Technology

5 platforms to generate interest with cryptocurrencies in DeFi

Key facts:
  • Ethereum protocols, the Binance network and others allow to generate interest in cryptocurrencies.

  • Staking and yield farming are the two main strategies to generate interest.

Earning money with cryptocurrencies seems like a utopia, a cheap slogan used to attract customers without much foundation to support that possibility. However, there are platforms that offer this option based on smart contracts and protocols specially created for such purposes.

The famous DeFi (acronym for decentralized finance) are the platforms we are talking about. Is about protocols that manage to automate traditional finance operations so that their users can access investments and benefits without the need for intermediaries. In them, it is possible to generate periodic interest from deposits of crypto assets.

There are platforms that are not only very popular, but also have millionaire deposits that maintain their liquidity and allow their growth. Some of them are Curve, Anchor, Aave, Compound and PancakeSwap. All these protocols are among the 10 with the most total value locked (TVL) in the world and accumulate more than USD 61,000 million in deposits.

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Generate interest with your cryptocurrencies on these 5 DeFi platforms

Although they belong to the same “niche” and have a similar basic premise, there are certain differences between the mentioned DeFi platforms. These have to do mainly with the types of services they offer and the way to earn cryptocurrencies with them. Next, we see each one in detail:

1.Curve Finance

Curve Finance is a decentralized cryptocurrency exchange (DEX) and a liquidity pool. It works on the Ethereum, Avalanche, Polygon, Fantom, Harmony, Gnosis, and Moonbeam networks. In addition, it is compatible with the second layer solutions of Ethereum, Arbitrum and Optimism.

DeFi Curve home screen.
That’s how simple the Curve home screen looks. Source: Curve Finance.

this platform enables easy and frictionless exchange of stablecoins such as DAI (DAI), USD Coin (USDC), tether (USDT), true USD (TUSD), and Binance USD (BUSD), among many others. In addition, it also allows trading with tokenized versions of bitcoin (BTC) and ether (ETH) for different networks.

Besides, Curve also has several liquidity pools. These “pools” allow users to deposit cryptocurrencies that give the protocol a backing of the funds it exchanges and lends. In exchange, the depositor receives interest, which can vary depending on the pool and the cryptocurrency pair invested.

As can be seen in the image below, Curve offers the possibility of being part of various liquidity pools, whether in BTC, ETH and various cryptocurrencies, including stablecoins that are tied to the price of an underlying asset. Some of these pools provide liquidity even to other DeFi protocols.

DeFi Curve pools.
Legend: The wide range of liquidity pools to invest in Curve. Source: Curve Finance.

The pools in Curve offer different daily, weekly and annual interests, which can reach 7.5% per year in some cases. In addition, they also provide rewards in tokens such as Curve DAO Token (CRV), native to the platform, and various others added to the protocol by users themselves in the Factory function (“factory”), such as MTA, DFD, PNT or rKP3R.

The CRV token, in turn, can be sold or exchanged for other cryptocurrencies or for fiat money on centralized exchanges. In addition, it is possible to generate interests by holding them (store them) in the protocol and, in the case of the CRV token, it grants users participation in the governance of the decentralized autonomous organization (DAO).

This interest gain for providing liquidity to the protocol is a practice known as yield farming or yield farming.

According to defillama.com, at the closing of this note, Curve Finance has a TVL of USD 20.6 billion. Ethereum, with USD 17 billion in deposits, is the most used blockchain in this DeFi.

2.Anchor Protocol

Anchor Protocol is a lending platform compatible with Terra and Avalanche networks. In order to offer these loans, the protocol provides interest to users who deposit funds, so that allows you to earn money by leaving cryptocurrencies locked in your smart contract.

As CriptoNoticias reported in a detailed tutorial on Anchor, Terra, and their UST stablecoin, this protocol currently grants an annual rate of 19.52% in UST. This interest is updated monthly, so it may be different depending on the time of consultation.

DeFi Anchor home screen.
The “Earn” section of the Anchor app details the interest to be deposited in the protocol. Source: Anchor.

Anchor allows you to withdraw funds whenever the user wants. In this way, it is possible to have control over the investments and have the funds available instantly if needed.

According to its official site, the Anchor DeFi protocol has more than $19 billion in TVL. In addition, defillama.com details that, of these funds, more than 80% is deposited in the Terra network, while the rest is in Avalanche.

These are two of Ethereum’s main competitors in the DeFi arena. With a combined 19% market dominance (13% from Terra, currently second, and 6% from Avalanche, in fourth place), they are inching closer to the incumbent smart contract network, which dominates 54% of this spectrum.

3.Aave Protocol

Aave Protocol is an open source investment protocol. Allows you to earn money with cryptocurrencies by leaving them locked in smart contracts to earn interest on the Aave token (AAVE).

There are two ways to earn money on Aaveprotocol available on the networks of Ethereum, Avalanche, AMM, Polygon, Arbitrum, Fantom, Harmony, Optimism, Centrifuge RWA and Aave Arc.

On the one hand, as a liquidity provider, which implies locking funds in a smart contract to obtain periodic returns with them. This process, called yield farming, allows the protocol to remain liquid and support the operations of its users in exchange for token rewards. In this case, it is paid with the AAVE token.

Defi Aave.
Some of the various investments available in Aave on Ethereum. Source: Aave.

The other option is staking, that is, the deposit of cryptocurrencies on the platform to also generate interest with them. Unlike yield farming, for staking the options are usually more limited.

For this method, in Aave Protocol there are two alternative tokens available: AAVE and Balancer Pool Token (ABPT), a token that is obtained as a reward in the Balancer liquidity pool.

Currently, the annual rate for the AAVE deposit is 7%, with a minimum deposit term of 10 days. Unlike yield farming, in this case the funds cannot be withdrawn immediately and allow the protocol to validate transactions and blocks on the network. In the event of a deficit, the protocol can take up to 30% of the funds deposited in staking, Aave details.

Beyond generating interest for profit, it is worth noting that Aave also offers cryptocurrency loans and financial support for the development of decentralized applications through its DAO Aave Grants.

According to its official site, the assets deposited in this protocol amount to USD 18,000 million, “in 7 networks and 13 different markets”. For its part, the statistics site defillama.com places Aave’s TVL at USD 11.9 billion.

4.Compound Finance

Compound Finance is a decentralized investment finance protocol aimed at developers. its operation is based on an algorithm that automatically determines interest rates of the platform according to the supply and demand of each cryptoactive. This DeFi is available on the Ethereum network.

The main way to earn money with cryptocurrencies in Compound is by depositing funds to generate interest with themwhich we have previously explained is called yield farming. At the close of this article, the crypto assets that pay the most interest are DAI (2.81% per year), Aave Token (2.76% per year) and USD Coin (2.28% per year). These interests pay in the Compound token (COMP).

But there is also another way to generate returns on Compound, and we have mentioned it before as well. This is the staking of the COMP token within the platform, which generates annual returns of 2.5% for their owners at the time of writing this article.

Compound DeFi.
This is the home screen of Compound Finance after connecting the wallet. Source: Compound Finance.

Even though Compound has its own app, there are also others that use this protocol for its operation. Some of them are Binance, Crypto.com, Argent, Pool Together and OKEx, among others. That is why it is presented as a DeFi focused on developers, since it can be integrated into other applications to offer this type of service in them.

5. PancakeSwap

PancakeSwap is also a decentralized exchange, but unlike Curve, it is based on the BNB Chain (ex Binance Smart Chain). In this way, it allows the exchange of tokens created in this network, the BEP-20 tokens.

Furthermore, PancakeSwap is an investment platform. One of the ways in which it is possible to earn money with cryptocurrencies is through liquidity pools. (referred to as Syrup Pools on this platform).

This method consists of depositing funds to provide liquidity to the protocol and receiving interest in the form of tokens in return. These deposited funds, it should be noted, can be withdrawn at any time. The interests of these pools in almost all cases exceed 50%, although this may vary depending on the time of consultation in the PancakeSwap app.

Pancake Swap DeFi.
The Pancake Swap protocol allows you to deposit funds to earn interest on your CAKE token. Source: Pancake Swap.

At the same time, the CAKE tokens that are obtained as a reward can be “farmed” or “staked” on the platform to get interest also with them. In this case, the “prize” is in more units of CAKE or other tokens.

All platforms require precautions when trading

The projects listed in this article are some of the most used options when it comes to making money with cryptocurrencies. As mentioned, all of them are also among the ten with the most blocked funds in the world.

If they have this reputation it is because they have earned it. In general, these are secure protocols and regular security audits to prevent hacks and theft of funds.

However, they are not infallible.. In CriptoNoticias, hacks to several of them have been reported on several occasions. For example, in March 2021 an attack on Binance servers compromised the security of its DeFi platforms, including PancakeSwap.

Similarly, a malicious advertisement for Anchor on Google led to a phishing attack (that is, theft of passwords to access accounts) that caused millions in losses to users of that protocol. Curve has also suffered hacks (albeit indirectly, with an attacker manipulating prices in the protocol), while Compound self-inflicted millions of dollars in losses due to errors in the distribution of a token.

Finally, it should also be taken into account the volatility of the market value of the tokens of these platforms. While a rise can help earn returns, a fall in the price of locked funds can have the opposite effect.

With all of the above, it is intended to emphasize that each user must do their own analysis before you start using any of these platforms or others of their kind. Just as they offer great possibilities, they also demand responsibility.


Important clarification: This article is written for informational purposes, it does not represent an investment recommendation. It is suggested to do your own research before you start trading on any of these platforms.

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