In this article I will try to honestly explain whether or not it is convenient to use Yield Farming platforms (in particular Harvest Finance).
From a technical point of view, the mechanism is not difficult, the problem is certainly the gas.
Are the economic returns high? Sure. Is Ethereum's Yield Farming for all budgets? No.
HOW DOES IT WORK
Harvest Finance offers several earning possibilities:
The first thing to do is to visit harvest.finance and choose your strategy.
For farming, I can use stablecoins or liquidity pools with volatile assets. Clearly, if liquidity pools with volatile asset pairs are used, attention must be paid to the impermanent loss.
The same goes for ETH / Stablecoin or any asset that can have large variations compared to the other.
Variations can be both downside and up, it doesn't matter. ⚠️I would always go towards impermanent loss (basically a simple buy & hold on your wallet would be more profitable than providing liquidity to the pool). If you are interested here I wrote an article: The Risks of Impermanent Loss in Liquidity Pools.
However, it should be considered that since Harvest Finance is an optimization platform it still guarantees very high returns (auto-harvested + LP + Farm rewards. For example, if I provide ETH / DAI liquidity on 1inch I will have a 4.31% LP APY, about 70% auto-harvested on 1inch and 12% of rewards in Farm for a total of 88%). I can stake the rewards in Farm by getting about 165% APY (this % is variable and also depends on the value of Farm).
3) It must be considered that I will need gas, a lot of gas. The fault is not of Harvest Finance or the Dex but of the Ethereum network which is not very scalable.
4) You go back to Harvest and do "deposit & stake" ($Farm is automatically staked)
5) If you don't want to farm and you are just a holder... you can still use the stake function in the specific section
An interesting vault is that of mirror assets: where it is possible to use tokens linked to the shares of Amazon, Google, Apple and Tesla.
This project aims to bridge the gap between decentralized and traditional finance.
In fact, they track the price of real assets (they are 150% collateralized with the stable UST) through a decentralized oracle. To get the collateral back, the mirror assets are then burned. All this is possible thanks to the Terra blockchain which has $Luna as a token. $Mir instead is the governance token of synthetic assets. For example, Wrapped UST Token (UST) can be found here: Wrapped UST (CoinMarketCap)
You will need to use Uniswap to buy these tokens. By providing liquidity I become an LP.
If you don't find the token on Uniswap, remember that just add the contract in the search bar. Use Etherscan by searching for the contract. This for example is that of Apple: mAPPL (Etherscan)
To learn more: ETH Mirror Finance
These are the pairs available on Harvest Finance:
IS IT CONVENIENT TO USE HARVEST?
If you move some thousand dollars and you choose the liquidity pool and the asset pair carefully, you can make BIG returns.
Why a thousand dollars? If ETH were scalable, you could earn even $ 200. The problem is the gas.
Another problem when trading on liquidity pools is the impermanent loss. DeFi on Ethereum is for people who move large sums. You think about executing a smart contract to withdraw liquidity and maybe you can't do it because the gas is too high and it would take away most of the profit. Certainly, however, "Layer2" (already used in the liquidity pools of Loopring and on Synthetix; then it should arrive on Aave and Uniswap) could solve the gas issue on the Ethereum network. Here I wrote an article: Layer2 Coming Soon On Synthetix, Uniswap, Aave And Loopring
What is the best strategy? With stablecoin I don't face impermanent loss but I still have to pay for the gas. With volatile assets the risk is double but in the face of a large gain.
✅If you are a 𝕓𝕚𝕘 𝕨𝕙𝕒𝕝𝕖 you can use any Harvest Finance vault while also risking impermanent loss and gas.
✅If you are a 𝖘𝖒𝖆𝖑𝖑 𝖋𝖆𝖗𝖒𝖊𝖗 instead... you can use staking, however using at least some $Farm.
Do you need a "step by step" video? Check out this I made (it's the simplest case...providing liquidity in the form of a stablecoin: USDC):
✅Etherscan (for Contract Token): https://etherscan.io/token/0xa0246c90...
✅Discord Harvest Finance: https://discord.com/invite/R5SeTVR