Opinion pieces are based on the author's personal opinion, and they do not constitute investment advice, financial advice, or trading advice. Securities.io does not recommend that any cryptocurrency should be bought, sold, or held by you. Conduct your own due diligence and consult a financial advisor before making any investment decisions.
The cryptocurrency market is broad and lucrative. While crypto trading remains the top way of earning from the sector, yield farming comes in at a close second.
Yield farming is a process that allows an investor to earn from their crypto holdings. It works similarly to earning interest from saving money in your bank account. With yield farming, you have to lock your cryptocurrencies, also known as staking, for a specified period, after which you will earn interest or other rewards given in the form of additional cryptocurrencies.
It is an ideal strategy if you have some idle cryptocurrencies in your wallet that you would like to work for you. Yield farmers earn returns in Annual Percentage Yields (APY). The APY is determined by the yield farming platform.
While yield farming can be lucrative, it also comes with a high level of risk. The coins earned are subject to the high volatility of cryptocurrencies. Additionally, some yield farming protocols end up being rug pulls where the developers leave the project and take off with investor funds.
If you want to invest in yield farming, below are the top 3 yield farming coins to watch in 2022:
1. Aave (AAVE)
Aave is one of the most popular yield farming platforms. The platform was founded in 2017 to facilitate the lending and borrowing of cryptocurrencies. Aave has grown over the years to become one of the leading decentralized finance (DeFi) service platforms.
The native token for the Aave platform is AAVE. AAVE is a governance token and a yield farming coin. Users can stake the AAVE token to generate rewards.
You can stake AAVE tokens through the Aave decentralized application (dApp). The AAVE token is usually staked for the financial security of the Aave network; hence the rewards you earn will be offered by the Aave platform.
Staking AAVE is a low-risk option for you to generate passive income on your holdings. Moreover, yield farming with the AAVE token is one of the easiest processes because of the token’s interoperability with its own dApp. In just a few steps, you can stake your AAVE tokens and sit back as you wait for your rewards.
There is no definite earnings rate that you will get from staking AAVE. The rewards you get will be determined by several factors. Some of these include the number of tokens you have staked, the period you have staked, etc.
Besides the simplicity of the staking process, the AAVE token has also made notable gains on its own. The token is up more than 100% annually, and its growing community shows promise of more gains in the future. Therefore, you can generate returns from both staking and price appreciation with this token.
Before investing in AAVE, you need to consider that this token is based on the Ethereum blockchain. It is subject to the high gas fees on Ethereum, meaning that to avoid the high fees, you need to make large transactions.
To learn more visit our Investing in Aave guide.
2. SushiSwap (SUSHI)
The other top yield farming coin is SUSHI. SUSHI was launched out of a fork of Uniswap, and it lured users from Uniswap by promising them free SUSHI tokens. Since its inception, SushiSwap has become one of the largest yield farming protocols. Like Aave, it has also been built on top of the Ethereum blockchain.
SUSHI is the native token for the SushiSwap platform. SUSHI is an ERC-20 token issued to liquidity providers on the SushiSwap DEX. You can also earn additional SUSHI tokens by providing liquidity to pools on the platform.
When you stake SUSHI, you will receive rewards in Smooth Love Potion (SLP) tokens. SLP is the governance token used to govern the protocol. Staking SUSHI is an easy and fast process because you will need a metamask wallet containing SUSHI. You will also need ETH to pay for the gas fees.
You can also earn yields from this platform by staking SUSHI into the Sushibar staking contract. This will convert your SUSHI tokens into xSUSHI, making you eligible to share in the 0.05% swap fees through SushiSwap.
The SushiSwap platform has much potential in the market, increasing its ranking by market capitalization. SUSHI currently has a market capitalization of above $1.1 billion, and since November last year, the token has gained by around 114%. This makes it a considerable buy for both trading and staking.
The only challenge that comes from investing in SUSHI is the high gas fees on Ethereum. However, if SushiSwap builds on a more scalable blockchain, it could eradicate this problem in the future.
To learn more visit our Investing in Sushi guide.
3. PancakeSwap (CAKE)
The other leading yield farming coin is CAKE. PancakeSwap is a decentralized exchange (DEX) that facilitates the swapping of BEP20 tokens. PancakeSwap is built on top of the Binance Smart Chain, unlike the other two platforms.
The PancakeSwap protocol uses an automated market maker (AMM) model that allows users to trade against a liquidity pool. The pools comprise user funds, where those that deposit into the pool receive rewards in return.
Those who want to stake CAKE tokens need CAKE and BNB tokens in a wallet that supports PancakeSwap, such as metamask. BNB tokens are used to pay for the transaction fees on BSC.
You will generate additional CAKE tokens when you stake the CAKE tokens on the CAKE pool. Additionally, you can also choose to receive your rewards in other supported tokens such as HAKKA and CGG.
The platform has an easy to use interface that makes staking easy. After staking your CAKE tokens into the pools, you can claim your rewards using a “harvest” icon that will send the rewards you receive into your wallet.
Moreover, after you have won your first batch of rewards, you are not mandated to withdraw. You can choose to reinvest your tokens on the platform using the “compound” icon on the staking platform, which will boost your rewards.
The CAKE token is one of the leading yield farming coins in terms of gains. The coin has gained by more than 6000% on an annual basis, and it currently ranks as the 56th largest cryptocurrency by market capitalization. CAKE makes one of the most considerable investments for trading and yield farming.
Moreover, unlike the other two platforms, PancakeSwap is built on BSC, which charges lower gas fees. The low gas fees are an advantage to those handling large and small transactions. PancakeSwap is also one of the largest DEXs with support for more than 3000 cryptocurrencies, proving its potential.
To learn more visit our Investing in PancakeSwap guide.
DeFi farming coins make for some of the best investments in the market because they allow investors to earn from both staking and price gains of these coins. The DeFi market is one of the largest sectors in the crypto space, and it has seen a sprout of new projects in such a short time.
However, while yield farming can be a lucrative venture, an investor must understand that it can be highly risky. Moreover, it can also be a complex area for a beginner trader. Hence, before investing in the sector, one must understand the dynamics involved, the APY and the risks.