Weekly Analyst Thoughts

Yield Farming with Compound

“Yield farming” is a new iteration of cryptocurrency mining and staking that allows entities to earn an interest rate well above that of a typical US bank account. Below is a scenario detailing how an investor can use yield farming with Compound, a decentralized finance (DeFi) platform that allows users to exchange stablecoins and Ethereum tokens amongst each other.

Step 1: Start with $10,000 DAI and deposit it into Compound. One will start earning the 2.21% supply APY (annual percentage yield) for DAI and the supply APY 9.72% from Compound, returning $1,183 per year.

Step 2: Borrow 50% USDC with the DAI supply, pay a borrow APY of 5.69%, and earn a Borrow APY of 10.69%, which creates a net of $250 a year. With this, take that $5,000 of USDC and convert it to DAI and repeat the process again.

*** Repeat Steps 1 & 2 with a lower starting value

Step 3:  Start with $5,000 DAI and deposit it into Compound. One will start earning the 2.21% supply APY for DAI and the supply APY 9.72% for Comp token, totaling $591 a year.

Step 4: Borrow 50% USDC with the DAI supply, pay a Borrow APY of 5.69%, and earn a Borrow APY of 10.69%, generating a net of $125 a year. Take that $2,500 of USDC and convert it to DAI and repeat the process again.

The yield farming interest rate one would see in this scenario would be 21.49% rate, returning $2,149 a year with this simple trick.

By Jacob Stelter