Blockchain and digital assets are attracting the best minds in the tech space. And nowhere is that more evident than in the Defi Space. Aaron and Ted first connected at the University of North Dakota where both finished their undergraduate engineering degrees, and incubated innovation and entrepreneurship programs together. Aaron is a Crypto Sherpa and developer with multiple successful projects in his development portfolio. Aaron's background is in the Aerospace industry but has since turned to blockchain. Ted has diverse experience in corporate innovation in the Med Tech industry and is an avid Crypto investor and blockchain innovation expert. Q: Give us some insight into the typical Yields APY farmers can earn, and the atypical yields you have earned. It really depends on the asset, as stable coin yield is almost always >10% and can be upwards of >30% on some pairings. On Ethereum, if you can find anything over 6% it’s really good, but then other LP positions or locked assets can earn 60+% (cvxCRV). There was about a month period where I was in stable coin LP with a coin called IRON. When I jumped in it started at around 500% APY, and eventually ballooned to the point where I was earning 2%/day. That lasted for around a week until the coin that provided a lot of the backing, TITAN, lost a lot of value and there was a bank run and crashed IRON down to $0.74, luckily, I recognized what was happening and got out at $0.96. AK: The yield associated with APY farming is usually closely tied to the volatility of the underlying asset. For example, stablecoin farms can offer anywhere from 20-40% depending on the stablecoin and yield mechanism (auto-compounding, etc), while more volatile assets can offer 80,000%+ APY. My returns hover in the 40-60% range across my portfolio, although I have experimented with the ultra-high APY pools and farms with varied success. TZ: Q: What's your due diligence process like in researching potential liquidity pools? The first thing I do is try to learn where the yield is coming from and what asset exposure is required. Often you are providing liquidity for tokens on an exchange and are rewarded with one of the tokens, so if I am bullish on both tokens (say TOKE/ETH pairing) and the liquidity incentives look like they’ll outpace any impermanent loss, I’ll allocate value. Things move so fast that I often buy in first with a small % of my portfolio, then do a self-audit of some of the smart contracts to get an understanding of the exact process. If I like what I see, then I’ll allocate more to that position. AK: The most important things to consider when choosing yield opportunities are the assets involved, the solvency of the pool and platform, yield mechanics, and the longevity of your stake. First, we must understand the volatility, trajectory, security, and validity of the underlying assets we are using. Traditionally, more volatile and low-volume coins will offer exorbitant yield, but that yield may be returned to you in a volatile/low-value asset. What we fear in this situation is called impermanent loss. Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. A 1000% APY doesn't mean much if you're earning that on a crypto that suffers a 90% price drop. Some pools leverage the redistribution of trading fees to offset this loss, but this is not ubiquitous across all pools. TZ: Another good sign of health for yield pools is the TVL, or total value locked. Higher TVL typically means more stability and consistency in the yield. This also points to health in the yield platform. On the platform side, pay attention to the yield mechanics, on-ramps, and off-ramps. The closer to liquid you can be, the better. Some platforms offer auto-compounding and leverage features that simplify the process and save on gas, so keep an eye out for that. Q: Favorite platforms for yield farming? The Blue Chips for sure include Curve and Convex. However, I am very interested in the concentrated liquidity approach of Uniswap v3 and pool optimizers like Popsicle Finance. If I am in a more degen position I likely will stake assets in an automatic yield aggregator vault, like Yearn or Beefy Finance. This is a tax friendly approach as well, if I wait for a year to withdraw, I can take long term capital gains tax instead of short term. AK: For stablecoin yield I prefer to use Curve, Anchor Protocol, and Yearn. There are many more out there that are worth investigating, though. For yield on “blue-chip” assets, I prefer SushiSwap, TraderJoeXYZ, and UniSwap. In the higher-risk category, I have been using Wonderland, AutoFarm, and Beefy Finance with good success. TZ: Q: For someone who wants to start earning yield do you guys have some tips? APY that is being paid out in a like asset (asset you stake is the same as the asset you earn) is a mirage. 1000% on POOP coin is always 1000%, whether POOP coin is trading at $500 or $0.50. There is often a lot of ponzinomics that emerges with some farms. Find assets that you like and find ways to earn yield on them. Sometimes that means taking a 30% LTV loan on your Ethereum on AAVE, and then using those stable coins to earn 30% yield on Curve or some other yield producing platform. Start treating your portfolio like a balance sheet. You own assets that can earn a salary for yourself, so be smart and respect your positions. Think about the implications to your tax obligations and how you can optimize. Use leverage only when it makes sense, liquidation is not fun. Start slow and safe(r) with stablecoins or blue chips you have strong faith in. Start with pools that have a track record of security, performance, and solid mechanics and contracts. Yield farming can be a playground for scams, be diligent. Understand your risk tolerance and apply that to your portfolio. While crypto routinely challenges the statement of “if something is too good to be true, it likely is” this still rings true in the yield and liquidity world. Q: Where do you see the Defi and yield space heading in the next few years? A lot of the growth that we will see will be from traditional finance continuing to come online to different blockchain protocols, but there will be a lot of innovation as it is easier than ever to stack these new money Legos together and make some great things. Soon mortgages will be on blockchain, and new payment systems will emerge. I think we will see the fees for doing business will continue to sink, Uniswap already has some pools that only take 0.01% per swap. That will continue to evolve. Yields will dilute for the largest protocols, but there will always be somewhere you can earn +50% on some assets. There will continue to also be new exploratory monetary policies that emerge, like $OHM and $TIME. I’m also interested in the long-term impact that bribes on governance voting will emerge, as it is already providing great benefits for CRV and CVX stakers, and is starting for $TOKE as well. AK: In general, the entire DeFi space is in its infancy. DeFi is vastly superior to traditional finance and for that reason, I expect it to continue to grow as we shift toward mainstream adoption. Liquidity is the backbone and fuel for DeFi. It helps small projects get off the ground, enables decentralized exchanges and rewards the community. I foresee yields dropping over time, but the opportunities will always be there and be vastly superior to the abysmal rates of traditional finance. TZ: The world of Crypto is evolving, and with it bringing in innovative minds focused on making defi the apparent platform of the future, slowly eating away at exorbitant centralized and legacy financial institutions.
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