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Strategy 2: Hold a Token Pair to Earn Auto-Compounded Yields Without Leverage
The majority of DeFi yield farming protocols, such as aggregators, offer an identical product — auto-compounding vaults. For those new to DeFi, you might wonder: ‘How do these work?’
Well, their mechanism is quite simple. They take your claimable rewards from staking pools, and reinvest them into your staked principal, so that you can earn interest on your interest, which can build up to quite a significant extra sum over time. In addition, they allow you to avoid the tedious task of manual claiming, saving you not only time but gas fees too, which auto-compounding vaults aggregate among all stakers in the pool. As a result of these benefits, auto-compounding vaults are very popular in DeFi; yet, they’re a type of very basic product, one on which Alpaca has improved upon.
Alpaca Finance offers value far beyond auto-compounders because it allows leveraged yield farming, which provides much higher APYs to lenders and borrowers. However, we understand that for those newer to DeFi, the concept of leverage can be a bit intimidating. That’s why for those starting out with Alpaca, you can choose to participate in single-asset lending, and also the aforementioned auto-compounding vaults without leverage. In fact, even this is more profitable on Alpaca than other protocols!
When you auto-compound your LP tokens on Alpaca Finance without leverage (1x leverage), you are still getting higher yields with us than most other auto-compounding farms on BNB Chain and Fantom. This is because of our low performance fees (3% of yield farming portion only. There is no performance fee on trading fees). As a result of our users keeping almost all of their earnings, the yields of our farms are higher than the majority of popular aggregator protocols like Beefy Finance (even when including their governance token rewards).
Rates as of the article's publication date (August 27, 2021)
So, if you just want to keep it simple and start light, there’s no problem with auto-compounding 1x positions to earn yields on Alpaca. Of course, the opportunities to earn more will always be there for you. When you’re ready, we welcome you to watch our tutorial videos or read our articles in the Alpaca Academy to educate yourself on how to make greater yields with Alpaca’s more powerful products. Take your time young farmer, because at the end of the day, there’s no wrong way to farm, only wrong places to farm. 😉