How to Optimize Yield Farming on Polkadot
Understanding the different yield farming opportunities on Polkadot parachains
Introduction
There are many opportunities (and risks) that DeFi yield farming presents. With the recent UST saga being a good reminder of how important research is before jumping into any liquidity pools. So how is Polkadot different from the rest when it comes to yield farming? Since the launch of the primary ‘relay chain’ for Polkadot in early 2020 and the subsequent launch of individual ‘parachains’, the Polkadot ecosystem has continued to grow and achieve broader adoption and at present Polkadot boasts over $1.3 billion total value locked.
Throughout this article, we will explain what Polkadot is, how parachains work, and which parachains present the most interesting DeFi yield opportunities at the moment.
What is Polkadot?
Polkadot tries to solve many of the problems present in other blockchains through its self-updating blockchain policy, Proof of Stake consensus, as well as through its relay chain that enables parachain compatibility.
Yield Farming Optimization
Keeping up with the fluctuating rates and ever-changing market conditions takes substantial time and energy. Making errors or missing optimal compounding times will result in APY dropping significantly. Furthermore, steep gas fees mean Ethereum yield farming has now become a space where you need high amounts of capital to make profit. So let’s take a look at some of the best parachains for yield farming.
The Best Parachains for DeFi Yield Farming
Of course, not every parachain slot has been taken yet, therefore new parachains could offer even better DeFi yield farming opportunities in the future (like Pendulum!). However, here are four parachains with interesting DeFi yield farming options: Astar, Acala, Moonbeam and Dot Finance.
Astar Network — dApp Staking
Astar is one of the top parachains in the Polkadot ecosystem in terms of TVL at almost $600 million. Astar is a multi-chain smart contract platform that supports all major layer 1s and virtual machines.
dApp staking is offered (similar to staking on validators), but in this new model, dApp stakers — aka nominators — can nominate their Astar/Shiden tokens on dApps they want to support.
Benefits of dApp staking
· A way for Web3 developers to earn income.
· Nominators can earn staking rewards and earn high APYs for their staked tokens while supporting Astar dApps.
· Less tokens circulating due to staking equates to higher price.
Check out the Defi yield opportunities it has here, they are bound to grow as Astar attracts more and more liquidity.
Acala — Polkadot Defi Hub
Acala is described as an all-in-one decentralized finance network. If offers a set of cross-chain financial applications that let users trade on Acala Swap, issue self-serviced loans with the Acala Dollar stablecoin (aUSD), become liquidity providers, access staking derivatives with Liquid DOT staking (LDOT), and earn high-interest APY on their digital assets. L-DOTs have a derivative value and multiple potential use cases. Just like SushiSwap, you can stake your LP tokens and earn APY on certain assets. To get started, connect your Polkadot DeFi wallet (we recommend Polkadot.js wallet and Talisman wallet) , load up some DOT and enjoy what Acala has to offer!
Moonbeam — Smart Contract Platform
An Ethereum-compatible environment on Polkadot, that comprises scalability, cross-chain integrations, and on-chain governance. Moonbeam is more than just EVM integration: its specialized Layer 1 chain mirrors Ethereum’s Web3 RPC, accounts, keys, subscriptions and logs. One Dapp built on Moonbeam is Beamswap — check out their yield farming opportunities here. The Moonbeam platform extends the base Ethereum feature set with additional features such as on-chain governance, staking, and cross-chain integrations. The primary deployment of Moonbeam is on the Polkadot network, with an associated token called Glimmer (GLMR). Moonbeam’s TVL currently stands at $180 million.
Dot Finance — Polkadot DeFi Aggregator
Typically, after providing liquidity to a pool and receiving LP tokens, they can be staked to earn further tokens. Rewards incentivize users to add liquidity to the pools. However, it takes additional time and effort from the farmers because the funds have to be manually swapped and staked again.
Optimal compounding can have a substantial effect on returns e.g., if you were to auto-compound once a day for a year, a 40% APR could become 50%, equating to a 25% increase in returns.
Dot Finance’s yield aggregator auto-compounds farming yields by converting them to LP tokens then staking them. Using the platform means smart contracts will compound yields at the most efficient rate and entitle the farmer to a share of the performance fee.
When harvesting rewards, Dot Finance pays 70% of earnings in LP tokens, and the other 30% is issued in their native $PINK token.
Conclusion
The DeFi yield opportunities are growing on Polkadot and sometimes the best opportunities come for the early adopters. As Polkadot develops its parachains (and the parachains start hosting more and more dApps) the DeFi yield farming opportunities on Polkadot will likely continue to proliferate. Pending successful Kusama and Polkadot parachain crowdloans, Pendulum will be one parachain offering secure yield returns from stablecoin farming (using collateralized stablecoins not algorithmic stablecoins!). The DotSama space has many more exciting opportunities for early pioneers of the Polkadot DeFi yield farming ecosystem.
About Pendulum
Building the missing link between fiat and DeFi through a fiat-optimized smart contract blockchain based on Polkadot’s Substrate. Allowing traditional finance fiat services to integrate with DeFi applications such as specialized forex AMMs, lending protocols, or yield farming opportunities. Developed by SatoshiPay.
Keep your eyes on the Pendulum!
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