Yield Farming on Layer 1
Transaction fees can obliterate yield farming profits due to the contract approvals, transactions, staking, unstaking, etc required. There are still tremendous Ethereum Layer 1 projects that exist and are launching worth investing in, but it is a different landscape than DeFi Summer last year. The Ponzinomics farms have mostly migrated to side chains as contract creation is very expensive due to the appreciated Ethereum price and chain congestion. It’s best to only pick projects you really believe in and want to hold for the long term. This will help you focus on a limited number of high quality DApps, and prevent Ethereum transaction fees from eating into any yield farming profits.
My personal layer 1 farms are Alchemix, Convex, Aave, Lift Kitchen, and Balancer
I’ll reiterate it’s smart to claim as infrequently as possible, when gas prices are low, and not to worry too much about the lack of any compounding unless you are moving 6/7 or more figures around.
MEV protection and gasless trading
If you haven’t heard of miner extractable value (MEV), it’s worth reading this article by Dan Robinson and listening to this Bankless podcast. In order to prevent your Ethereum trades from being front run by bots. A front run trade costs you money because you end up with fewer tokens than you thought you were buying, but spent the same amount. Three excellent options exist to protect from front running. You can trade with gasless, MEV protected exchanges that use WETH:
CowSwap is my personal favorite because it behaves similarly to popular decentralized automated market makers (AMMs) like Uniswap, Sushiswap, and Balancer. It also has tremendous sound effects (MOO) when you make trades.
KeeperDAO and 1INCH Exchange have limit orders that execute on chain.
Trade ETHtx on WeiWard
WeiWard is a newly launched DApp that created a market for trading gas prices. They calculate the price of ETHtx (gas price token) using a trailing 24 hour median of gas prices
Traders can buy ETHtx low and sell high to subsidize transaction fees. Any “normal” week in crypto has fairly cyclical gas prices, so if you pay attention you can profit from the swings. Sunday usually has the lowest transaction prices, so buying then is smart, then selling roughly 12-24 hours past the weekly peak (Wed/Thu) is a great trade.
Liquidity is available on SushiSwap or the WeiWard AMM. The below screen shot shows how traders could have profited if they bought ETHtx on the 18th and sold during the liquidity crunch on the 20th. Fortunately, ETHtx prices are falling as thing settle down on Ethereum after a wild Wednesday.
Use EVM-compatible side chains
Polygon and Fantom growing rapidly in terms of transactions, liquidity, and have multiple bridges being developed. DeFi summer 2.0 is happening, and will continue on these EVM compatible side chains. Transactions are extremely cheap and the experience resembled Ethereum layer 1 almost exactly. Popular Ethereum DeFi apps Sushi, Aave, and Curve have all deployed on a side chain and this has lead to tremendous growth.
A project I am watching extremely closely is SCREAM, which will be the first real crypto bank on Fantom. The Aave emergence on Polygon was the leading catalyst for explosive growth, and I anticipate SCREAM will do the same for Fantom.
I found an awesome bridge between xDAI, Polygon, and Fantom, buikt by Connext: xPollinate
Liquidity has also rapidly grown across the exchange chains - Huobi ECO Chain, and Binance Smart Chain - but these tend to have significant centralization risk.
It’s worth watching Avalanche and Harmony, which are fast and low cost EVM-compatible chains for innovation too. So far, there hasn’t been any new DApp worth investing in as they appear to be clones of Ethereum projects seeking liquidity with a Vampire Attack.
Layer 2 scaling
Highly anticipated Layer 2 solutions will be launching in the coming weeks. I have personally experienced Synthetix’s Layer 2 Optimism instance, and it's a dream. It’s instant and ‘free’ to claim rewards from staking. Synthetix has been Optimism’s greatest promotional tool and Uniswap V3 will be leveraging the technology when it launches in July.
Arbitrum is another lanching very soon. I have not experienced it yet, but it seems extremely competitive with the Optimism eperience.
The below thread explaining the two upcoming Layer 2 scaling solutions. Quite technical, but these will be a massive imporvement for the current layer 1 problems and benefit from Ethereum’s security
In conclusion…
As Ethereum matures, slowly but surely, to be the global transaction settlement layer, it’s worth paying attention and leveraging the existing solutions to help you survive these expensive transaction fees! I am here to help and use all of the above protocols to navigate the best and move vibrant blockchain ecosystem.