Crypto bear markets can be long and brutal. Fortunately, DeFi offers investors a richer selection of products after the last bull market. One of the safest ways for investors to hedge against market turmoil while also making some modest gains is Yield Farming using stablecoins.

To that end, Nansen has compiled a list of safer stablecoin Yield Farming strategies to help you minimize risk while maintaining passive income during relentless bear markets.

Stablecoin and Yield Farming First, stablecoins are not inherently risk-free assets. Investors first need to understand the general and asset-specific risks associated with each type of stablecoin and avoid treating these digital assets as "real" dollars. Despite the various risks associated with stablecoins, they remain attractive due to their ability to be used in Yield Farming strategies.

Since Yield Farming means putting assets into DeFi applications to collect returns, stablecoin Yield Farming intuitively means generating passive income on stable crypto assets through two types of lending activities: money market lending and lending as liquidity to decentralized exchanges.

Yield Farming on DEX Among the many DEX designs, stablecoin exchanges such as Curve offer minimal asset requirements and low transaction fees for trading similar assets (e.g., between two stablecoins such as USDC and DAI), which require highly liquid pools of stablecoins.

These platforms deploy a variety of incentives focused on stable assets, which often translate into opportunities for passive income seekers. Such exchanges include

Curve Finance

The technical or conceptual progenitor of the stablecoin exchange, Curve is the most used and liquid stablecoin trading service platform in the market today. The platform is seen as one of the most reliable sources for putting stable assets to work. Some have even referred to the Curve stablecoin liquidity pool as a savings account for cryptocurrencies.

Providing assets to Curve allows depositors to receive a portion of the transaction fees generated in the pool, as well as additional CRV token emissions. The most traded of Curve's stablecoin pools is 3pool, consisting of DAI, USDC, and USDT (three of the four most liquid stablecoins on the market). At the time of writing, 3pool offers 0.10% of the stablecoin APY, which varies daily with trading volume, and 0.2% of the token APR (CRV Reward), which depends on the reward rate, price, and revenue earned through pledging.

While these returns are low, Curve has other more rewarding stablecoin pools, and 3pool is widely considered to be safer because the pool and the stablecoins traded on it are strongly "stress tested". Curve pools on other EVM chains and Rollup can be accessed, but most liquidity is concentrated on the main ethereum network.

Ellipsis Finance

A fork of Curve, Ellipsis Finance has the same technical logic as Curve and offers similar services on the BNB Chain, but with a different range of stablecoins in focus (e.g. BUSD and USDD). Like Curve, investors can deposit stablecoins as liquidity and earn interest from trading activity. Because Ellipsis is on the Coin On chain, the transaction fees for accessing assets and collecting rewards are significantly lower than Curve Finance.

There is a difference between the capital efficiency of Ellipsis and Curve due to different network effects. Ellipsis Finance's most liquid pool ($32 million in TVL and $215,000 in volume) offers a 0.06% APR benchmark compared to Curve's 3pool (over $950 million in TVL and $78 million in volume), which is a 0.10% APR benchmark. Ellipsis' low usage is compensated by higher transaction fees and a high EPX token reward - 1.47% at the time of this writing.

Farmer needs to remember that the return on stablecoin trading is variable and varies with the day's trading volume. Therefore, calmer markets and lower project token prices can translate into lower dollar designated returns.

Alternatives to the platforms mentioned above include several other stablecoin exchanges, such as Platypus Finance on Avalanche, which focuses on major stablecoins, and Saber on Solana, whose most liquid pools include USDC and UXD.

Other DEX Spot DEXs typically do not provide the same incentive for users to buy fixed assets as stablecoin exchanges. However, investors can also lend stablecoins to DEXs such as Uniswap, Sushiswap, Pancakeswap, TraderJOE, Quickswap, Serum, and Osmosis. since these applications do not provide unilateral liquidity supply, users need to deposit two assets to become a liquid market maker (e.g. DAI & USDC, USDT & BUSD).

A third alternative to stablecoin and multifunctional DEX is cross-chain bridges like Synapse Protocol and Hop Protocol, which also allow for the provision of a single asset as liquidity for stablecoin-like transactions.

Check out Nansen's liquidity mining dashboard to find the best opportunities in the liquidity supply market.

Crypto Lending The second most popular way to earn passive income on stablecoins is to use decentralized cryptocurrency marketplaces like Aave and Compound. Just as stablecoin exchanges often reward lenders with stablecoin and native Dapp tokens, cryptomarkets typically compensate depositors with generated revenue and governance tokens.

For example, when a user deposits their USDC into Aave's loan pool, they receive a corresponding token, aUSDC, a 1:1 liquid synthetic asset redeemable for USDC. As the loan position expires over time, the fees collected from the borrower are allocated to the user's wallet on a pro-rata basis, resulting in a steady increase in the aUSDC balance, which can be redeemed at any time for the underlying stablecoin. The APY on USDC and USDT on Aave is currently 0.69% and 1.96%, respectively, and varies with borrowing rates and utilization. In addition, users can earn AAVE rewards by depositing into specific pools.

In addition to these two blue-chip lending programs, investors can also lend their stablecoins to cryptocurrency markets that fall under different licenses.

Rari's unlicensed Fuse pool allows users to create custom money markets using the assets they want and lending parameters such as pledge factors and interest rate models determined by the pool creator. This allows both the most popular stablecoins and the long-tail coins with relatively high interest rates to be profitable. However, this comes with the endemic risk of instability.

Decentralized Credit Protocol Goldfinch stands alone in the licensing space with its risk-weighted asset (RWA) based secured crypto lending service. Anyone can offer their USDC to earn interest, but only vetted parties with the proper credit limit can borrow from the loan pool. To date, the Premium Pool offers lenders 7.81% of their USDC APY and another 9.42% in return for GFI tokens.

On top of these, there are a number of cryptocurrency markets and DEXs built on top of, or working in coordination with, less liquid niche stablecoins. Examples include USDJ and the JustLend lending market, OUSD and Origin Protocol, agEUR and Angle Protocol, and most recently GHO on Aave.

However, these niche platforms should insist on better risk management, as the applications and stablecoins they serve are not as "stress-tested" and scrutinized as their blue-chip counterparts. As the most extreme examples of these platforms (such as Anchor Protocol and UST) have crashed with significant losses to investors, we recommend caution for those looking to convert their stable assets and use them on these platforms.

Conclusion Yield Farming is a double game. The way you operate determines whether it is an active or a passive income generating instrument. Investors can look only at returns, constantly researching better yields and allocating their money between different agreements, or go heavy on individual agreements. The former is riskier and requires effort, but may yield higher returns, while the latter brings more security and inner peace of mind. Try to find the risk-appetite strategy that works best for you. Once you've made up your mind, using the Nansen tool can help you find the best market opportunities for returns.

Crypto bear markets can be long and brutal. Fortunately, DeFi offers investors a richer selection of products after the last bull market. One of the safest ways for investors to hedge against market turmoil while also making some modest gains is Yield Farming using stablecoins.

To that end, Nansen has compiled a list of safer stablecoin Yield Farming strategies to help you minimize risk while maintaining passive income during relentless bear markets.

Stablecoin and Yield Farming First, stablecoins are not inherently risk-free assets. Investors first need to understand the general and asset-specific risks associated with each type of stablecoin and avoid treating these digital assets as "real" dollars. Despite the various risks associated with stablecoins, they remain attractive due to their ability to be used in Yield Farming strategies.

Since Yield Farming means putting assets into DeFi applications to collect returns, stablecoin Yield Farming intuitively means generating passive income on stable crypto assets through two types of lending activities: money market lending and lending as liquidity to decentralized exchanges.

Yield Farming on DEX Among the many DEX designs, stablecoin exchanges such as Curve offer minimal asset requirements and low transaction fees for trading similar assets (e.g., between two stablecoins such as USDC and DAI), which require highly liquid pools of stablecoins.

These platforms deploy a variety of incentives focused on stable assets, which often translate into opportunities for passive income seekers. Such exchanges include

Curve Finance

The technical or conceptual progenitor of the stablecoin exchange, Curve is the most used and liquid stablecoin trading service platform in the market today. The platform is seen as one of the most reliable sources for putting stable assets to work. Some have even referred to the Curve stablecoin liquidity pool as a savings account for cryptocurrencies.

Providing assets to Curve allows depositors to receive a portion of the transaction fees generated in the pool, as well as additional CRV token emissions. The most traded of Curve's stablecoin pools is 3pool, consisting of DAI, USDC, and USDT (three of the four most liquid stablecoins on the market). At the time of writing, 3pool offers 0.10% of the stablecoin APY, which varies daily with trading volume, and 0.2% of the token APR (CRV Reward), which depends on the reward rate, price, and revenue earned through pledging.

While these returns are low, Curve has other more rewarding stablecoin pools, and 3pool is widely considered to be safer because the pool and the stablecoins traded on it are strongly "stress tested". Curve pools on other EVM chains and Rollup can be accessed, but most liquidity is concentrated on the main ethereum network.

Ellipsis Finance

A fork of Curve, Ellipsis Finance has the same technical logic as Curve and offers similar services on the BNB Chain, but with a different range of stablecoins in focus (e.g. BUSD and USDD). Like Curve, investors can deposit stablecoins as liquidity and earn interest from trading activity. Because Ellipsis is on the Coin On chain, the transaction fees for accessing assets and collecting rewards are significantly lower than Curve Finance.

There is a difference between the capital efficiency of Ellipsis and Curve due to different network effects. Ellipsis Finance's most liquid pool ($32 million in TVL and $215,000 in volume) offers a 0.06% APR benchmark compared to Curve's 3pool (over $950 million in TVL and $78 million in volume), which is a 0.10% APR benchmark. Ellipsis' low usage is compensated by higher transaction fees and a high EPX token reward - 1.47% at the time of this writing.

Farmer needs to remember that the return on stablecoin trading is variable and varies with the day's trading volume. Therefore, calmer markets and lower project token prices can translate into lower dollar designated returns.

Alternatives to the platforms mentioned above include several other stablecoin exchanges, such as Platypus Finance on Avalanche, which focuses on major stablecoins, and Saber on Solana, whose most liquid pools include USDC and UXD.

Other DEX Spot DEXs typically do not provide the same incentive for users to buy fixed assets as stablecoin exchanges. However, investors can also lend stablecoins to DEXs such as Uniswap, Sushiswap, Pancakeswap, TraderJOE, Quickswap, Serum, and Osmosis. since these applications do not provide unilateral liquidity supply, users need to deposit two assets to become a liquid market maker (e.g. DAI & USDC, USDT & BUSD).

A third alternative to stablecoin and multifunctional DEX is cross-chain bridges like Synapse Protocol and Hop Protocol, which also allow for the provision of a single asset as liquidity for stablecoin-like transactions.

Check out Nansen's liquidity mining dashboard to find the best opportunities in the liquidity supply market.

Crypto Lending The second most popular way to earn passive income on stablecoins is to use decentralized cryptocurrency marketplaces like Aave and Compound. Just as stablecoin exchanges often reward lenders with stablecoin and native Dapp tokens, cryptomarkets typically compensate depositors with generated revenue and governance tokens.

For example, when a user deposits their USDC into Aave's loan pool, they receive a corresponding token, aUSDC, a 1:1 liquid synthetic asset redeemable for USDC. As the loan position expires over time, the fees collected from the borrower are allocated to the user's wallet on a pro-rata basis, resulting in a steady increase in the aUSDC balance, which can be redeemed at any time for the underlying stablecoin. The APY on USDC and USDT on Aave is currently 0.69% and 1.96%, respectively, and varies with borrowing rates and utilization. In addition, users can earn AAVE rewards by depositing into specific pools.

In addition to these two blue-chip lending programs, investors can also lend their stablecoins to cryptocurrency markets that fall under different licenses.

Rari's unlicensed Fuse pool allows users to create custom money markets using the assets they want and lending parameters such as pledge factors and interest rate models determined by the pool creator. This allows both the most popular stablecoins and the long-tail coins with relatively high interest rates to be profitable. However, this comes with the endemic risk of instability.

Decentralized Credit Protocol Goldfinch stands alone in the licensing space with its risk-weighted asset (RWA) based secured crypto lending service. Anyone can offer their USDC to earn interest, but only vetted parties with the proper credit limit can borrow from the loan pool. To date, the Premium Pool offers lenders 7.81% of their USDC APY and another 9.42% in return for GFI tokens.

On top of these, there are a number of cryptocurrency markets and DEXs built on top of, or working in coordination with, less liquid niche stablecoins. Examples include USDJ and the JustLend lending market, OUSD and Origin Protocol, agEUR and Angle Protocol, and most recently GHO on Aave.

However, these niche platforms should insist on better risk management, as the applications and stablecoins they serve are not as "stress-tested" and scrutinized as their blue-chip counterparts. As the most extreme examples of these platforms (such as Anchor Protocol and UST) have crashed with significant losses to investors, we recommend caution for those looking to convert their stable assets and use them on these platforms.

Conclusion Yield Farming is a double game. The way you operate determines whether it is an active or a passive income generating instrument. Investors can look only at returns, constantly researching better yields and allocating their money between different agreements, or go heavy on individual agreements. The former is riskier and requires effort, but may yield higher returns, while the latter brings more security and inner peace of mind. Try to find the risk-appetite strategy that works best for you. Once you've made up your mind, using the Nansen tool can help you find the best market opportunities for returns.