The global financial industry is being rapidly disrupted by blockchain technology. Smart contracts and digital assets have already displaced gold, precious metals, marketplaces and investments. It was only a matter of time before the tech displaced the most basic financial operations of borrowing and lending.
Decentralized Finance or DeFi has emerged as an alternative to traditional bonds and savings accounts. The promise is higher interest rates for lenders and better terms for borrowers. Alas, the field is crowded with volatile assets and unpredictable yields. Investors must seek out DeFi strategies that offer the perfect balance between risks and rewards.
With that in mind, here are the top three tokens that can be used to generate a yield right now.
USD Coin or USDC is a stablecoin pegged to the US dollar. This isn’t the first stablecoin or the most popular. It’s also far from the most profitable DeFi asset. But what it lacks in absolute returns it covers up for with stability and security.
Since the asset is pegged to the US dollar it is unbelievably reliable. The value of each token remains stable even when the rest of the crypto market is crashing. Throughout its existence, USDC has traded at a very tight margin to its US dollar reserves.
However, unlike the traditional dollar, USDC offers better yields. Deploying USDC on Voyager, for instance, could generate an annual percentage rate (APR) of roughly 9%. Meanwhile, traditional US dollar savings accounts offer 0.06% while US government bonds offer nearly 0%.
The fact that USDC is backed by the world’s most robust reserve currency and offers annual yields that are orders of magnitude greater makes it one of the best DeFi tokens around.
Ethereum has outperformed Bitcoin in recent years, simply because its target market is bigger while its market value was far smaller. Over the past year, ETH is up 877% while BTC is up 408% over the same period. This trend could continue as developers and investors turn to the Ethereum network for unique solutions for decentralized finance and computing.
However, Ether could also be a better token to mine. The network has shifted away from Proof-of-Work to Proof-of-Stake recently. Validators need to stake 32 ETH to start generating staking rewards on the Ethereum network. The Ethereum 2.0 staking contract currently holds ETH worth $21.3 billion generating an average APR of 5%.
For professional investors with an appetite for some risk, PancakeSwap seems like an ideal DeFi platform. Savvy traders can earn annual effective yields as high as 2,900% on swap pairs such as BCH-BNB or YFII-BNB. However, these swap trades have considerable exposure to the price volatility in both assets.
Instead, staking CAKE – the platform’s native token – seems like a better alternative. Locking up CAKE tokens on Binance to offer liquidity could generate roughly 31.2% in APY.