Overview of the current state of yield aggregator protocols
Now, staking protocols are divided into several types:
- Farming protocols are of the most primitive type. Return in such protocols is formed by distributing their own governance tokens.
- Lending protocols are protocols in which return is generated due to the lending rate. The higher the utilization rate is, the higher the APR.
- AMM protocols (Curve) are DEX protocols in which tokens with the same prices are exchanged. Return in such protocols is formed at the expense of swap fees.
- Smart protocols are protocols that use complex strategies, which often include lending and multi-level staking (staking of received rewards) and are cyclical, all rewards are eventually reinvested. In practice, smart strategy protocols such as Convex, Yearn, or Vesper show the highest staking returns. However, their results from time to time become bad due to changes in the market situation, resulting in stakers switching to a different protocol with a different smart strategy.
Funds are placed into lending protocols (e.g. Aave, Compound) that accrue interest. These platforms are designed to hold your funds safe even in volatile markets. Lending is how TradFi institutions make money, but with DeFi you keep more of the returns.
Funds are placed into trading protocols known as Automated Market Makers (e.g. Uniswap, Sushiswap) that enable traders to exchange their assets. This activity generates fees that go back to those who have provided the funds.
Many DeFi protocols (e.g. Curve, Balancer) offer additional token incentives to use their platforms which can significantly increase yield.