Here is part 2 of how to be a successful yield farmer in 15 steps.
Source: Unsplash Kanchanara
9. Bear and Bull Markets Are Different – So Should Your Portfolio and Strategy
During a bull market, it’s possible to take some more risk. This is the time for your moonbags to lift off. On the other hand, during a bear market, you should be cautious and avoid risks as much as you can.
Because bear markets can last for years, make sure that your strategy will last. A good strategy is to buy and hodl top blue-chip coins. This goes easy on your portfolio and doesn’t need much adjustment. It’s an “evergreen” portfolio and will put your mind at ease.
10. Have Enough Stablecoins and Farm the Memecoins
With stablecoins, you can collect yield at a low risk. Furthermore, they are good when buying dips. You can also use them for unexpected opportunities. You can also farm stablecoins. Just as we saw in point 3, this can be passive or active.
- Passive farming with stablecoins
Currently, JustLend offers up to 30% interest on their new USDD stablecoin. At the time of writing, it’s 19.21%. Sounds familiar? It sounds a lot like the Anchor Protocol. However, on a stablecoin, you should try to get around 20% yield.
- Active farming with stablecoins
This is time intensive but can bring 30%-40% yield. You need to be proactive and look for the best yield options. Harvest rewards on a regular basis and move your coins around. Make sure that you:
- Use stablecoins that you’re comfortable with.
- Find a solid farm for passive income that you can trust.
- Know how many times you want to move your coins around.
As a reminder, be aware of the transaction costs when moving coins around.
11. What Yield Products Are Available?
There’s a wide variety of yield protocols available. You need to make sure that you’re familiar with them and understand them.
- Lending (Compound, Aave)
- Staking (Trader Joe, Maker)
- Liquidity pools (Uniswap, Balancer)
- Looping strategies
Each option has different benefits and yield. Familiarize yourself with them and make sure that you understand them.
There are also options in liquidity pools. For instance, a crypto/stable pool or a crypto/crypto pool. Both have different pros and cons. See the picture below.
12. Limit the Number of Farms You Take Part In
Taking part in too many farms makes it hard to manage your positions. There are too many things you need to track, for instance:
- The coin prices
- Your rewards
- Relevant news events
- What is the team doing?
Taking part in too many farms doesn’t give you enough time to:
- Keep track of your returns
- Stay committed to a high-level strategy
- Do adequate research
- Move your funds around
To recap, if you can dedicate enough time, no more than 20 farms. On the other hand, if you don’t have so much time, stick to a max of 10 farms.
13. Optimize Everything for Taxes
Taxes are nobody’s favorite part, except for the tax man. In the same vein, in DeFi, taxes have a high complexity factor. Find out about the following tax situations you may find yourself in as a yield farmer.
- Capital gains — With active farming, you move funds around a lot. This may lead to plenty of short-term profits. Various countries have different laws on capital gains. Familiarize yourself with the laws of your country of residence.
- Is there tax on interest from lending — Same as above, find out how or if this taxed in your country of residence.
- Can you use your retirement account and shield your gains from prying tax eyes?
- Due to tax legislation, do you need to adjust your farming strategy?
You must account for all your transactions. Koinly might give you a helping hand with this. Your best way forward is to discuss your situation with a crypto savvy accountant. As a result, you may have to adjust your strategies.
14. Keep Everything Safe
Crypto safety is a serious topic. You can protect yourself and your assets with a few easy steps.
- Use 2FA
- Make sure to use hardware wallets
- When dealing with a new protocol, use a brand-new wallet
There are also a few common mistakes you can make:
- Go all-in on just one protocol or coin
- Invest in too many low-cap coins
- Chase APRs
- Join a Ponzi or fall for a crypto scam
Before you lose your phone, back up your Google Authenticator codes.
A critical step to protect yourself in crypto is to make sure you have a backup of your Google Authenticator codes!
It is INCREDIBLY difficult to access your exchange accounts if you lose your phone and don't have a backup of your G-Auth codes.
Here's how you can back it up 👇 pic.twitter.com/ln6tDcJGTd
— shivsak (@shivsakhuja) December 29, 2021
15. Research Is Everything
This goes beyond your average DYOR advice. Ultimately, you need to be able to hear or see a signal in all the noise.
- Twitter, Discord, and Telegram become your new or second home.
- Find groups with like-minded people that are straight shooters.
- Be on high alert for scammers and the like.
- Understand everyone’s role and what they are aiming for. Shillers, teams, influencers (don’t trust them!), Twitter, etc.
Here we are, at the end of two articles that covered how you can be a successful yield farmer. Lots of information that can help you and steer you in the right direction. Just keep in mind that only the sun rises each day for free. You will have to put in the hard work before you can reap any rewards.
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