DeFi and yield farming have permanently changed how people engage with and understand finance and investing. Things can never go back to the way they were before decentralized technology existed.
It hasn’t been easy though. The blockchain and DeFi industries have faced significant challenges, one of the most persistent being what has been dubbed by Ethereum co-founder Vitalik Buterin “the blockchain scalability trilemma”, which refers to the seemingly necessary trade-offs between security, scalability, and decentralization within blockchains.
Source: Twitter
Ethereum for example chooses side C. It is considered highly secure and fairly decentralized, but with scalability issues. The network gets congested during high traffic periods — Ethereum can only handle ~29 transactions per second at the time of writing — and this leads to transaction fees (gas prices) often spiking above $100. Ethereum Layer 2 (L2) blockchains aim to provide the solution for scalability.
Arbitrum is one such L2 blockchain built on top of Ethereum. In fact, according to DeFi Llama, it’s the leading L2 by TVL, trading volume, number of addresses and number of protocols being built on it.
Source: DeFi Llama
This guide delves into the intricacies of yield farming on Arbitrum, focusing on top decentralized exchanges (DEXes) and protocols and even looking at some specific pools. We aim to provide a comprehensive manual that you can use to navigate Arbitrum’s DeFi landscape effectively.
Yield farming on Arbitrum has immense potential because of all the user and developer activity on the platform, leading to high TVL and trading volume. How High? Put it this way: Arbitrum isn’t just the biggest L2 on Ethereum — it’s the 4th biggest blockchain by TVL, period.
According again to DeFi Llama, Arbitrum has a higher TVL than Avalanche, Solana, Cronos, Bitcoin, and Cardano combined. It’s on track to overtake Binance Smart Chain.
Source: DeFi Llama
In order to begin your yield farming journey, you’ll need to choose a protocol or two that you want to get started on, so let’s look at some options. Here are the top 5 DEXes on Arbitrum by trading volume:
Source: CoinMarketCap
Trading volume is a good metric to go by when you’re looking for pools that you can farm by providing liquidity because the fees on each trade generate yield. With Uniswap doing over $400m in 24h trading volume, they could theoretically generate 100x the fees of a protocol doing just $4m. Other metrics matter too, like TVL (Total Value Locked), asset volatility, and a number of other risk factors. For example, it’s great that Uniswap v3 can generate so many trading fees, but with such high TVL from other LPs it’s hard to get a decent share. A protocol with lower trading fees might still generate higher APRs if the TVL is proportionately even lower, though it may also come with higher risk.
Regardless, there’s a reason Uniswap v3 is at the top (Uniswap is at the top of just about every chain it operates on), so we’ll start there and work our way down the list before discussing some more advanced yield farming strategies on Arbitrum.
Uniswap v3 offers users the opportunity to supply liquidity to various pools and earn trading fees in return. By strategically placing their liquidity in price ranges where they anticipate high trading volume, liquidity providers (LPs) can optimize their yield. Moreover, the reduced transaction costs and faster speeds on Arbitrum enhance the efficiency of yield farming activities.
Users also participate in liquidity mining programs when available, where they can earn additional tokens as incentives for providing liquidity. This combination of features makes Uniswap v3 a vital component in the yield farming landscape on Arbitrum.
Uniswap v3 introduces a nuanced approach to liquidity provision, allowing LPs to allocate their assets within specified price ranges. This targeted liquidity provision requires a deeper understanding of market dynamics, as LPs must anticipate price movements to position their liquidity effectively. Additionally, managing the liquidity position’s range is critical, as assets outside the active price range do not earn fees or contribute to pool depth.
The key to maximizing yield on Uniswap v3 is the strategic use of its concentrated liquidity feature. By focusing liquidity in narrower price ranges where trading is expected to be most active, LPs can achieve higher capital efficiency and potentially greater fee returns. This optimization, however, comes with increased risk, particularly in volatile markets, where incorrect range placements can lead to impermanent loss or underutilized capital. Successful optimization requires continuous monitoring and adjustments to the liquidity range in response to market shifts.
As expected, we see a lot of ETH/stable pairs at the top. The only other assets represented are WBTC, ARB, LINK, and GMX. We’ll talk a lot more about GMX below, but for now let’s move on to the next DEX.
Camelot is an Arbitrum-native DEX with the second highest trading volume on Arbitrum after Uniswap v3, known for its ecosystem focus and customizable protocol. It goes beyond traditional DEX designs by offering a tailored approach with an emphasis on composability. The protocol introduces a dual AMM system supporting both volatile (UniV2) and stable (Curve-like) swaps, along with dynamic directional fees for trading pairs, allowing more customized and tailored pool configurations.
Let’s break down the best features for Arbitrum yield farming on Camelot v3:
For more information about Camelot’s distinct features and how they work, please refer to their official docs or visit their website.
Nothing surprising here. Again a lot of ETH, ARB, and stable pairs. At number 8 we see the ETH-GMX pair again. We’ll get to it soon!
Trader Joe is a multichain DEX boasting the third highest trading volume on Arbitrum after Camelot v3 and Uniswap v3. It offers various DeFi functionalities, including yield farming, staking, and lending. Known for its innovative Liquidity Book, a concentrated liquidity market maker, Trader Joe provides users with advanced trading options and optimized liquidity provision. The platform’s native token, JOE, along with the staked version sJOE, both play central roles in its ecosystem, enabling governance and incentivizing participation.
Trader Joe v2.1 on Arbitrum offers several features for LPs to engage in yield farming:
For more information about Trader Joe’s distinct features and how they work, please refer to their official docs or visit their website.
Ramses v2 is an Arbitrum-native DEX with the fourth highest trading volume on Arbitrum. Central to its ecosystem are the RAM and veRAM tokens, serving pivotal roles. The RAM token is the primary currency within Ramses v2, used for transactions, rewards, and governance, while veRAM tokens represent vested interests and are key to unlocking advanced features and privileges in the platform. These tokens are integral to the ve(3,3) model Ramses v2 employs, ensuring that liquidity providers (LPs) can benefit from innovative yield farming mechanisms, democratic governance, and a fair, efficient trading environment.
Let’s take a look at some of the key features for LPs on Ramses v2:
For more information about Ramses’ distinct features and how they work, please refer to their official docs or visit their website.
SushiSwap stands out in the DeFi landscape with its multi-chain AMM platform, offering advanced liquidity provision, yield farming, and staking opportunities. While it offers most of the other basic features as the other platforms on this list, its distinct features include the Onsen program for enhanced liquidity incentives, Kashi for isolated lending and margin trading, and BentoBox for asset utilization optimization. Governed by SUSHI token holders, SushiSwap caters to experienced DeFi users seeking sophisticated yield strategies and diverse liquidity options.
Here’s an overview of the standout features for LPs on SushiSwap (Arbitrum):
For more information about SushiSwap’s distinct features and how they work, please refer to their official docs or visit their website.
GMX is a DEX on Arbitrum and Avalanche specializing in perpetual and spot trading. It stands out with its unique protocol mechanics and tokenomics, catering especially to DeFi users interested in advanced yield farming strategies. For traders, GMX offers decentralized derivatives with substantial trading volumes, particularly in BTC and ETH perpetual futures. LPs on GMX (Arbirtrum) supply capital for trades with up to 50x leverage, earning 70% of protocol revenue paid in ETH. The platform’s dual token model consists of GMX, the utility and governance token, and GLP, the liquidity pool token, which represent a significant part of its appeal to LPs.
While not boasting the highest trading volume of all protocols on Arbitrum, GMX holds the title of highest TVL by a longshot at more than double Uniswap’s TVL.
Source: DeFI Llama
Note that GMX represents a vast DeFi ecosystem which we’ll cover in more depth below. For now, let’s go over some key features that make GMX as a staking and yield farming platform stand out.
For more information about GMX’s distinct features and how they work, please refer to their official docs or visit their website.
The GMX platform itself is advanced, but it’s not as deep as the rabbit hole goes. LPs can find even more opportunities within the vast GMX ecosystem by looking at the partners and protocols building on GMX. Some of these offer yield optimization while others offer further leveraging and lending services. Let’s dive deeper.
Jones DAO is a decentralized autonomous organization focused on developing advanced yield generation strategies in the DeFi space. It specializes in options strategies and yield farming, offering various products and services such as vaults and LP farms.
Jones DAO established a partnership with GMX in early 2022 to enhance its hedging strategies and become a mutual treasury partner. As part of this collaboration, Jones DAO is responsible for managing a portion of GMX’s treasury funds, employing options strategies that are actively managed and hedged.
For LPs on GMX, Jones DAO offers innovative yield farming opportunities, particularly through the creation of jGLP and jUSDC vaults. These vaults utilize a mechanism that leverages and boosts GLP holders’ incentives while providing a less risky yield product for USDC holders. By depositing GLP or any GLP basket token into the jGLP vault, users can boost their yield. The jGLP vault allows users to borrow USDC from the jUSDC vault to mint more GLP, thus earning more ETH fees and absorbing a portion of its yield. The yields for jGLP stakers come from three main sources: the base yield from direct depositing into the jGLP vault, additional yield from borrowing USDC from the jUSDC vault, and reflexive incentives to discourage withdrawing liquidity.
Jones DAO also offers a multiple-layer LP model that maximizes yield for its users. This approach involves combining jAssets with JONES LP farms, providing a base-level jAsset yield through options strategies and additional JONES token incentives for providing liquidity to asset pairs. The JONES farms incentivize users to provide liquidity across all jAsset pairs by depositing SushiSwap SLPs, representing liquidity deposits in a 50/50 asset pair configuration. Users can stake their jAsset/Asset SLPs in the JONES farms to earn rewards, creating multiple streams of yield.
Here are the current Top Strategies on Jones DAO:
For more information about Jones DAO’s distinct features and how they work, please refer to their official docs or visit their website.
DopeX is a decentralized options exchange (Decentralized Options Exchange = DopeX) on Arbitrum. It uses doTokens, modified Opyn tokens, to optimize liquidity for options buyers and minimize losses for options sellers. For LPs, DopeX offers Options pools and Volume Pools where they can earn through market making and DPX rewards. Additionally, it provides rDPX rebate tokens to options sellers who incur losses on the protocol.
DopeX integrates with GMX in two ways. It offers vaults that allow exposure to different option strategies, and it has developed the Atlantic Perp Insurance product. This product, built on top of GMX, provides liquidation protection for perp traders. For example, if a trader does a 10x ETH long on GMX and buys a put option with a $910 strike in the Dopex vault, they have protection once the ETH price goes below $910. The more leverage used on GMX, the higher the cost of the put option, affecting the hedging cost. Liquidity providers benefit if the underlying asset’s price stays above the strike price, and Dopex also gives funding fees from GMX to LPs, offering a better premium than selling out-of-the-money puts on other platforms. Additionally, Dopex supports GLP farming by acting as a hedge against GLP price action through its Atlantic Put.
Here’s a look at the current top DopeX vaults on Arbitrum:
For more information about DopeX’s distinct features and how they work, please refer to their official docs or visit their website.
Plutus is a governance aggregator native to Arbitrum, aiming to maximize users’ liquidity and rewards while aggregating governance behind the PLS token. It has gained traction in governance with protocols like Dopex and JonesDAO. Plutus’ key product for GMX LPs is its GLP vault, which allows GLP stakers to maximize yield with convenience, positioning it as a base-layer DeFi-lego for other protocols.
By depositing GLP in the Plutus GLP vault, users mint plvGLP, an interest-bearing derivative. This process involves auto-compounding esGMX rewards three times daily, effectively enhancing the yield for all pool participants. However, exiting plvGLP is subject to a 2% fee, and Plutus takes a 10% fee on GLP yield. Staking plvGLP in Plutus’ plvGLP farm also yields 11.97% APR in PLS emissions. The success of plvGLP directly increases GLP liquidity, as more users are incentivized to deposit in the plvGLP vault, which in turn deposits into GLP.
Additionally, Plutus offers 15% of PLS liquidity mining emissions to plvGLP holders, amounting to 2,250,000 $PLS distributed over two years, with the initial months having higher emissions. $PLS can be locked to earn yield from the Plutus Treasury and gain control over veTokens within Plutus.
Here are the top 4 vaults currently on Plutus DAO:
For more information about Jones DAO’s distinct features and how they work, please refer to their official docs or visit their website.
We may have scratched the surface on the broad topic of Arbitrum yield farming, but just barely. There are hundreds more protocols to explore and a broad depth of farming strategies available. From convoluted 10-step processes that involve lending and borrowing and hedging and leveraging and everything in-between to simple auto-compounding vaults that manage themselves, you can find what you’re looking for here. With the relatively high TVL and consistent trading volume, the potential is immense.
It does seem like a lot of work though, right? It’s like a full-time job.
Instead of manually reviewing dozens of web pages searching for the best yields, some choose to use DeFi analytics & aggregator tools such as One Click Crypto.
One Click Crypto is the front page of DeFi yield where you can explore 20,000+ yield farming opportunities from 14+ networks, all in one place. It also has an embedded AI portfolio builder that can help craft a personalized strategy tailored individually for you.
Here’s an example of a portfolio on the Arbitrum chain generated by One Click Crypto:
Sign up for One Click Crypto today and gain access to 20,000+ yield farming opportunities on all blockchains including Arbitrum — https://defi.oneclick.fi/
Disclaimer: This article, including insights on Arbitrum Yield Farming and other DeFi strategies, is for informational purposes only and should not be considered as financial advice, investment recommendations, or an endorsement of any particular investment or strategy. The cryptocurrency and DeFi markets are highly volatile and unpredictable. Past performance is not indicative of future results. The author makes no representations or warranties regarding the accuracy, completeness, or timeliness of the information provided. Readers should conduct their own research and consult with independent financial advisors before making any investment decisions. By using this information, you agree that the author is not liable for any losses or damages arising from your investment choices.
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