Getting involved in DeFi is easier said than done. Many strategies can be complex. To help you to start with yield farming, we have some interesting tips for you.
Crypto Twitter researcher @shivsakhuja had an interesting thread about this. Here you can find a recap on his findings. Furthermore, check our article on “What is yield farming?“ So, without further ado, let’s have a look at how to become a successful yield farmer.
Source: Pixabay WorldSpectrum
1. Have a Plan
Having a plan is the most important part of being a successful yield farmer. If you don’t have a plan, you will most likely fail.
You can start your plan by asking yourself various questions.
- How many positions can you manage, but yet still feel comfortable?
- Are there any coins you want to hold long-term, and do you have a moonbag?
- Do you have a reward harvesting strategy, and how often do you harvest?
- Can you track your returns, and do you have enough time for yield farming?
- Which percentage of your farm is in stablecoins, and how will you set up your portfolio?
1. Create a plan
This is the most important part.
Failing to plan = planning to fail
Creating a Yield Farming plan means asking questions like… pic.twitter.com/YwhhmaHD1v
— shivsak (@shivsakhuja) May 4, 2022
2. First Choose Your Coins. After That, Your Farms.
Choose coins that you are comfortable with, and then go looking for a farm. Don’t do this the other way around. Even if it’s a high APR. High APRs are usually with unknown coins and the risk is high.
3. Time Management
Know how much time you can spend on yield farming. It may help if you know if you can be a passive or active yield farmer. To clarify, passive farming gives lower yield, while active farming gives a higher yield. However, for active farming, you need lots of time.
- Passive yield farming
- Put your coins in Yearn.Finance or JustLend and move them maybe once per month.
- You can also find a liquidity pool that you’re at ease with and leave your coins there for a couple of months.
- Active farming
- Join new protocols and chains early.
- Look for airdrops.
- Move coins regularly to stay on top of the highest yield available.
- Do many hours of research on Twitter, Discord, and Telegram.
4. Have a Strategy to Harvest the Rewards
Make sure to have a good and clear strategy that you will follow.
- Let rewards add up over a few days.
- Harvest them and get stablecoins for them.
- Harvest them and get blue chips, like BTC or ETH, for them.
- Compound the rest back into your farm.
Remember, this is a different investment strategy. Coins that you’re bullish on, keep adding them to the farm. However, if the rewards are in less exciting coins, swap them for stablecoins every couple of days.
Source: @shivsakhuja Twitter thread
5. Avoid Memecoins as Liquidity Pairs
Any ETH/memecoin LP is risky. If you put in $1,000/$1,000 and your memecoin drops to 0, you also lose all your ETH. Furthermore, impermanent loss may be an issue. This can affect your investment quite a bit. In our “What is yield farming? part 2“ article, we have an explanation of impermanent loss.
Although memecoins can give very high APRs, only touch them when you have a good reason. Keep the time frame you farm them also very short.
6. Set Up Your Portfolio
Your portfolio can be either low, medium, or high risk. Whatever you chose, make sure to have these coins in it.
- Blue chip coins.
- Medium risk coins (altcoins you strongly believe in)
- High-risk coins (your moonbag)
The percentages of each set of coins can vary as seen in the homemade picture below. For example, pending on your current financial situation, strategy, goals, or plan.
7. Be Careful of Investing in Altcoins
An altcoin with a high APR is not a good enough reason to invest! In general, altcoins don’t perform as good as BTC or ETH in the long run. So, once more, yield farming asks for a different strategy.
During a bull market, pretty much every coin will make a profit. But will it outperform BTC or ETH? During a bear market, it is very difficult to pick a good altcoin to farm with. So, if you decide on altcoins, make sure they have a strong use case and tokenomics.
8. Have a Moonbag (Or Two)
Why would you want a moonbag? Well, these can be the icing on the cake and make you rich. BTC and ETH is safe sailing and steady. However, it is unlikely that they do 10x to 100x with such a large market cap. In contrast, that is what a moonbag can do for you. So, keep a small percentage of your portfolio in a moonbag. Moonbags are coins that:
- You are long-term bullish on them.
- Plenty of research has gone into these coins.
- Usually, they have a low to medium market cap.
Here we are at the end of part 1 on how to be a successful yield farmer in 15 steps. Go and check out our part 2 because you don’t want to miss out on any of these useful tips.
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