swaps)
Insert the amount of SPX-SOL you are willing to deposit.
Click “Deposit” and confirm the transaction.

Here is a step-by-step tutorial:

Risks and notes

The given range is for demonstration purposes, even though some Cryptonary team members use this range based on their risk tolerance.
As the price approaches the max price, your SPX will be gradually sold to SOL. When it reaches the max price, you will have 100% of our position on SOL. The reverse applies to min price as well. When SPX falls to a minimum price relative to SOL, 100% of your position will be on SPX.
These can result in impermanent loss if you have to sell at that price.
If you are bullish on SPX, you can choose a higher max price that fits your targets. However, the narrower the range, the higher the yield. Typically, if you get the range right, the yield from the position can be greater than impermanent loss.
The yield isn’t guaranteed; it can vary based on market conditions and volumes. But again, typically, the yield is high.
Narrower ranges can result in even juicier yields. However, there is a higher chance of getting out of range.

Cryptonary’s take

We believe these yield farms are the best in terms of Risk and reward, and some of them are completely slept on because many people don’t understand how to work with concentrated liquidity.

Focus on where people are sleeping, and you will have an edge in the market. Build solid passive income positions with memes and mix them with stablecoin yields. That is the key that will keep you balanced in any market conditions.

Happy farming!

Cryptonary, OUT!