TOP 5 Yield Farming coins in the crypto space ranked by marketcap
By Inkarias - 2020-10-13
As we mentioned in our previous article dealing with the new craze around DeFi systems, Yield Farming solutions have become in a few months the new eldorado for crypto sphere investors to generate long-term passive income via the yield system underlying this type of project.
In this article, we present the top 5 projects in this sector, organized by marketcap, while specifying the various features available to investors to benefit from all the advantages that this type of system offers. Before getting to the heart of the matter concerning the predominant Yield Farming solutions on the market, it is important to differentiate between the various possibilities available to investors for this type of financial solution. The term “yield farming” can be illustrated by different activities, with higher or lower annual interest rates depending on the risk of the project:
Different types of Yield Farming with various risks
The first activity widely used and most accessible to everyone is the deposit of cryptocurrencies on services. In exchange for this deposit, investors can receive an interest rate that fluctuates according to supply and demand (corresponding to the amount available to borrow). From the recent statistics shared, the rates between the different assets often fluctuate between 0.1% and 40%, offering a wide variety of investment possibilities. The higher rates are explained by loans giving access to more attractive rates overall. Rates can collapse in a matter of days, yet this is one of the least risky activities when it comes to yield farming in general. As examples of projects using this system, we can cite Compound or Aave, two indisputable leaders on the market.
The vaults-based solution
Vaults-based systems involve depositing cryptocurrencies in smart contracts acting as an "automated hedge fund" which will apply a strategy, in this case the one offering the best return to date. The vault is able to change its strategy if a better return is observed. You can deposit stablecoins or other type of assets there. The returns are really attractive and are the consequences of the automatic sales of governance tokens obtained by the strategy which a reward paid in portions of the asset previously deposited into the vault. The main risk lies in the code of the vault, or the strategy that can be based on a CDP, that is to say a mutualized debt contract between all depositors. This system has been introduced by projects such as the well-known and liked Yearn.Finance project.
Be a liquidity provider
This solution is the staking of cryptocurrencies in liquidity pools on Uniswap or Balancer for example. In that way, the liquidity providers receive fees on exchanges that pass through these pools. Excessive price variations between assets cause these phenomena of loss of part of the capital. It is therefore necessary to calculate in advance the potential variations in assets in order to have an idea of the risk incurred in that type of yield farming.
Farming via stable coins or governance tokens
This activity consists in putting on the table a stablecoin or a governance token (such as USDT, YFI or even COMP) to obtain new tokens in exchange of that process. Many projects try to ride the Yield farming wave, with a bigger risk of losing its capital if the project is fraudulent or of not covering the transaction costs if the token is not purchased on decentralized exchange platforms. On these projects, farmers are fond and looking for issuance rates of these worthless tokens of 1,000-30,000%, in many ways the rates are misleading and will drop as volume grows on contracts over-time. We can quote projects such as YAM which has implemented this system recently on launch.
Liquidities via third-party providers
The last main activity is close to the fourth, but represents a greater risk overall, because the token that is involved is no longer a token, but more representing a portion of the liquidity deposited on services such as Uniswap or Balancer. Thus, investors add transactions to the process, which involves costs, but also and above all a risk of losing the invested capital, especially since the market is very volatile and therefore unstable. Uniswap in addition to the UNI token airdrop to historical users offers to collect UNI tokens in this way.
UNISWAP - 638 884 716 $
Uniswap is a protocol available to all Ethereum users to allow token swaps. Based on smart-contracts, the main objective of Uniswap is to guarantee maximum liquidity for these users. In short , Uniswap allows the exchange of ERC tokens via a pair but can also carry out several internal trades to carry out swaps with the maximum liquidity. Indeed, knowing that each swap has funds from the token as well as funds in ethers, it is possible to directly convert specific tokens to ether and carry out a second trade in the meantime.
Uniswap allows investors to carry out swaps without a trusted third party. While some DeFi services seem somewhat obscure, Uniswap is very transparent in its simplicity. Pairs of exchanges can be set up easily using smart-contracts available to everyone. Uniswap is a non-profit protocol and the fees go only to users providing liquidity to the system. This allows users to pay very low fees, and therefore to carry out transactions at low cost compared to other decentralized exchanges. This vision has been really appreciated by the community and therefore is the main reason why UNI project made his way to the top really quickly.
The functioning of Uniswap is composed of a certain number of smart-contracts allowing the swap between ethers and ERC-20 tokens. These contracts allowing these exchanges can be set up automatically thanks to a dedicated smart-contract: Factory. These contracts have reserves of the ERC-20 token in question, but also in ethers.
By having two different reserves by different contracts, this system allows to create a market on the pair. If the ETH reserve decreases or vice versa, the exchange ratio is changed, which changes the price of the token. Arbitrages are also possible and make it possible to guarantee a certain level of liquidity inflow in the exchange pairs in UNISWAP.
UNISWAP Coin Tokenomics
Name : UNISWAP
Ticker : UNI
Official Contract: 0x1f9840a85d5af5bf1d1762f925bdaddc4201f984
Blockchain used: Ethereum as an ERC20 Token
Max supply: 1,000,000,000 UNI
Official Website: https://uniswap.org/
Synthetix Network - 567 816 949 $
The Synthetix protocol makes it possible to “synthesize” assets to offer them an interoperability that the blockchain does not allow. This is not similar to tokenization which amounts to depositing funds with a third party, preferably a trusted one, who returns in exchange a quantity of tokens corresponding to the same direct value. This applies for example for Tether (USDT) which everyone wonders if it is actually represented by an amount of dollars corresponding to the number of units in circulation. This principle also applies to the wrapped Bitcoin (wBTC) which allows you to tokenize your BTC for use as an ERC20 token in DeFi which runs on Ethereum (ETH). The central point is that trusted third party owns the collateral.
Synthesization is different from putting in place a debt that replicates the price of an asset by securing it with another asset. It can be either a cryptocurrency or a stock, for example. To put it simply, this is what happens when you take out a loan from the bank. The latter creates money by placing its trust no longer in an intermediary, but in the client who thereby becomes the collateral for this operation. With a mortgage, it concerns a house. This money created by the bank is synthesis. In the case of Synthetix, it is the smart contract code that will ensure that the price of the collateral remains at least the same as that announced. If it drops, it will be liquidated as quickly as possible in an attempt to recover this sum which is lost by the borrower. But as long as it works, "synth" tokens retain the value of that collateral even if they are exchanged as part of a transaction and change ownership.
Synthetix's offering also involves a decentralized exchange platform (DEX) dedicated to its synth tokens. Among other things, it allows these synthetic assets to be exchanged for others quickly and directly without worrying about liquidity. It also offers the possibility of buying or reselling them. When a user changes sUSD for sETH, he will trigger the destruction of the first (sUSD) to create new sETHs as in this transaction type only the synthetic asset changes, but the value of the collateral remains the same.
Name : Synthetix Network
Ticker : SNX
Official Contract: 0xc011a73ee8576fb46f5e1c5751ca3b9fe0af2a6f
Blockchain used: Ethereum as an ERC20 Token
Max supply: 203,851,539 SNX
Official Website: https://www.synthetix.io/
Yearn.Finance - 501 210 253 $
The Yearn Finance project is a liquidity aggregator, running on the Ethereum blockchain for lending platforms with the main goal to help users to achieve the highest profit in smart contract interaction. Nowadays, more and more similar protocols appear, with flexible forms of change, the problem is how the LP can maximize its profits. Although switching between continuous protocols is very difficult. Yearn Finance was created to solve this major problem. YFI allows users to easily optimize profits, with algorithms to compare, choose the place with the highest income, save time for research and convert quickly. Yearn project uses the following protocols: Compound, dY / dX, Aave, Curve while supporting many stablecoins: $ DAI, $ USDC, $ USDT, $ TUSD, $ sUSD.
In addition, the YFI ecosystem includes many services accessible to the project community ( either officially published or still under testnet phase):
Yearn.finance to optimize loan yield, or more specifically the profit for the lender in different protocols.
Ytrade.finance as stable coin trading with leverage
Yliquidate.finance : An automatic liquidation machine for Aave
yswap.exchange , an unilateral automated market maker (AMM)
iborrow.finance , the vaults to authorize credit for smart contracts
yinsure.finance : The insurer and the insured interact directly through a mortgage, and not through an intermediary . This functionality is however still under active development.
YFI Coin Tokenomics
Name : Yearn.Finance
Ticker : YFI
Official Contract: 0x0bc529c00C6401aEF6D220BE8C6Ea1667F6Ad93e
Blockchain used : Ethereum as an ERC20 Token
Max supply: 30,000 YFI
Official Website : https://yearn.finance/
Compound - 390 886 492 $
The Compound project is a loan offer that allows holders of certain cryptocurrencies to generate income by making them available to its protocol. This is a public-type solution that can be used indifferently by different players or interfaces such as DefiSaver for example possesses its own COMP application. Simply put, Compound is an autonomous and open source protocol evolving on the ethereum blockchain. This decentralized finance market allows users and applications to earn interest or borrow Ethereum assets without any intermediary other than the protocol in question.
Compound enables borrowers to take out loans and lenders to provide loans by locking their crypto assets into the protocol. The interest rates paid and received by borrowers and lenders are determined by the supply and demand for each crypto asset with interest rates generated for each block mined. Loans can be repaid, and locked assets can be withdrawn at any time.
In addition to this principle, the Compound's native token COMP allows users to earn interest on their money while being able to transfer, exchange and use that money in other applications. In that way, new COMP tokens are created each time a user deposits crypto asset in the Compound protocol. If users want to take out a loan using ETH as collateral, they automatically receive cETH in return for the deposited ETH. If users want to use USDDC to earn interest, they receive the cUSDC when they deposit this currency into the system. Compound (COMP) is an ERC-20 asset that empowers community governance of the Compound protocol; COMP token-holders and their delegates can debate, propose, and vote on all changes to the protocol.
Name : Compound
Ticker : COMP
Official Contract: 0xc00e94cb662c3520282e6f5717214004a7f26888
Blockchain used: Ethereum as an ERC20 Token
Max supply: 10,000,000 COMP
Official Website: https://compound.finance/governance/comp
Balancer - 128 105 648 $
Balancer is a decentralized application hosted on Ethereum, which was launched in September 2019. It falls under the category of automatic market maker which reduces the cost and slippage between trades of different cryptocurrencies. Unlike Uniswap, where the pools always contain two tokens in the same proportions , Balancer supports pools containing up to 8 tokens and whose distribution can be personalized (for example: 50% ETH, 10% DAI, 30% USDC and 10% WTBC). Most importantly, Balancer protocol has variable costs during the swap unlike Uniswap where the costs are fixed at 0.3%.
Balancer protocol can be called upon by different decentralized trading platforms to automatically figure out the best rates and trading prices using Smart Order Routing (SOR). The protocol also provides the funds necessary to complete the trade, using the funds from available Balancer Pools. Balancer pools are collections of user supplied funds that are used to provide liquidity to trades and transactions within the ecosystem and the network. This collection of funds is called upon during cryptocurrency trades as the as the counterpart to the transaction, providing liquidity to all the traders.
BAL token is the native coin of the ecosystem, providing governance rights to the holders and can be acquired through liquidity mining. Balancer rewards liquidators who pay into their pools in the form of $BAL tokens. The Company’s proposal is to give out BAL tokens in proportion to the amount of liquidity each address contributes relative to the total liquidity on Balancer. Finally, another way to make BAL is through creating a pool and reaping the benefits of trading fees. These are handed out in the form of $BAL. This system also incentivises the pool creator to lower fees as the lower the fees are, the more BAL they receive.
Name : Balancer
Ticker : BAL
Official Contract: 0xba100000625a3754423978a60c9317c58a424e3D
Blockchain used: Ethereum as an ERC20 Token
Max supply: 100,000,000
Official Website: https://balancer.finance/