Welcome to part 2 of the Chad’s Ultimate Yield Farming Guide!
In this part, we’re going to cover in-depth some core yield-farming strategies to maximize your returns while minimizing your risk.
We have a lot to cover so let’s jump right in.
First, if you haven’t already, make sure to read part 1 of this guide. It will help you avoid rugs and pump & dumps, which is a must if you want to make it as a Chad farmer.
Here’s what we’re going to cover:
- Four core farming strategies and when to use them
- The sweet spot for entries
- A reliable exit opportunity
- Misc tips and strategies to help you gain an edge
- Tools to help you track everything
- Bonus: Lending arbitrage
Although this guide took quite a bit of time to write, it’s not meant to be taken as gospel and especially not financial advice.
We are sharing what we like to do and what’s worked for us. Like you, we are constantly studying, learning and finding new ways to improve our yield farming methods.
Four Core Farming Strategies
We usually start with one of these four strategies:
- Degen Pool + Compound With New Capital (Riskiest but highest returns)
- Degen Pool + Compound With Rewards (Optimal “degen” strategy)
- Stable Pool + Compound into Degen (Optimal “safe” Strategy)
- Stable Pool + Dump (Safest but requires more capital)
Each strategy has a varying level of risk and capital required to make it worthwhile.
Here’s how we think about these strategies:
You might be wondering which of these strategies you should use and it really depends on how much capital you have and your appetite for risk. Generally, the less capital you have, the more risks you should take, because that allows you to grow your capital faster.
Then once you’ve accumulated enough capital, you want to lean towards the safer strategies and go into capital preservation mode and stop taking risks that could allow you to return your hard earned money back to the market.
Let’s assume you’re a beginner farmer with a small amount of funds. You can start with strategy 1 or 2 and move on to 3 and 4 once you’ve multiplied your capital.
A quick sidenote on risk management. This should be fairly obvious but we recommend you never go “all in” to any one project or farm, no matter how great it appears.
Before jumping into any farm or project, you should ask yourself “would you be okay if you lost everything you put in?” If the answer is no, then you’re probably over-leveraged.
Degen Pools vs. Stable Pools
The “Degen Pool” refers to the native token LP pools. Usually TOKEN/BUSD or TOKEN/BNB. Because the TOKEN price can be quite volatile, these pools generally have the highest APY to incentivize stakers. A lot of experienced yield farmers won’t even touch these pools due to the risks involved.
You should be aware that by entering the degen pool, you WILL GET DUMPED ON. You are essentially acting as exit liquidity for everyone. You are basically counting the fact that your yields will outpace price drops from the sell pressure, or the token price will go up in the long run.
The “Stable Pool” refers to non-native pairs: BNB/BUSD, BUSD/USDT, CAKE/BNB, DOT/BNB, etc. Although these aren’t truly “stable” (besides the actual stablecoin pairs), we’ll refer to them as “stable pools” since they aren’t as volatile as the native token pairs.
The risk you take when farming with stable pairs is impermanent loss. You’ve probably heard that term thrown around before and we won’t go too deep into it.
For now, just know that you risk losing some LP value due to one of the tokens going up or down.
1. Degen Pool + Compound With New Capital (Riskiest but highest returns)
This strategy involves:
- Buying the native token
- LPing with BUSD or BNB
- Re-LPing rewards with fresh BUSD or BNB
- Rinse and repeat
- Once you’ve farmed back at least ~140% of what you put in, take out your initials and switch to another strategy
As you can probably tell, this is the riskiest strategy because you’re buying the native token and adding fresh BUSD/BNB. However, it’s the quickest way to gain pool share since you are constantly staking new LPs.
When to use strategy #1:
When you’re fairly early to a farm and your goal is to gain as much pool share as quickly as possible.
Keep in mind while you WILL gain pool share quickly using this strategy, you’ll likely end up buying or LPing at inflated prices. Since farming tokens tend to pump hard early on due to low supply and high demand.
Don’t use up all your dry powder (BNB, BUSD) at once, and be sure to keep some on the side to buy or LP when the token price dips.
2. Degen Pool + Compound With Rewards
This strategy involves:
- Buying the native token
- LPing with BUSD or BNB
- Selling half of your rewards to BUSD or BNB
- LP with the other half (TOKEN/BUSD or TOKEN/BNB)
- Rinse and repeat
- Once you’ve farmed back at least 150% of what you put in, take out your initials and keep compounding your profits or switch to another strategy
This is similar to strategy #1 but it’s less risky since you aren’t bringing in fresh capital.
Here you are essentially taking your rewards and selling half to BNB or BUSD to lock in gains. Then re-LPing staking to farm more.
Selling half of rewards to BNB or BUSD and re-staking will slowly increase your pool share so your yields go up over time.
It also acts as a hedge if the token price tanks, since you’ve sold half to BNB. So when you later remove liquidity, you’ll have more net value than if you kept everything as the native token. (This is the flipside of impermanent loss).
When to use strategy #2:
This is our preferred strategy if we decide to enter the degen pools. With how inexpensive gas is on BSC, we try to harvest rewards and compound as often as we can.
Note: You don’t always have to compound into the degen pools. Those pools will just usually have the highest APY (and no deposit fees) so it makes the most sense.
For example, on narcos.finance, some of the stable pools had higher APY than the degen pools, so we compounded into those. Then, when those APYs dropped, we compounded back into the degen pools.
3. Stable Pool + Compound into Degen (Optimal “Safe” Strategy)
This fairly straightforward strategy involves:
- LPing with a stable pair (BUSD/USDT)
- Compound your token rewards into the degen pool
The idea between this strategy is to use the least riskiest staked asset — a stable LP, ideally a stablecoin pair — to farm reward tokens. Then put those rewards to work in the degen pools to make more rewards for you. Now, you are essentially farming in the highest APY pool for free.
This is an excellent flowchart created and shared by BSC farming OG @spittingnickels that beautifully aligns with our strategy:
Now this does require more capital to make farming worthwhile since the stable pools will have less APY, and you’ll likely be competing with whales with a lot of value staked.
When to use strategy #3:
This is a great strategy to use once you’ve built up a good amount of capital (mid 5–6 figures) that you can risk farming with. While the APYs aren’t going to be as juicy as the degen pools, you can sleep safely knowing your staked value will remain relatively stable.
While this is a relatively low-risk strategy, we recommend only going big if you’re certain the contract is secure. If the contract is not secure or contains malicious functions, this can be even riskier than buying into the degen pools as you’ll be staking with more capital.
Note: A lot of farms these days charge a 4% deposit fee on stable deposits. This means you aren’t farming for free and need to make that deposit fee back first. If that’s the case, we recommend starting with strategy 4, and switching to strategy 3 once you’ve made back your initials.
That’s why we emphasize doing your due diligence to verify you’re not buying into a rug before you stake any tokens.
4. Stable Pool + Dump (Safest but requires more capital)
This is the safest farming strategy as it only contains the following steps:
- LPing with a stable pair
- Harvest and sell your rewards
This is the strategy industrial farming whales use to essentially print money with minimal risk. This is what Sam from Alameda/FTX often does when he enters farms.
Here, you’re totally indifferent to the project and just use the yield farm as a safe way to grow your capital even more. You may not make as much as someone who plays the degen pools well, but you’re taking on the least risk.
When to use strategy #4:
On a macro level, the best time to use this is when you’ve reached whale status and have a personal auditor or access to someone who can verify contract security.
And on a project level, you should use this when you’re 99% certain the contract is secure and the team is legit. Then use this when the stable APYs are worth farming, but you’re not bullish enough on the project to hold any of the reward tokens long-term.
Now that we covered the various farmings strategies, let’s get into a few other common topics that could make or break your farming returns.
Timing: When to Enter and Exit
Knowing when to enter and exit yield farms, especially degen ones is not an exact science and difficult to create exact rules for.
These are rough guidelines based on our experiences with farming since summer 2020.
When to Enter
Obviously, you don’t want to get in too late after yields have dried up or when others have farmed enough to be constantly dumping on you.
But sometimes, you don’t want to get in TOO early either because you’ll be buying in at an inflated price.
If you look at the charts of yield farming projects, you’ll notice a lot of them pump and dump hard at the beginning.
This usually happens with fair-launch projects that launch with low liquidity. Buyers rush to buy the token to enter the degen pools early which creates a huge pump due to low liquidity. Then, as the rewards start rolling in, everyone starts selling and compounding which dumps the price.
We’ve found the best entry is often AFTER the initial launch dump.
The lesson here is buying earlier isn’t necessarily better. Note: You CAN enter earlier, but just be prepared for the price to dump, so keep some dry powder on the side to enter again later on.
The Sweet Spot For Entries
Personally, we love entering the degen pools of new farms that are under $1 million TVL. This is usually a range where you can buy a good chunk of reward tokens to farm with 20–40 BNB and still own a decent share of the pools that yield the highest rewards.
It’s not always easy finding these farms early (especially legit projects versus P&Ds or rugs), so you should try and form some good private groups with others hunting for gems, as well as follow the BSC Chads Telegram announcement group, where we share new projects in real time.
Here’s some “ape math” we like to use to decide when to enter a pool for strategies 1 and 2:
- Try buying ~$1500 of the token in BNB or BUSD and note the price impact
- If it’s between 2–8% that’s the sweet spot. Anything less may be too late (not always but just a rule of thumb). Anything more may be too early (which is still fine to enter, but just keep some dry powder to re-buy later)
- Check what % of the LP you own and if aim for at least 5–25% of the pool
Ideally if we’re employing strategies 1 and 2, we aim for 5–25% of the degen pool.
Getting 25% of the pool requires good timing and some capital but we found that is the sweet spot because we can create some price stability simply by compounding back into the pool.
When To Exit — The Million Dollar Question
It’s impossible to know when to exit but here are some general guidelines we use.
If you’re using strategies 1 and 2, you’ll want to exit at a price that’s equal to above you entry price (duh).
But that’s always easier said than done, as you never know if a dip is temporary or the token is headed in a downward spiral.
You should be familiar with how to convert your APYs to daily ROI. This lets you approximate how much of a price drop you can take to break even.
Let’s nerd out for a bit here…
Assume you bought tokens at $10 and farming at 2000% APR.
That’s 2000/365 or 5.47% daily ROI.
This means if the token price drops by ~5% (to $9.5), then you’ve broken even.
Here’s a chart that gives you an idea of the APY and number of days you need to break even after a price drop:
Here, we see that price (not yields) is the single biggest factor in determining your profit or loss.
The lower the price drop, the higher APY and longer you need to farm for in order to break even. Since yields generally decrease over time, it becomes increasingly harder to make your money back after a huge price drop.
That’s why if you’re bullish on a project long term but price is going down, it’s often better to just sell and rebuy lower rather than stay in and try to farm it back.
So how do you know when to exit (either at a profit or loss)?
Typically, we like to take initials out at 140–200% ROI profit, and farm with the remaining profit. If the farm looks strong, we’ll compound the profits into the degen pools. If we’re not that bullish and want to mitigate risk, then we’ll convert the profits to a stable pair (like BUSD-USDT) and stake that to lock in the gains but continue to earn yield.
Remember, the token price is almost always the most important deciding factor in your bottom line. So if the token pumps hard, don’t be afraid to take some profit. You’ll usually make more than if you farmed for longer, but the token price drops.
Another rule of thumb if we’re in the degen pools is always securing some profits before going to sleep (or fully exiting). It sucks waking up the next morning to the token price 60% down, or worse, getting rugged.
And what do you do when you’re underwater?
Well this is a tough one, and depends on how much you’re down as well as the overall quality of the project.
If it looks to be a good project and you’re bullish long term but you’re currently underwater, then your options are to:
- Exit now to derisk and buy back later if a good entry presents itself (safest)
- Keep farming/compounding
- Buy more now (riskiest)
We wish we could give a simple answer but it really comes down to what the project is all about (does it even have long-term potential?), what’s causing the sell pressure (early farmers taking profit? team selling?), and how much dry powder you still have.
Another important thing to consider is whether the supply is unlimited or fixed. New buyers feel more secure holding fixed-supply tokens, and that helps the price maintain some stability.
If the supply is unlimited, the team needs to have some deflationary system in place (in most cases burns) to keep the sell pressure under control.
Identifying The Whales
Generally, when we invest in long-term coins, we always check to see who the top holders are and what their wallet size is. It’s always more bullish when the top holders are whales who are holding or accumulating more.
And what we DON’T want to see, is multiple whales selling. That’s a sign that the price could be trending down in the short term.
Similarly, with yield farms, we always try to see who the top holders are, what else they’re holding, and whether they’re buying or selling.
Checking who the top holders are is simple as looking at the “holders” tab in BSCScan. Or if you’re on ETH, you can use an analytics tool like Nansen.ai to gain even more insights.
It can be tricky figuring out who the top holders in projects that involve staking because most people’s holdings are combined in the staking contract addresses.
So what we do is find the Masterchef contract and look at the BEP-20 Token Transfer history to see what addresses have made the most deposits.
We literally import everything into a Google spreadsheet and sort by addresses to figure out which addresses are staking most of the tokens, whether they’re in LP or the native staking pool.
This allows us to figure out who the whales are and which addresses we should keep tabs on. If we see top holders starting to sell, that may be a sign to get out soon.
Yes, this can be a lot of work, but it gives you info that 99% of other people don’t have.
A Reliable Exit Opportunity: Sell Into The Gecko Pump
This is a straightforward strategy that works more often than not, and that’s to keep farming and compounding until the project gets listed on CoinGecko.
The listing usually brings a nice pump from new people discovering the project for the first time, as well as bots that monitor and buy new CoinGecko listings.
Depending on how much hype the project has, and how well connected the team is, it can take anywhere from a few days to a few weeks to get listed on Coingecko.
We find this listing usually offers a good exit opportunity. And same idea for the Coinmarketcap listing.
And If your project is having trouble getting listed on CoinGecko or CMC, it may be a sign you’re in a bad project.
Bonus Tip: Lending Arbitrage — Earn Yields Using Borrowed Assets
This is a strategy most of the biggest farming whales on ETH use.
Basically, you want to use a lending platform like Venus or Binance to borrow an asset and then stake that asset on a platform that offers a higher APY than your borrow rate.
For example, you can take out a loan against your BNB and borrow BUSD on Venus for 18.8% APY.
Then, you can then stake that BUSD on Carrotcake.fi right now for 95.37% APY.
This nets you about 77% APY with borrowed funds. This is just one example. There are hundreds of combinations you can use here, including farms with much better yields for BUSD.
To make this work, you just need to be aware of your liquidation price, which is the lowest price BNB can drop before you get liquidated and forced to repay the loan. So if BNB starts tanking, you’ll need to return your loan so you don’t risk getting liquidated.
Now, why would you want to do this and risk a potential liquidation instead of just buying the BUSD in the first place and farming with that?
Essentially, you should do this if you’re long BNB (you think the price of BNB will go up over time). That way, you’ll be able to capture the gains on BNB price appreciation while still leveraging it to farm.
(Alpha leak: You can margin borrow say CAKE on Binance for 7% interest and use it to farm 400% APY in some farms 👀 )
We’ve heard of LP-tracking tools like yieldwatch.net and apy.vision but we don’t really use any of those. Perhaps it’s because we’ve been doing this so long that we’ve developed a 6th sense of what our LP position is at all times.
We are fans of vfat.tools which is a masterchef contract analyzer that shows you the value of your LP in all the pools. It tells you your estimated daily earnings, your daily weekly, and yearly APR and more. It even lets you directly interact with the contract in case the UI goes down.
Other than that, we’ll just make spreadsheets with contract info and links, top holders, our entries and exits, etc to keep organized.
- Risk management first and foremost. Never go all in
- Farm degen pools to build your capital
- Farm stable pools once you have some capital built up
- Always verify the project is legit before going in heavy
- Study top wallets including those in the staking pools
- Always have an exit plan — have a set target to take initials and farm with the profits
- Ideal degen entry: The first dump after launch
- Good exit opportunity: Take some profit on the Coingecko pump
- Use vfat.tools to track your LP value. Also make spreadsheets
- Leverage borrowing to take your farming to the next level
Wow this was probably our longest post yet. There’s probably more stuff to write about but for the sake of time, we’ll end it here for now.
Thanks for reading and we hope you found this helpful. Be sure to follow our Telegram channel for real-time updates on new BSC farming opportunities.