Types of DeFi Strategies
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Decentralized Finance (DeFi) offers a variety of ways to put your crypto to work. These strategies leverage blockchain technology to generate returns, often outpacing traditional financial options. Hereâs a breakdown of the main types.
How it works: In DeFi lending, you supply your crypto (like ETH, USDC, or BTC) to a protocol such as Aave, Compound, or Maker, which then lends it out to borrowers. Smart contracts handle everythingâno bank required. Borrowers pay interest, and you, as the lender, earn a portion of it.
What users earn: You get interest rates that can range from 1-20% APY, depending on the asset and demand. Stablecoins often offer steady returns, while volatile assets like ETH might pay more during high borrowing periods. Some platforms also reward you with governance tokens (e.g., COMP from Compound) as a bonus, which can boost your yield if their value rises.
How it works: Staking involves locking up your crypto to support a blockchainâs operations, usually on Proof-of-Stake (PoS) networks like Ethereum. You delegate your tokens (e.g., ETH) to a validator node, which secures the network and processes transactions. Options include direct Ethereum staking, Liquid Staking Tokens (LSTs) like stETH from Lido (which let you stake while keeping your assets tradable), or Restaking (RST) strategies that amplify rewards by reusing staked assets elsewhere.
What users earn: Staking rewards typically range from 3-5% APY on Ethereum, with LSTs and RST adding flexibility or higher yields (sometimes 10%+), though with added risk from smart contract dependencies.
How it works: Liquid staking enables users to stake assets (e.g., ETH) in a protocol like Lido or Origin and receive a liquid derivative token (stETH, wstETH, wOS) in return. That token continuously accrues staking rewards and remains tradable or deployable in DeFi. What users earn: You capture base staking yields (typically 3â5% APY on Ethereum) while retaining full liquidity of your position. You can also layer extra yield by using the liquid token in LPs or vaults.
How it works: Liquidity pools power decentralized exchanges (DEXs) like Uniswap or PancakesSwap. You provide a pair of tokens (e.g., ETH and USDC) to a pool, enabling others to swap between them. In return, you earn a cut of the trading fees.
What users earn: Fees usually range from 0.05% to 1% per trade, depending on the pool (e.g., 0.3% is common on Uniswap). Annualized returns can hit 5-50% or more. High-volume pools (like stablecoin pairs) offer lower but steadier gains.
How it works: Restaking involves using already staked assets, such as liquid staking tokens (e.g., stETH), and restaking them on other protocols like Ether.fi to earn additional rewards. This multiplies yields through layered asset use but increases complexity and risk. Rivo supports such strategies via partnerships with Ether.fi.
What users earn: Base staking rewards (3â5% APY for ETH) plus extra rewards from restaking, potentially pushing total APY to 10% or more. For example, restaking via Ether.fi may include EigenLayer points, as mentioned in Origin Protocol.
How it works: Fixed yield strategies use Principal Tokens (PT) from platforms like Pendle. These are purchased at a discount and redeemable for a fixed value at maturity. Youâre essentially locking in a guaranteed return over time, independent of market volatility. What users earn: A fixed APY set at the time of PT token purchase, ideal for those seeking predictability. Yields vary by market conditions and asset (e.g., 8â38% APY for stablecoins). Additional PENDLE tokens may be earned, enhancing returns.
How it works: Vaults are automated investment tools, often called âyield optimizers,â offered by platforms like Yearn Finance or Beefy. You deposit crypto, and the vaultâs smart contracts dynamically shift your funds across DeFi protocols (lending, staking, etc.) to chase the best returns. Itâs hands-offâthink of it as a robo-advisor for crypto.
What users earn: Returns vary widely (5-30% APY or higher) based on market conditions and the vaultâs strategy. Vaults often compound profits automatically and charge a small fee, but they save you the hassle of manually managing complex DeFi plays.
How it works: DeFi indexes, like those from Reserve Protocol, bundle multiple cryptocurrencies into a single token. You invest in the index for diversified exposure, avoiding the need to pick individual winners. Itâs similar to a stock market ETF but for crypto.
What users earn: Returns depend on the performance of the underlying assetsâless about active yield and more about long-term growth. You might see 10-100%+ in a bull market, though losses are just as possible in a downturn. Some indexes also incorporate staking or farming to juice up returns.
Each strategy has its trade-offs: lending and staking are simpler but lower-yield; pools and vaults offer higher rewards with more risk; indexes balance it out with diversification. Pick based on your goalsâsteady income or aggressive growthâand always factor in gas fees, smart contract risks, and market swings. DeFi is a toolbox; how you use it is up to you.
For example, CVX-ETH liquidity pool on Convex: CVX-ETH Liquidity Pool:
For example, ETH Restaking strategy by Ether.fi:
For example, SuperUSDC Fixed Yield by Pendle:
For example, LBTC DeFi vault by Lombard:
For example, Base Yield Index by Reserve: