Which Strategy on Harvest.Finance Should You Choose and Why?
Well, let’s try and reply to the question at hand.
First off, a bit of an introduction. I own a VERY small portion of my portfolio in $FARM token. This, plus I am not currently participating in any of the yield farming on Harvest.Finance. That’s right, my piece of $FARM token is not staked and is not optimized as for now. Small amount of investment, maximum pain with gas fees, you’ll understand I’m sure…
That being said, I am actually seriously considering a strategy with Harvest.Finance and this article will serve to tell you which one and why!
Strategies on Harvest.Finance
Yield farming is one the lego of the DeFi that came out fairly recently (year 2020), and that evolved and innovated also very quickly as it develops. I personally came across yield farming end of last year and eyed with interest the opportunities given by the bigger name of this DeFi segment and in particular Harvest.Finance.
Arguably, Harvest.Finance offers 3 types of strategies:
- Strategy 1: Farm of tokens (mostly stable coins)
- Strategy 2: Farm of LP tokens (liquidity pool tokens given in exchange of the supply of liquidity in an AMM)
- Strategy 3: Farm of FARM tokens
Strategy 1: Stable coin farming and why I’m not considering it right now
In this scenario, a humble farmer is rewarded by staking tokens, mostly stable coins, although it is possible to stake wBTC and wETH too.
Rewards can take the form of different tokens, like IDLE or COMP, and it amounts to a pretty decent APY (over 30% for some coins), especially when you consider you are staking stable coins!!!
This strategy is the one that is commonly advised for complete beginners to farming. It has the three following big advantages:
- Almost no risk (stable coins),
- No interaction needed with AMM to supply liquidity pool,
- No headbanging trying to understand Impermanent Loss and how it could play for you
So what??? A very nice APY, no risk, easy peasy. Why am I not considering it?
Well, I said not now, but I reckon I might be interested in a foreseeable future. The reason is that we are now in a bull market and I trust we will still be in the next few months (the longer the better) and I have no intention to put my funds in stable coins.
However, say we experience a clear reversal in market sentiment and switch to a confirmed bear market. Well, strategy 1 will be definitively my pick, without a doubt!
Strategy 2: Farm of LP token, my choice?
This strategy is definitively more “complicated” than the previous one. It also requires more “research” from the farmer to fine-tune their approach. "It ain’t much, but it’s honest work", they say.
Basically, the farmer's workflow would be like this:
- provide liquidity in an AMM like Uniswap and get LP tokens
- stake your LP token in Harvest.Finance
The farmer would be exposed to some impacting performance factors that he will need to assess:
- which liquidity pools would water the best his crops?
- what impact would Impermanent Loss have on the harvest?
- how long would it be needed for those hybrids to give the better yield?
But yeah, done well, it would also give a better return on your investment: fees from the liquidity pool + insane APY on some farming opportunities on Harvest.Finance + auto-compounding + extra FARM tokens + possibility to stake those extra FARM tokens. Mind-blowing.
But nah, not the strategy I'm gonna be using in the very short term. The reason is circumstantial in my case. A part of my portfolio is already locked in LPs and I have no intention to increase my exposure on these. Due to the nature of LPs (mid-term investment) with the addition of high gas fees, I will not consider rearranging this part of my portfolio in the short term.
Nonetheless, I think this is IMO the best choice currently if you're inclined to yield farming as it will give the best return on investment.
But that's all good, still, one strategy to go, maybe this one will be good for me?
Strategy 3: Farm of $FARM token, my choice!
Note that $FARM tokens are often rewarded while using strategy 1 or 2, and also during the event called Profit Sharing. Farmers that chose the previous two strategies would be able to get into strategy 3 additionally.
Farming $FARM is very similar to when it came to farm stable coins, already described earlier. However, this is definitively a choice I think is way better right now for the following reasons:
- APY is way higher than for stable coins (around APY 80% at time of writing, more than twice what you get with stable coins)
- we're in a bull market, assets like $FARM are likely to appreciate against the US dollar.
- Harvest.Finance is proving its place in the space and has a massive potential
So here we go, that will be my first interaction with Harvest.Finance, as soon as I get enough funds to cover for gas fees and have a minimum share of $FARM that would make sense to farm for a profit (after deduction of gas fees).