With so much macro uncertainty surrounding global markets, crypto has seen a steep selloff over the last few weeks. During extreme times of volatility, we need to find ways to profit, regardless of market sentiment.
Yield farming offers us exactly that, because you can earn passive income on your tokens and stables. In this article, I’ll be discussing two farming strategies to help you earn yield whilst we wait for a clearer market direction.
- How to earn 200% APY on UST/AVAX
- How to earn 82% APY on UST/LUNA
- Why yield farming is so valuable
Strategy 1: UST/AVAX
Today (27 January), LUNA and Trader Joe (JOE) announced a partnership to deploy UST on Avalanche (AVAX).
You can now pair UST with AVAX in order to earn rewards paid out in LUNA and JOE. The benefit to such a pair is that you’re retaining 50% of the liquidity provider (LP) in stables, which can help mitigate downside risk. This strategy is perfect if you are bullish on AVAX, but would like to maintain stable coin exposure (UST).
Based on the 111% farm annual percentage rate (APR), if you compound rewards back into the LP, that equates to a 202.93% annual percentage yield (APY) compounding daily. (Your compounding frequency depends on your position size. Once a week is usually fine).
If you already hold LUNA, you can take this a step further by collateralizing LUNA to borrow UST on Anchor Protocol. You can then take your UST and sell half for AVAX to form an LP. Keep in mind, as more people enter the pool the rates will decrease (APR is currently 111%, which differs from the rates when I tweeted this):
Be wary of impermanent loss when creating LP tokens. Impermanent loss is the difference in holding UST and AVAX in LP form vs holding them separately in your wallet and not staking. You can calculate the different scenarios of impermanent loss using this calculator.
The best part about all this? The more demand for UST, the more LUNA is burnt – thus increasing the LUNA token price via creating supply-side pressure. UST deployment on chains like AVAX is super bullish for the LUNA ecosystem, as it continues to accelerate demand for UST. Maybe you do want to keep those rewards in LUNA after all…
Strategy 2: Osmosis
This next strategy is perfect for doing exactly that, as you can take rewards received in LUNA and funnel them into Osmosis (OSMO). Osmosis is an automated market maker (AMM) built with the Cosmos SDK, and is one of the most powerful protocols for yield farming in crypto right now.
The UST/LUNA pool is offering a 60% APR paid out in OSMO, which you can then sell to compound back into the pool. LUNA is one of the most fundamentally sound projects in crypto, so maintaining exposure while farming offers you both the upside from the LUNA token, and enhanced security via the passive income generated from farming. Unlike other DeFi protocols, the yields on Osmosis have been very stable too.
Again, be wary of impermanent loss when farming LP tokens. However, if we’re in a sideways market for the foreseeable future, impermanent loss becomes less of an issue because major upwards swings in price are less likely. In the case of a LUNA downside, the LP will automatically rebalance to “sell” UST for LUNA, which is essentially executing an automated dip buying strategy on your behalf.
Despite volatile market conditions, yield farming strategies give us an opportunity to earn profit in the face of adversity. Having a sound yield farming system is key, as it enables you to mitigate downside risk, and accumulate tokens at lower levels. When prices finally do appreciate, you have the double benefit of exposure to the token price appreciation, and the profit from the additional tokens you were able to accumulate at lower levels.
Miles Deutscher is a degen with immense experience in finding altcoin gems, and navigating the world of DeFi for the best strategies – and biggest returns – in the crypto space. He writes for Crypto Banter in his personal capacity and his views are his own. Want more from Miles? Check out his Twitter feed here and his YouTube channel here.