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As you must have already noticed, the DeFi market, while cutting-edge and exciting, is also full of traps and pitfalls. The decentralized nature of transactions allows you to avoid a banking system which brings tons of benefits but also increases the risk of losing money. Yield farming, as a one of the most profitable segments of DeFi, presents risk-related challenges as well.
First thing’s first: what is yield farming and how does it work?
Yield farming is a very hot and happening DeFi sector that basically allows you to make more crypto with your crypto. The main goal of yield farmers is to maximize the rate of return by leveraging different DeFi protocols. They chase the highest yield by switching between multiple strategies and lending marketplaces.
The main challenge yield farmers face is difficulty in making predictions about market fluctuations. Let’s take the Compound Governance Token (COMP), a governance token for a DeFi protocol. COMP had risen in value by almost 300% in a matter of days, since June 18th.
This shows how unpredictable and fast-changing DeFi projects can be, which creates chances for significant profits but also carries risks.
Here are the risks that yield farmers fear:
- The volatility of the cryptocurrency
- Smart contract bugs
- High GAS fees
- Unreliable DeFi projects
- Liquidation (leveraging)
As you can see, it is very important to track different DeFi protocols if you want to make lucrative investment decisions and minimize those risks.
What can you do to minimize risks and maximize returns?
Successful crypto traders and investors know that the golden rule of investment is Do Your Own Research. Tracking the development of DeFi projects and understanding their dynamics is very beneficial for investors.
When you are involved in several DeFi projects, it is practically impossible to keep track of them all and store huge amounts of data by yourself. There are a bunch of analytic and prediction making tools to help you stay sane and on top of your profits. We are glad to be able to share our hands-on experience and present it here.
Analytic tools for effective decision-making in yield farming
There are quite a few resources available to help you analyze the DeFi and yielding market and we have rounded up the most trustworthy and useful ones.
A must-have tool for any crypto enthusiast. This Ethereum blockchain explorer allows you to accumulate solid amounts of relevant crypto information and carry out basic operations. At Etherscan, you can check things such as GAS fees and content of your token wallet, mine smart-contracts, identify valid token names and much more.
Key takeaway: Popular and reputable explorer with a big variety of basic useful tools.
Cons: Doesn’t give market predictions.
Dune is a comparatively young but fast developing organization. With Dune you can query human-readable, real-time Ethereum data with SQL, turn your results into informative visual graphs and share them with the world. It also allows you to explore and fork community created analyses.
Key takeaway: Dune helps you create and share Ethereum data analyses that are easy to read and understand.
Cons: Limited free-version functionality.
Pools FYI helps you to find the best liquidity pools for Uniswap by presenting pool data in a comprehensive way. It also gives you the opportunity to analyze historical returns from trading fees so you can see the past trends and back up your research.
Key takeaway: Useful tool for liquidity providers who support liquidity pools like Uniswap.
Cons: Doesn’t give you information on predictions.
Zapper is a great platform if you are managing the positions of several DeFi projects. It allows you to become a liquidity provider on Uniswap, Curve and Balancer in a very effortless way. Zapper makes it easy to engage with liquidity pools while you can also share investment assets among different DeFi protocols. Zapper users do not need to figure out which projects are more or less lucrative - it finds the best rate and recommends it to you.
Key takeaway: An advanced instrument for managing several DeFi projects and re-balancing assets.
Cons: Doesn’t support several significant DeFi projects yet but plans to in the near future.
Zerion is a multi-functional interface that lets its users invest, trade and borrow assets. It includes: selling and buying tokens, stablecoin lending, investing in liquidity pools and automation of trading strategies. The system allows users to manage and diversify their investment profile with different protocols by using convenient wallets in a real-time mode.
Key takeaway: Non-custodial DeFi platform with vast functionality that saves traders time and energy.
Cons: Doesn’t support Aave, the largest DeFi protocol.
Debank positions itself as an all-in-one DeFi wallet where you can track your DeFi portfolio, compare rates and explore different DeFi protocols. You can compare different DeFi protocols in their “DeFi Ranking” section. It is a convenient method for swapping tokens as well.
Key takeaway: User-friendly wallet and a DeFi explorer.
Cons: Doesn’t clearly suggest investing strategies.
DeFiprime is a general education platform for all things DeFi. You can learn about and explore different DeFi projects, as well as get updated info on DeFi lending and borrowing rates. They also provide a list of reputable DeFi tokens, share important news, offer interviews with DeFi experts and provide analytics on the DeFi ecosystem.
Key takeaway: A general educational source with actual info on DeFi projects.
Cons: Doesn’t have wallet functions.
As you must have guessed from their name, the main focus of this platform is shedding light on lending and borrowing rates. They provide up-to-date info on interest rates from the top cryptocurrency lending protocols. You can even get your project listed at DeFirate, provided their team finds it a worthy sharing.
Key takeaway: A good source for lending and borrowing rates.
Cons: Doesn’t give predictions on rates.
This project allows you to see locked tokens in DeFi projects by total value and dominance. With the help of DeFipulse you can also track Ethereum. Users also mention their outstanding leader board.
Key takeaway: Useful tool for tracking popular DeFi projects by locked value.
Cons: No predictions.
The site, with its simplistic interface, is staying clear on the message - it shows current and past APY numbers for an impressive list of DeFi projects.
Key takeaway: A basic DeFi APY tracker that allows you to see the week’s APY trend and locked value trend.
Cons: Doesn’t do much else.
This one will help you to see impermanent token losses and gains. It basically shows what you would have if you didn’t sell or provide liquidity. Besides that, it demonstrates all your gas fees and exit transactions.
Key takeaway: A neat tool to show liquidity pool and net market gains and losses.
Cons: Can be a little discouraging looking at your losses but gives you a good insight.
168pools aggregator will not only show and calculate APY but actually make APY predictions. It also has a wide variety of analytic tools and provides farming trading strategies. This is one of the biggest, fullest and most accurate aggregators on the Asian market, creating a bridge between Western DeFi projects and Asian ones, particularly Chinese DeFi projects.
Key takeaway: Huge aggregator with a strong focus on the Asian market and providesAPY predictions.
Cons: Relatively young project, interface and content are improving day by day.
The list goes on and on… Platforms like these are emerging every month as this field becomes more and more popular. We advise you to use a combination of tools, compare stats from different platforms and make educated decisions about your investments.
Empowered yield farming is the way to go
So now you are armed with research and analysis tools that will help you to navigate in the yield farming world. Do not forget that DeFi is a high-risk field and there are no guarantees, so staying on top of real-time, on-chain data and knowing past trends will help you to make better and more accurate predictions, thus, more profits.
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