Intro

Yield aggregation is an integral part of the DeFi investment sector and the yield economy as a whole. This investment strategy allows to combine various smart contracts and strategies so that the users can get the maximum profit from their investments.

As crypto investment strategies continue to gain attention and popularity in 2023, more people are looking to invest in DeFi crypto yields to maximize potential profits.

In today’s article from Notum, we will answer questions about how yield aggregators function, what the distinctive features of this strategy are, and why it is worth investing in it, as well as pay attention to 2 popular protocols for yield aggregation investments.

How to Invest in DeFi Yields on Notum

Yield aggregators can be described as a set of smart contracts (or DeFi protocols) that combine the user's provided crypto assets and invest them in profitable projects. This process is carried out using programmed, automatically executed strategies.

Now, there are a large number of different yield aggregators that are quite similar to each other. The main differences typically include the smart contracts they use and the blockchains they support. However, before moving on to yield aggregation investments, it’s worth knowing that they all have different rewards and commissions.

Yield aggregation is an investment strategy that combines various strategies and DeFi protocols to bring maximum profit to the user.

The operating principle of this investment strategy does not require active user participation and is therefore attractive to investors around the world. Simply put, the user deposits crypto assets into DeFi vaults to make a profit. The vault’s smart contract, in turn, automatically allocates these assets to various yield farming strategies to maximize returns. In return for providing their assets, users receive a share of the profits generated by the vault.

The vault takes care of all the difficulties associated with yield farming, such as managing gas fees, adjusting strategies, etc.

• Risk Level: Medium

• User Involvement: Low Medium

• Potential Returns: Moderate

• Automated or not: Automated

• Potential Risks: Smart-Contract Risks, Protocol Changes, Market Volatility

• Key Features: Earning passive income generated by vaults

• Common Platforms: Yearn, Harvest, Idle, Beefy

How Do You Earn From Yield Aggregation/Vaults?

As already mentioned, to obtain a yield, users deposit (stake or block) their crypto coins. However, how exactly do they make a profit? This is the main task of profitability aggregators - they automate the farming process so that users can get maximum yields from their investments.

The principle of making money from vaults is that yield aggregators combine the deposited funds of various investors, which helps to get rewards using different strategies. With these strategies, investors’ tokens can be moved across different projects to optimize profit as much as possible. In this case, interest is calculated automatically.

The advantage of yield aggregation is receiving passive income through yield aggregators. In this way, users receive profits without having to actively participate in the process.

Thus, after a user deposits their funds into the vault, an automated yield aggregation process gives users a share of the profits generated by the vault.

Yield aggregation rewards depend on many factors, including the asset, the chosen platform, investment strategy, and more.

Why Invest in Yield Aggregation?

Yield aggregation is undoubtedly one of the most important parts of the DeFi sector, as it automates the process of generating passive income and thereby attracts more people to crypto investments. This is why investing in return aggregation is a suitable strategy for those who want to earn income without actively participating in the process and make the most of their funds in the DeFi space.

As these platforms use smart contracts to automatically distribute funds across different protocols, they optimize rewards by finding the best available yield in the market. Yield aggregation has a fairly large number of strategies, which also guarantees that you receive maximum profit from your investments.

Thus, by investing in yield aggregation, users receive income without the need to constantly adjust their strategy, since the process is automated.

Pros:

• High returns. The operating principle of yield aggregation platforms is to obtain maximum profit, which is achieved due to DeFi protocols, which allow to actively search for the best options for generating income.

• Automated passive income. Since many investors are looking to make a profit effortlessly, yield aggregation offers an excellent passive income opportunity. The user does not need to be actively involved, since yield aggregation platforms have automated searches and invest money in the most promising projects.

• Liquidity provision. Since some yield aggregators require liquidity to be provided to DEXs, users can receive additional rewards or tokens that can also be used to generate additional profits.

Cons:

• Impermanent loss. If a user provides liquidity in DEXs, they may experience impermanent loss due to token price fluctuations.

• Smart contract risk. Since yield aggregation platforms use smart contracts to operate, vulnerabilities in these contracts can lead to asset losses.

• Market volatility. The DeFi market is quite unstable, so the income from DeFi platforms may depend on market sentiment, its conditions, fluctuations, and other things that can affect the effectiveness of the chosen strategy.

The most popular yield protocols for aggregation in 2023 are Yearn, Harvest, Sommelier, Idle, and Beefy. In today's article from Notum, we'll take a closer look at the Yearn and Beefy protocols, focusing on their distinctive features, revenue strategies, advantages, disadvantages, and profit potential.

Yield Aggregation With Yearn

Yearn.finance is a decentralized group of products on the Ethereum blockchain that helps users, decentralized autonomous organizations and other protocols earn and optimize profits on their crypto assets.

• TVL: $333,450,000

• Risk Level: Low-Medium

• Blockchains: Ethereum, OP Mainnet, Fantom, Arbitrum One, Base

• Foundation Date: 2020

The platform eliminates the need for middlemen and offers users access to various services directly. Vaults on Yearn.finance allows users to use the platform's self-executing code to obtain the most active investment strategies.

“Users benefit from the lower gas costs and low transaction fees levied by Yearn.finance on each vault-related transaction.” - Cointelegraph

Investment Strategies on Yearn Finance

Today we will observe two investment strategies you can use to make profits on Yearn:

• DAI on Optimism Total APY - 9.27%, TVL - $1,25m

Since DAI is a stablecoin, this investment strategy is less risky than others. By depositing DAI to yvDAI vault on Yearn.finance, users on average receive between 9 and 10% APY. The monthly DAI APR is currently 5.55%.

• YCRV on Ethereum Total APY - 27.12%, TVL - $22,65m

yCRV on the Ethereum blockchain offers users a fairly high yield compared to other strategies on Yearn. While the average APY ranges from 26 to 28%, the weekly APR of yCRV brings users around 21.78%.

yCRV is Yearn Finance's new and improved veCRV wrapper system designed to tokenize Yearn's veCRV position which passes all revenue and benefits along to users. - Yearn.fi

Yearn.fi’s Strategies: Pros & Cons

Pros:

• Automated yields. Since Yearn Finance runs on smart contracts, it automates the yield farming process and also frees the user from having to manage their investments through various DeFi protocols.

• Variety of vaults. Currently, Yearn.fi has 226 different vaults and supports 5 blockchains, which gives almost any user the opportunity to invest and make a profit.

• Decentralized governance. The protocol allows token holders to participate in decision-making processes and influence the future of Yearn Finance, which increases the level of community involvement and indicates the transparency of the project.

• High rewards. Yearn Finance pays fairly high returns on providing assets and offers weekly and monthly APRs. Also, the protocol does not charge a deposit or withdrawal fee.

Cons:

• Market changes. Since cryptocurrency has a fairly high level of volatility, the profitability of Yearn Finance strategies also depends on market conditions, which means market downturns can lead to losses.

• Smart contract vulnerabilities. With the increasing number of protocols and strategies, the risk of smart contracts also gets bigger. Besides, security risks associated with smart contracts can lead to partial or complete loss of funds.

• Governance risks. Even though Yearn.fi has a fairly good and solid reputation in the DeFi market, there is still a risk of multi-sig approving a strategy that can potentially lead to losses.

Why Invest?

Yearn Finance is a low-medium-risk DeFi service that offers various vaults on five different blockchains, bringing high rewards to the user without active participation in strategy management.

During its relatively short existence, the platform already has a TVL of over $333 million, offers a variety of investment opportunities, and has a strong reputation in the DeFi space.

Yield Aggregation With Beefy

Beefy describes itself as a decentralized, multichain yield optimizer whose main goal is to allow users to earn compound interest on their crypto assets. The platform is famous for the fact that it allows you to earn fairly high APYs across 18 chains.

• TVL: $161,370,000

• Risk Level: Low-Medium

• Blockchains: Arbitrum, Avalanche, Base, BNB Chain, Canto, Cronos, Ethereum, Fantom, Fuse, Gnosis, Cava, Metis, Moonbeam, Moonriver, Optimism, Polygon PoS, Polygon zkEVM, zkSync

• Foundation Date: 2020

The platform's core investment product is vaults, which allow users to stake their crypto assets to receive rewards. Each vault on Beefy has its own investment strategy, which automatically increases the amount of deposited tokens.

This happens “by compounding arbitrary yield farm reward tokens back into your initially deposited asset.” – Coinmarketcap.

The advantage of Beefy Finance is that assets deposited in vaults are never locked, which means the user can withdraw crypto at any time.

Investment Strategies on Beefy

Let’s have a look at investment options you can consider with Beefy:

• wstETH / ETH on Optimism Total APY - 6.98%, TVL - $2,17m

This vault on the Optimism network has a 24-hour compounding cycle. The transaction cost required to generate rewards is distributed evenly among the vault’s users, and the average APY varies from 6 to 8%.

• WETH / WBTC / LINK / UNI / ARBUSDCE / USDT / DAI / FRAX on Arbitrum Total APY - 12.86%, TVL - $2,1m

This low-complexity strategy offers fairly high APYs in comparison with wstETH / ETH on Optimism which can vary from 12 to 14%. This vault is aimed at optimally increasing APR.

Beefy’s Strategies: Pros & Cons

Pros:

• Multiple blockchains’ support. Since Beefy operates across 18 chains, it allows it to attract a wider network of users and investors.

• Potentially high yields. Beefy effectively optimizes deposited funds, which allows to find the most profitable opportunities for users.

• Diversification. Since Beefy distributes deposited crypto assets into different protocols and pools, it reduces the risk of losing funds due to market fluctuations or protocol failure.

• Variety of vaults. At the moment, Beefy Optimizer has 552 vaults of different types and even shows the degree of a particular vault’s safety.

Cons:

• Smart contract risk. The main risk of Beefy, as well as other projects working on smart contracts, is that user funds can be stolen due to bugs and vulnerabilities.

• Complexity. Since Beefy works with compound interest and offers a huge number of vaults and chains, it can be quite difficult for a beginner to understand investment strategies and assess the risks.

• Decrease in asset value. As Beefy itself states, although the assets placed in vaults will not decrease in quantity, they can still lose value.

Why Invest?

Beefy is a convenient, efficient, and secure multichain yield optimizer with a medium risk level that allows users to receive passive crypto rewards and offers fairly high APY.

Investing in Beefy Vaults is an opportunity to earn passive income, while the platform automatically searches for the best possible yields, reinvests profits, and maintains a balance of collateral-to-debt ratios.

Notum’s Verdict

Yield Aggregation is a more complex way of generating income than other investment solutions like staking or liquidity pool provision, which allows users to receive maximum rewards of up to 30% APY and more from their assets provided. Since vaults are automated, the user can earn passive income while the platform searches for the most profitable options for generating yield.

An automated structure, low level of involvement, medium risks, and high profits make yield aggregation one of the most popular strategies for getting income in 2023.

Yearn.fi and Beefy are popular platforms that allow users to deposit funds into vaults to receive maximum rewards. While Beefy offers more than 550 vaults of various types and operates in 18 networks, attracting a large number of investors, Yearn.fi remains popular due to its high APY and low gas costs.

Thus, if you want to get the most out of your investment without actively participating in the process, yield aggregation can be a great option for receiving passive income.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.