1 Reap the Harvest on Blockchain A Survey of Yield Farming Protocols

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Reap the Harvest on Blockchain:

A Survey of Yield Farming Protocols

Jiahua Xu and Yebo Feng

Abstract—Yield farming represents an immensely popular

asset management activity in decentralized ﬁnance (DeFi). It

involves supplying, borrowing, or staking crypto assets to earn

an income in forms of transaction fees, interest, or participa-

tion rewards at different DeFi marketplaces. In this systematic

survey, we present yield farming protocols as an aggregation-

layer constituent of the wider DeFi ecosystem that interact with

primitive-layer protocols such as decentralized exchanges (DEXs)

and protocols for loanable funds (PLFs). We examine the yield

farming mechanism by ﬁrst studying the operations encoded in

the yield farming smart contracts, and then performing stylized,

parameterized simulations on various yield farming strategies.

We conduct a thorough literature review on related work, and

establish a framework for yield farming protocols that takes into

account pool structure, accepted token types, and implemented

strategies. Using our framework, we characterize major yield

aggregators in the market including Yearn Finance, Beefy, and

Badger DAO. Moreover, we discuss anecdotal attacks against

yield aggregators and generalize a number of risks associated

with yield farming.

Keywords—Decentralized Finance (DeFi), yield farming, yield

aggregator, simulation, blockchain

I. INTRODUCTION

YIELD farming protocols are deemed as the decentralized

asset managers on blockchain. After having absorbed

crypto assets from users—including both retail and institu-

tional investors, yield farming protocols algorithmically deploy

those funds into one or more revenue generating services such

as lending and market making. Yield farming protocols have

become immensely popular as they seem to create a win-win-

win situation: users can earn return on their idle funds through

an automated process; yield farming protocols can charge a

management fee; other DeFi services can gain more liquidity.

The concept of yield farming was ﬁrst popularized in mid

2020 by the leading PLF Compound with the introduction

of its governance token COMP [92]. Compound participants

get rewarded with newly-minted COMP tokens through both

lending and borrowing activities, which lead to offsetting

some loan costs for borrowers and increasing the return for

lenders. This incentive scheme was quickly adopted by other

protocols such as Uniswap [121] and Yearn Finance [70])

to attract liquidity and participation. As such, on top of

the inherently designed beneﬁt that users get for providing

liquidity in different kinds of pools (e.g. interest in the

case of lending protocols, or fees in the case of providing

Jiahua Xu is with the Computer Science Department, University College

London, UK. Email: jiahua.xu@ucl.ac.uk.

Yebo Feng is the corresponding author. He is with the Computer

and Information Science Department, University of Oregon, USA. Email:

yebof@uoregon.edu.

Table I: Top yield aggregators - market share information.

Yield aggregators Governance token TVL (m USD) MCap (m USD) Time established Tokenholders

Yearn Finance YFI 652.07 354.96 07/2020 49,668

Beefy BIFI 302.95 39.00 09/2020 25,737

Badger DAO BADGER 107.22 47.83 11/2020 30,757

Idle Finance IDLE 94.17 1.38 11/2020 3,728

Yield Yak YAK 72.13 3.56 09/2021 2,208

Autofarm AUTO 64.99 26.52 02/2021 65,074

Flamincome FLAG 59.55 06/2020 43

Rari Capital RGT 47.03 64.27 07/2020 6,438

Vesper VSP 42.62 4.35 02/2021 8,690

Spool Protocol SPOOL 39.42 3.99 12/2021 522

Harvest Finance FARM 32.74 37.39 09/2020 13,867

ACryptoS ACS 30.09 2.06 12/2020 8,078

Reaper Farm OATH 18.21 9.25 07/2021 2,993

Pickle Finance PICKLE 14.20 1.49 09/2020 8,161

OnX Finance ONX 4.63 1.41 03/2021 2,941

Waterfall DeFi WTF 4.08 1.74 11/2021 852

Solidex SEX 3.86 0.19 02/2022 9,389

Robo-Vault 3.81 07/2021

Magik Farm MAGIK 3.57 01/2022 2,110

Data fetched on 14/08/2022 from https://deﬁllama.com/ - Yield Aggregators.

liquidity in automated market maker (AMM) pools), additional

governance tokens are rewarded to users to further encourage

their participation in the issuing platform during the early stage

of adoption. The basic yield farming idea was born: the search

for opportunities in the DeFi ecosystem to generate returns on

otherwise dormant crypto assets.

As a reaction to the creation of a multitude of platforms

returning interests, fees and token rewards, yield aggregators—

represented by Yearn Finance, Beefy, and Badger DAO (Ta-

ble I)—dedicated to farming yield through DeFi primitives

emerged. At the beginning 2021, the total value locked (TVL)

of DeFi yield aggregators was still shy of 1 billion USD; by

May 2021, however, this value grew exponentially to 8 billion

USD (illustrated in Figure 1).

In this paper, we present a systemic examination of yield

farming protocols. We ﬁrst inspect yield farming protocols

from the perspective of DeFi architecture and posit them

as an aggregation-level component that interact with lower-

level primitives in DeFi (see §II). We then synthesize an

action-state framework of yield farming operations, and extract

yield farming protocols’ features such as pool structure and

accepted token types as well as their variations (see §III). With

our established model framework, we characterize top yield

farming protocols such as Yearn Finance, Harvest Finance and

Pickle Finance. We argue that yield farming protocols are still

associated with both security and economic risks (see §IV)

and provide a through literature review for interested readers

(see §V). In Appendix, we present simulations on three typical

yield farming strategies in §A, and describe the workings of

top yield aggregators comparatively in §B. Of a particular note

here is that this paper is an updated and extended version of

work published in [69].

arXiv:2210.04194v2 [q-fin.PM] 14 Dec 2022

Figure 1: Total value locked (TVL) (b USD) of yield aggre-

gators on Ethereum, BNB Chain and Polygon. Data collected

on 12 September 2022 from https://deﬁllama.com/.

II. BACKGROUND IN DEFI

Yield farming protocols are a constituent part of the wider

DeFi ecosystem, and operate heavily dependent on other

ecosystem components. In this section, we present those re-

lated components to understand where yield farming protocols

reside within the DeFi ecosystem (illustrated in Figure 2).

A. DeFi overview

Built on top of decentralized blockchain networks,

DeFi [128] systems allow various ﬁnancial products and ser-

vices, including lending and asset trading, to be available to the

general public. Compared with traditional ﬁnancial systems,

DeFi democratizes ﬁnance by replacing legacy, centralized

institutions with algorithm-backed protocols, thereby improv-

ing the accessibility, inclusion, and transparency of ﬁnancial

services [120], [99].

B. Chain layer

The distributed ledger technology (DLT) layer forms the

infrastructural basis for decentralized applications (dApps).

Like all other dApps, DeFi protocols consist of one or more

smart contracts deployed on blockchain. To this end, the

DeFi chain layer typically requires compatibility with smart

contracts. As the oldest and the most widely adopted DLT

that supports smart contracts, the Ethereum blockchain is also

home to the majority of DeFi protocols [74]. The blockchain

implements Ethereum Virtual Machine (EVM) to ensure that

state transitions follow the same rules regardless of node they

are performed on. The energy consumption and scalability

issues associated with blockchains (e.g., EthereumPoW) that

are based on the legacy proof of work (PoW) [104] prompted

the emergence of the new Ethereum 2.0 and other EVM-

compatible chain layer solutions such as Polygon [106],

BNB Chain [65], Fantom [78], and Avalanche [60]. Those

solutions incorporate alternative consensus mechanisms like

proof of stake (PoS) and exhibit an improved throughput

capacity [101]. PoS chains in particular not only provides

the architectural foundation for the DeFi ecosystem, but can

also be a source of yield: to encourage users’ participation

in the consensus of the distributed network, many of these

PoS chains—including Ethereum 2.0 [77], Solana [116] and

Polkadot [105]—reward users’ staking activities.

C. DeFi primitive layer

Serving as the fundamental building blocks of the appli-

cation layer of the DeFi ecosystem, DeFi primitives include

AMM-based DEXs, PLFs and stablecoins. DeFi yield mainly

comes from AMM-based DEXs and PLFs.

1) AMM-based DEXs: Different from order book-based ex-

changes where a trade has both buy and sell sides, AMM-based

exchanges—often simply referred to as AMM—leverage an

algorithm termed “conservation function” to determine the

swap rate between two assets given the swap tokens and size

[130]. As illustrated in Figure 3a, traders using an AMM-

based DEX swap their tokens against the exchange protocol’s

liquidity pool, which contains tokens deposited by liquidity

providers (LPs). Against their funds contributed, LPs receive

“LP tokens” as a form of “I owe you” (IOU), which allow

liquidity withdrawal and entitle LPs for their share of swap

fee income. At the time of writing this paper, most prominent

AMM-based DEXs include Uniswap [122], Curve [71] and

Balancer [61].

2) PLFs: A PLF (illustrated in Figure 3b) typically applies

a pre-coded interest rate model that dynamically adjusts the

borrow and supply rates [100]. Both rates are commonly

programmed to positively correlate with the utilization ratio of

the funds, deﬁned as the total amount borrowed as a fraction

of the total amount supplied for each speciﬁc token asset.

PLFs on blockchain are mostly collateral-based rather than

credit based. This means that a borrow position can only be

created when a sufﬁcient amount of deposit is in place acting

as collateral. The collateral might become liquidated if market

movements or interest accrual cause the borrow position to

become insufﬁciently collateralized. From the accounting per-

spective, interest accrual is achieved through “interest-bearing

tokens” which, while sitting in their holder’s wallet, increase

in value with the passage of time. Analogous to AMM’s LP

tokens, interest-bearing tokens also serve as a from of IOU,

which are emitted to lenders according to funds supplied and

must be surrendered upon funds withdrawal. Aave [55] and

Compound [67] can be counted as the two most popular PLFs

at the time of writing this paper.

3) Stablecoins: Stablecoins are token contracts deployed

on blockchain representing cryptocurrencies that offer price

stability relative to a certain reference asset [98], namely, a

“peg”. The peg can be another cryptocurrency, legal tender,

commodities, or a combination of the above. At the time

of writing this paper, the biggest stablecoins, USDT,USDC

and DAI are all pegged to the US Dollar. Stablecoins can

be custodial or non-custodial, asset-backed or algorithmically

programmed.

D. Aggregation layer

DeFi protocols on the aggregation layer interact with the

chain layer or the DeFi primitive layer on end users’ behalf

[115]. Depending on whether their target users are requesting

Curve

Balancer

Uniswap

Anchor

Compound

Aave

USDT

USDC

DAI

Beefy Badger

DAO

Aggregation Layer

DeFi Primitive Layer

Demand-side aggregator Supply-side aggregator

Paraswap 1inch Lido Ankr

Yearn

Finance

Staking platformYield aggregator

APPLICATION LAYER

DEX aggregator

DEX StablecoinPLF

Ethereum Polygon BNB Chain Fantom Solana Avalanche Polkadot

CHAIN LAYER

Figure 2: Architecture of the DeFi ecosystem on blockchain.

or providing services, aggregation layer protocols can be clas-

siﬁed as demand-side aggregators and supply-side aggregators.

The latter is the category the yield farming protocols belong

to.

1) Demand-side aggregators: Channeling similar services

offered by DeFi primitives, demand-side aggregators seek to

present users with the most competitive offer so that they

do not have to manually perform the comparison themselves.

DEX aggregators Paraswap [37] and 1inch [1] algorithmically

search for the optimal swap route through multiple primitive

DEXs to generate the best exchange rate for users.

2) Supply-side aggregators: All supply-side aggregators

to a certain extent perform some form of yield farming.

Some protocols farm yields directly from the chain layer. For

instance, staking platforms like Lido [93] and Ankr [57] act

as a one-stop shop for users to beneﬁt from staking rewards

from various PoS chains; yield aggregators like Yearn Finance

[134], Beefy [12] and Badger DAO [10] collect users’ funds,

redeposit them to DeFi primitives such as DEXs and PLFs or

other aggregators to generate returns that will be re-distributed

back to the users (presented in Figure 3c).

III. YIELD FARMING PRELIMINARIES

In this section, we dive deep into the workings of yield

farming protocols, understand how they generate yield for the

users as well as revenue for the protocols themselves.

A. Types of yield farming protocols

There is no universal deﬁnition for yield farming proto-

cols. Some equate yield farming protocols to generic yield-

generating protocols, in which sense, DeFi primitives such as

AMMs and PLFs would also be counted as they offer yield

to LPs and lenders, respectively. More commonly, however,

yield farming protocols refer to protocols on the aggregation

layer (see §II-D) that pool funds to generate return by inter-

acting with DeFi primitives. This is the type of yield farming

protocols that we focus on in this paper.

User actions Protocol state

Deposit

(Provide liquidity)

Redeem

(Withdraw

liquidity)

Swap

Reserves

Token1 Token2 Token3

...

LP token

Protocol actions

Mint

Burn

(a) Automated market maker (AMM).

Protocol actions

User actions Protocol state

Deposit

Redeem

Liquidate

Repay

Borrow

Total supply

Total borrow

Utilization ratio

Interest rate

Mint

Burn

Interest-bearing

token

(b) Protocol for loanable funds (PLF).

External yield-generating

protocols

Protocol stateProtocol actionsUser actions

Deposit

Redeem

Pool token

Mint

Burn

Invest

Withdraw

Swap

Borrow

Repay PLF

Pool wealth

Pool token value

OracleAMM

Price feed

Rebase

Figure 3: State diagram with describing the interaction be-

tween the environment of a DeFi protocol and associated

actions. +means positive effect, −negative effect.

Besides yield aggregators which are the most widely rec-

ognized type of yield farming protocols, some other protocols

are more implicit in their farming activities by branding them-

selves as e.g. stablecoin or lottery protocols. Those protocols

mainly differ in the form of IOU tokens they mint to end users

upon new deposit.

1) Yield aggregators: Represented by Yearn, Beefy and

Badger, the most classic and commonly known yield farming

protocols are yield aggregators. In return for deposit into a

yield farming pool, pool tokens that represent a fraction of the

pool wealth are issued. Typically, the value of a pool token

varies according to the total pool wealth (see §III-B2h).

2) Yield-bearing stablecoins: A yield-bearing stablecoin

protocol works similar to a savings account with a bank. In-

stead of minting pool tokens, the protocol issues stablecoins to

users as a form of certiﬁcate of deposit. The yield-generating

nature of the protocol is reﬂected in the increase in the quantity

of the stablecoins to their holders, as opposed to the value of

the stablecoin token; the value is designed to remain stable to

the peg. OUSD issuer Origin Dollar and USDi issuer Bank of

Chain [62] are two examples of this type of protocols.

3) Lottery protocols: A lottery protocol collect users’ funds

and issue them each a lottery ticket token in return. The

protocol then performs yield farming under the hood. In-

stead of distributing yield proportionate to users’ deposit,

the protocol every once in a while randomly selects one or

more winners who can pocket the yield of all participants.

PoolTogether [107] is one of the most popular protocols of

this type while writing this paper.

4) NFT farming: Recently, with the popularity of non-

fungible tokens (NFTs), groups began to explore involving

NFTs in yield farming. The main goal of NFT farming

is to create liquidity and utility for NFTs, especially in

gaming space, thereby earning yields for token owners [64].

Axie Inﬁnity [52], ZooKeeper [136], Pulsar Farm [54], and

MOBOX [53] are typical platforms that provide NFT farming

services.

B. Yield farming operations

As illustrated in Figure 3c, the entire yield farming process

comprises actions from both the user and the protocol sides.

We discuss common action types associated with yield farming

protocols. The exact name and implementation of actions may

deviate from one protocol to another.

1) User actions: The actions that yield farming users, a.k.a

“farmers”, need to take are often trivial and straightforward.

a) Deposit: Protocol users simply select their favored

yield farming pool and deposit their funds by transferring

token assets to the pool smart contract. In return, users receive

pool tokens as a form of IOU which should increase in value

with the passage of time due to the yield farmed by the

protocol [130], [100].

b) Redeem: Unless there is a timelock, users can redeem

their deposited funds plus any yield generated anytime by

surrendering their pool tokens.

2) Protocol actions: The more sophisticated operations are

assumed by the algorithm of the protocol where the actual

yield farming is performed automatically under the hood.

a) Mint: The protocol mints pool tokens to the user

proportionate to the amount of funds deposited, representing

their share of the liquidity within the yield farming pool.

b) Burn: When a user requests to withdraw funds from

a yield farming protocol, pool tokens need to be surrendered

by the user and consequently burned by the protocol.

c) Invest: Depending on the DeFi primitive that the yield

farming pool interacts with, the yield farming protocol can

invest funds collected from users either into an AMM as a

liquidity provider to collect swap fees (see §A2c), or into a

PLF as a lender to earn supply interests (see §A2a). A yield

farming pool may also invest in another yield farming protocol,

often for the beneﬁt of receiving reward tokens.

d) Withdraw: When end users request to redeem their

funds from a yield farming pool, the pool contract needs

to withdraw the corresponding amount of liquidity from the

protocol(s) that it has invested in.

e) Swap: “Raw yield” does not always come in the form

of the originally deposited assets. Therefore, the yield farming

protocol may perform a swap, usually on an AMM, to convert

yield tokens into the same tokens as originally deposited,

which are sometimes reinvested to achieve the compounding

effect.

f) Borrow: Yield farming protocols may use all or part

of the funds deposited by users as collateral to borrow from a

PLF. This may need to be performed due to various reasons:

(i) to arbitrarily inﬂate the borrow position to be qualiﬁed for

more participation reward (see §A2b), (ii) to borrow out assets

that can be invested to generate higher yield than the deposited

assets.

g) Repay: Yield farming protocols that take the “borrow”

action may need to partially or fully repay their loans to reduce

or close its borrow position if: (i) the borrow position is on

the verge of becoming liquidated, (ii) the collateral must be

withdrawn so that it can be invested elsewhere or returned to

end users.

h) Rebase: A yield farming pool mints or burns pool

tokens depends on the quantity of the asset deposited or

withdrawn as well as the exchange rate between the pool token

and the asset. As yield farming progresses, the farming pool

usually accumulates wealth and the exchange rate changes.

Due to diversiﬁed investment in various protocols, some yield

farming pools may possess an array of assets different from the

one deposited by end users. Yield farming protocols connect

to price oracles to fetch the price of each of these assets, and

subsequently calculate the total value held by the pool. The

exchange rate can thus be updated through dividing the latest

pool value denominated by the asset deposited by end users

with the circulating quantity of the pool tokens. This process

of updating the pool token price is termed “rebase”.

C. Forms of yield farming pools

Different yield farming protocols vary in terms of their pool

structure and token types acceptable by each pool (Table II).

1) Pool structure: A yield farming pool may accept de-

posits in single or multiple assets.

a) Single asset: Most yield farming protocols have

single-asset pools. While those pools only accept one par-

ticular token asset, they may still hold various assets due to

different sorts of yield farmed. Typically, those other assets

are automatically swapped for the one acceptable as deposits,

and reinvested to generate compounded yield (see §III-B2).

b) Multiple assets: A yield farming pool may also accept

multiple token assets. Usually assets acceptable by the same

pool share a peg. For example, at the time of writing this

paper, Badger DAO’s ibBTC/crvsBTC pool accept ibBTC,

renBTC,WBTC and ibbtc/sbtcCRV-f, all pegged to

BTC.

2) Accepted token types: Yield farming protocols accept

various types of tokens, ranging from stablecoins to LP tokens.

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1ReaptheHarvestonBlockchain:ASurveyofYieldFarmingProtocolsJiahuaXuandYeboFengAbstractYieldfarmingrepresentsanimmenselypopularassetmanagementactivityindecentralizednance(DeFi).Itinvolvessupplying,borrowing,orstakingcryptoassetstoearnanincomeinformsoftransactionfees,interest,orparticipa-tionrewardsa...

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