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Why you should start Yield Farming on Solana: Up to 700% APY

by Grizzly Nov 24 2021

Yield farming has become one of the most popular methods of securely and reliably earning blockchain-based passive income. Although the concepts of staking and yield farming originate with Ethereum, nowadays DeFi enthusiasts can enjoy yield farming on various other blockchains as well – many of them, like Solana, are much more efficient than Ethereum. But what is Solana yield farming really, and is gaining passive income with SOL profitable?

 

What Is Solana?

Solana (SOL) is a decentralized, open source blockchain network utilizing the Delegate Proof-of-Stake (DPoS) algorithm. DPoS is a highly efficient and secure variation of the popular Proof-of-Stake (PoS) blockchain architecture. It allows the Solana blockchain to process transactions extremely fast, all while consuming much less energy than traditional blockchains like Bitcoin (BTC) and Ethereum (ETH) which use the Proof-of-Work (PoW) algorithm.

Due to its strong technologic fundamentals, the SOL network is able to consistently process over 50,000 transactions per second, with the maximum tested throughput being almost 5 times higher than that. This makes Solana one of the fastest decentralized networks on the market, and also one of the cheapest – SOL transaction fees are negligible, and much smaller than the infamously high ETH gas fees.

Extremely high efficiency made Solana one of the favourite blockchains of DeFi enthusiasts. High transaction speed and low fees mean that SOL is a perfect environment for decentralized finance solutions – including passive income revenue generating mechanisms like yield farming.

 

What Is Yield Farming?

Yield farming is a strategy of generating blockchain-based passive income popularized by DeFi platforms. In simple words, yield farming allows you to generate profit (“yield”) by locking your digital assets within DeFi protocols such as the liquidity pools on decentralized exchanges (DEXs).

The funds that you delegate to DeFi protocols are mainly being used to provide liquidity to other users of these platforms. Simply put, your coins and tokens made the functioning of platforms like DEXs possible – and in return, you are being rewarded with passive yield for as long as you keep staking your assets in a specified smart contract.

 

Is Yield Farming On Solana Profitable?

Yield farming on Solana keeps getting more and more popular because of the high efficiency of the SOL network. Low fees of the SOL blockchain mean that you won’t have any problems with cashing out your passive income gains whenever you feel like it, and you won’t have to spend a lot on transaction fees while transfering your staking rewards to an exchange.

The easiest way to earn passive yield on Solana is by staking the SOL coin inself, which can grant you 7.39% APY (Annual Percentage Yield). Of course, this percentage is not strictly set, and changes over time depending on various factors such as the network traffic. While in the past the Solana APY often surpassed 10%, nowadays it usually stays within the 7-8% range.

An important thing to note is that staking SOL will allow you to receive rewards with a 2.5 days frequency. In other words, you will gain staking rewards 2-3 times a week. You don’t have to do anything to claim the rewards – your new assets will be distributed to you automatically.

 

Yield Farming Protocols on Solana

Of course, staking SOL is not the only way to earn passive yield with Solana. Specialized DeFi protocols built on the Solana network allow you to gain a much higher APY. The most popular yield farming platforms on Solana are currently Raydium, Orca and Saber.

Although all these protocols provide a similar level of security and reliability, the yield farming vaults of Raydium have the highest APY. Depending on the digital asset being used, Raydium yield farming vaults can return a yearly APY from around 20% to over 700% in the case of the most profitable vaults.

Orca and Saber are slightly less impressive. In general, the yield farming vaults provided by these DeFi protocols rarely surpass 100% annual APY.

It’s worth noting that you don’t have to trouble yourself with keeping up to date with the profitability of particular DeFi protocols, and with manually transferring assets between them. Solana yield farming aggregators like Tulip Protocol (formerly SolFarm) allow you to easily keep yield farming on the Solana network in the most profitable way, or to increase your yield even further by using leverage.

 

Is SOL Yield Farming Secure?

One of the reasons why yield farming has become so popular is the fact that it is much safer than other methods of making money with blockchain technology. Generally speaking, the risk involved with yield farming and staking is minimal, which compensates for the fact that the gains you’ll make will likely be smaller compared to more risky methods of generating revenue with digital currencies, such as trading.

Yield farming is so safe because staking your assets on DeFi protocols does not require you to transfer your funds anywhere, and you retain control over your coins and tokens at all times. The assets are simply being temporarily delegated to a certain staking pool, or in the case of Solana, to a certain validator node.

In other words, you don’t actually transfer your funds anywhere – you only delegate staking rights. This means that yield farming on Solana allows you to have the same level of control over your funds as holding the coins in your wallet without staking, since at no point your assets or private keys are being relocated.

 

How to Start Yield Farming on the Solana Network?

The most beginner-friendly and easy way of earning passive yield with Solana is by staking SOL with the Solflare wallet, which is a dedicated SOL-specific non-custodial wallet. Solflare is a web wallet which can be added to your browser as an extension, or which you can simply access on a website. While other wallets might support staking SOL, using the Solflare wallet is the only method recommended by the Solana team.

Earning passive income with Solana is easy, and you will be able to start gaining SOL rewards in just few simple steps:

1. Create a Staking Account

First, you need to create a separate staking account in your Solflare wallet. To do that, click the “Stake Solana” button on the portfolio screen. You will be asked to choose the amount of SOL you want to stake – remember to leave some SOL in your main account to cover transaction fees!

2. Delegate Your Assets to a Validator Node

The funds in your Staking Account are not yet being staked. Aside from setting an amount, you also need to choose a validator node to delegate to – simply select one from the list to start earning income. Please note that you won’t receive any rewards immediately, as it will take 2-3 days before your assets start earning you yield.

3. Add More Funds or Withdraw Your Assets

Staking rewards you earn every 2.5 days will be automatically re-delegated. However, if you decide to add any more funds to your Staking Account, you will need to manually delegate them each time. In order to withdraw some of your funds, you will have to select an amount and click “Re-delegate”, which will take 2-3 days to complete.

 

Conclusion

Earning yield on Solana network is highly profitable and effective due to the high transaction speeds and smal fees of the SOL blockchain. It’s also easy and secure, so it will be a good way to start earning blockchain-based passive income even for crypto beginners.

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