Undoubtedly, Bitcoin and Ethereum are the safest bet in the crypto market, and if your portfolio📉 doesn’t have some of these, you are not doing it right😎.
Now imagine, if you can find the best yield opportunities on these🔵blue chip coins. That would be the icing on the cake🍰, right?
So, let's jump in and discuss the best yield opportunities available for the ETH you are hodling 😄.
We’re going to talk about 📢:
1 .Staking
2. Lending
3. Yield Aggregators
4. Liquidity pools
5. Leveraged Strategies
Let's get started⚡.
1. Ethereum Staking
You can get a base rate yield by staking your Ethereum. And yes, this is one of the safest & simplest ways to earn yield.
Now, when we say "staking ETH", where is the yield coming from🤷♂️?
When you stake your ETH, you are trying to contribute towards securing the Proof of Stake (PoS) network, which Ethereum will soon upgrade to (soon😬).
PoS is a consensus🤝mechanism which is used to verify the transaction.
Here, the security of the network is maintained by the participants of the network who lock up their ETH to be a validator to verify the transactions.
And also, the more the validators, the stronger💪 and safer the network becomes.
When you become a validator, i.e, when you stake your ETH, you're just putting your own money at risk as proof that you'll be an honest 🐶and trustworthy validator for the network.
So, if you are honest and try to validate the truthful transactions then it’s a win-win for you and you will be getting ETH as a reward. Dank right? But, hold on, if you try to fake around by validating a false transaction then you are going to lose your staked ETH, (Slaps) 📈.
Now let's break it down to how you👊can stake ETH and earn interest. Lessgo🚀
There are 2 ways:
a) Using the service of any Ethereum staking service
Two of the most prominent service providers are Rocketpool and Lido.
-Rocket Pool
Rather than setting up a validator on your own, its more practical for a retail investor to take this service and deposit the ETH to these staking network and still earn 90% of the yield.
When you deposit ETH here, you will receive rETH in exchange, and Rocket Pool will stake your ETH on their end. Your wallet reflects your rETH balance when your ETH is staked. And the value of your rETH that you hold increases with time, which means quantity of ETH you can exchange your rETH increases, and that is the yield that you’ve earned over time.
The average rate of return here is around 4.03% APR right now.
-Lido
Lido is one of the most popular ETH staking services. While they also provide options to stake Solona, Kusama, and Polygon, let's stick to Ethereum for now.
When you stake your ETH here, Lido gives you a "Liquid Staking Token" stETH. You get 1 stETH in return for every ETH you deposit, and unlike the rETH of rocketpool, here the balance of stETH goes up regularly to reflect the yield you’ve earned through staking.
Moreover, you can even use this stETH token in other DeFi protocols, like staking it as collateral in AAVE.
The average rate of return here is around 3.8% APR right now.
Comparison: The two major distinctions between Lido and Rocket Pool are the degree of decentralisation. Lido is more centralised as it handles all of the stakes on its own. This means their $8.2 billion in ETH is centrally held in all validators under their control. Although they have their own governance token named LDO, which gives you authority to vote on decisions, it is still a somewhat centralised service.
On the other hand, Rocket Pool allows anybody to start a validating node on the Rocket network for only 16 ETH instead of the usual 32. This makes the rocket pool more decentralised. Moreover, creating your own node allows you to earn a higher yield than you would with Lido.
b) Staking on your Own
For a new investor, the previous option is way more practical because when it comes to setting up a staking node on your own
i) You will have the complete authority to do whatever you want.
ii) You will not have to worry about the staking service collapse.
iii) You can make some dank profits 🚀.
Also, Staking should be the starting point because it has the lowest risk and a decent ROI too.
2. Lending ETH
Lending ETH is similar to lending your money to someone in the Web 0-2 space😄.
But again, it is less preferred as many protocols don’t pay more than 1-2% APR 📈. So, why would anyone use this method in the first place 🤷♂️?
It’s mostly to borrow against it, at least that’s what we do.
A few of the renowned protocols for lending are AAVE and Compound.
3. Single asset Yield aggregators
These are the services that take your money and put it to work👷♂️ (GRIND) around various strategies to earn the best yield for you🤝. They usually automate the process of staking and collecting the generated rewards on behalf of the users.
The following are the most known ones:
Unfortunately, the yield is often equivalent to lending or staking.
Yearn has an APY of 1-2%, although Tokemak has a higher return of roughly 4%, it's essentially the same as Lido or Rocketpool, and to add to that, you gotta pay the gas fees for the network (L.).
So, let’s move on alright? ⚡
4. Liquidity Pool farming
Liquidity pool farming involves providing liquidity in a particular pair and then farming with those LP tokens.
This category has 2 types of Liquidity pools: Stable & Risky.
Stable Liquidity Pools:
In this category, you have no risk of impermanent loss 🎯.
Just like your stable coins pegged to fiat currency 💰, there are ETH-pegged assets.
These ETH-pegged assets are known as artificial or synthetic ETH.
For example Alchemix’s alETH & Celsius’s cxETH
These synthetic ETH are minted for ETH depositors who want to borrow against their future yield.
It's not the same as your regular ETH, but you can always redeem it 1:1 for ETH, so the pricing is always the same unless there's a major peg-break incident.
There’s an ETH:alETH Curve pool which you can farm on convex to earn around 4.23% on top of earning from the liquidity pool on curve-fi.
Moving on to Celsius cxETH, after providing liquidity in ETH:cxETH pair on quickswap, you can farm it on Beefy finance and can earn interest around 6.51%.
The merits of these pools are that you will never suffer an impermanent loss because the assets are designed to be 1:1. If you put in 10 ETH, you will get 10 ETH back. However, you always have the risk of these synthetic assets breaking their peg (heard of LUNA-UST fall? 😬), so that's an extra risk that you are taking.
Where do we find such deals, you ask?
Simple, DYOR🚀 on yield aggregators and autocompounders like Convex, Beefy, and Yield Yak.
Risky Liquidity Pools:
These pools are the ones that may have a high chance of Impermanent loss🔴.
These pools pay you some dank returns ( 20-30%) but, in the end, that might be a loss(L.) for you because they eventually make yield out of you. So, you gotta watch out 👀.
Also, DYOR 🚀.
5. Leveraged Strategies
Leveraged strategies are the ones wherein you take leverage and go to the moon 🚀(might be mars🔴 too😬), depending upon your risk tolerance. Simply put, these are just the mix and match of the above-mentioned strategies to get the most yield, but yes, you gotta watch out for your risk tolerance 🥵.
For example: you can use your Lido stETH as collateral in AAVE and you can borrow any stable coin against it and then again put that stable coin to earn yield.
In this way, you can make various combinations as per your risk appetite, and you can earn a yield on top of yield.
Remember that the more protocols you add to the layer, the greater your risk; if any of your many protocols fails, everything is lost.
We will be bringing in more such crypto and DeFi in the next newsletters, so don’t forget to hit that subscribe button.
Namaste 🙏.
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