To me, staking and yield farming are some of the best innovations in DeFi and have the potential to enable us to grow wealth in a way that is impossible with traditional finance. But they also come with risks. The biggest being the proliferation of rug pulls and untrustworthy platforms. There are so many to choose from it can be difficult to decide where to put your trust.
That being said, your best bet is usually to start off with ones that are established and trusted - PancakeSwap, SushiSwap, and QuickSwap to name a few. These more established platforms have a few benefits - you're much less likely to encounter a rug pull, and the value of their tokens are less likely to experience a huge crash because there is so much liquidity and so many holders. Using newer platforms runs a greater risk that you accumulate rewards in a token that crashes in value, erasing your gains. But, these new platforms also typically come with higher APY, so there is a potential trade-off.
Deciding how and where to put your money can be daunting. And there is no right answer (but lots of wrong ones). To help, here are the key elements to how I've designed my staking and yield farming strategy. And of course this is not financial advice, just sharing my experience:
1) Costs to stake and farm
I'm not a whale, just a lowly plankton. So gas costs are meaningful to me, and this takes Ethereum out of the equation in my mind. I don't want to spend all the money I earn paying gas fees. Instead, I stick with three awesome, low-cost chains: BSC, Polygon, and Harmony. BSC is the most established and has the most options on it to choose from, but also the most scams and high risk projects. Polygon and Harmony have almost nonexistent gas costs and a lot of great emerging projects. Minimize costs to maximize gains.
2) Diversify!
I keep assets in multiple platforms, split between higher and lower-risk. This means some in more stable platforms like PancakeSwap, and some in newer, but possibly riskier ones like Firebird Finance and HoneyFarm (more on those later). Never put all your eggs in one basket, and that applies to putting everything on one platform OR putting all your money in one coin even if you stake/farm it multiple places.
3) I like to cash out my yields, so I look for good APR, not APY
APY is great to understand if you're using your farm to compound the yields and hold more assets to farm. But that's not always what I want. I like to have a yield that I harvest and cash out. This is particularly true when I'm using the less established platforms and getting yields in a token that isn't as stable. APR will give a better sense of what you'll get each week/month based on what you put in. If you're harvesting and cashing out, APY will give you an inflated sense of what you'll earn, and sometimes it's calculated assuming daily compounding so it could be way off.
4) Try to avoid taking staking the native currency on new platforms
Something like Cake tends to be a safer bet to stake because of the amount staked and volume held. But for newer platforms, their tokens can be highly volatile. It can put a big damper to stake $200 worth of something, then have that underlying asset drop 50% and your yields go with it. It also creates extra risk around impermanent loss for when you're farming LPs. My approach tends to end up focused on single-asset farming (like AutoCake on PancakeSwap) or farming with LP tokens that don't include that native asset (like Matic/USDC pairs as an example).
One example of all of this would be how I use Firebird Finance on Polygon. I really like this one because I can stake their $HOPE token and earn USDC through fee sharing, so my payout basically comes in cash. I don't typically like vaults because they give you more LP tokens, which may lose value with impermanent loss, offsetting some of your gains. Like I said before, I'd rather have a yield to harvest and cash out. But, I do love the stablecoin LP vaults on Firebird. There's very little risk of impermanent loss with stablecoin LPs, and autocompounding basically becomes stacking cash. And Firebird has some great returns - right now I'm in the DAI/USDC Polycat pair on Firebird which is earning 82.5% APY as of this writing.
Firebird Finance: https://app.firebird.finance/
A second example is HoneyFarm. Their single-asset pools are great. They just launched their layer 2 farming token $BEAR, which right now I'm staking for 1450% APR (paid in $BEAR) - ridiculous. But they also have a "Royal Jelly" pool where you can stake $BEAR for 1238% APR - paid in WBNB. I know this violates my tip #4, but I'm willing to do it here when the returns could get my investment back quickly, and especially when it's paid out in something like WBNB.
HoneyFarm: https://bear.honeyfarm.finance/
As always, you should DYOR and this is just my approach to yield farming. It's worked for me, but you'll need to understand your own risk tolerance and weigh what options will meet your needs best. The good news is there is a lot out there to fill any need you may have. Happy farming!
