Beginner’s Guide to Yield Farming

🌽 A Fresh Harvest

Step 0️⃣: Set up Your Nansen Account

Nansen is the tool that powers our yield farming tutorial. To begin, set up your account using our link. Nansen offers a range of seasonal discounts for crypto investors and traders who are ready to take their wealth to the next level.

Step 1️⃣: Understand The Risks and Returns

Before you begin it is essential to understand how to make money, but also how you can lose your money whilst yield farming. Risks include:

• Smart Contract Risk: Vulnerabilities in the code of smart contracts sitting behind DeFi protocols.
• Impermanent Loss: This relates to liquidity provision with a detailed explanation found here.
• Systemic Risks: Yield farming is a novel endeavor and there are many ecosystem-wide risks that are not yet fully understood
• De-pegging of Assets: Many opportunities rely on assets that are tied to the value of another. This tie can be broken, potentially making your assets worthless.

To learn more about the risks and returns of yield farming, check out part 1 of the series.

Step 2️⃣: Find Hot Ecosystems

Now that we understand the basics – it is time to start our search for profit. We can use Nansen to narrow this search by identifying how many top crypto investors are transferring their funds to specific ecosystems:

Nansen.ai: 01/06/2022 – Bridge Builder sorted by number of Smart Money Depositors

• The Wormhole bridge (which facilitates transfers to the Solana chain) has the most smart money depositors in the last 7 days indicating there may be an opportunity there.

To find the full lesson, check out part 2 of the series.

Step 3️⃣: Find Hot Protocols

Once we have found the hottest ecosystem, we can dive deeper, finding exactly how much money is flowing into specific protocols. To see exactly how to do this, check out part 3 of the series.

Step 4️⃣: Earning Yield on Safe Haven Assets

Due to the inherent risk of yield farming, it is essential that some of our portfolio is kept safe. One method is to identify which assets top crypto investors are buying in times of uncertainty, tracking their movements to locate the best opportunities for yield:

Nansen.ai: 01/06/2022 – Smart Money Token Holdings

• Over the past 7 days, we can see that smart money has accumulated traditional assets such as BTC, ETH, and USDC rather than focusing on altcoins.

To find the full lesson, including how to find yield on these assets, check out part 4 of the series.

Step 5️⃣: Track the Activity of Top Crypto Investors to Protect Your Assets

Now that we have identified profitable opportunities, we can use Nansen to track exactly who is involved. This allows us to understand whether any top crypto investors believe the opportunity to be profitable.

Not only can we do this before entering the opportunity but Nansen allows us to set up smart alerts, giving us live notifications upon any notable activity. This allows us to track smart money in real-time and stay ahead of the rest of the market.

To learn more about tracking smart money, check out part 5 and part 6 of the series.

Yield farming has produced huge profits in the last few years however it can be difficult without a strategy. Using our 5-step process we are able to maximize our returns and minimize our risks. All you need is a Nansen account.