Detailed Instructions

Risk assessment is the critical first step. Determine if you prioritize capital preservation (low risk) or are willing to accept smart contract or depeg risk for higher returns. Your goals will dictate which protocols and strategies you consider.

• Sub-step 1: Capital Allocation: Decide what percentage of your portfolio to allocate. A common conservative approach is 5-15%.
• Sub-step 2: Time Horizon: Are you farming for weeks, months, or indefinitely? Longer horizons may suit strategies with lock-up periods.
• Sub-step 3: Risk Tolerance Checklist: Rate your comfort with: Impermanent Loss (for LP strategies), protocol insolvency, and stablecoin depegging (e.g., USDC dropping to $0.97).

Tip: Use a risk matrix. For example, a 'Conservative' profile might only use blue-chip protocols like Aave or Compound on Ethereum mainnet, avoiding newer chains.

Detailed Instructions

Yield aggregation tools like DeFiLlama, YieldYak, or Beefy Finance are essential for comparison. Focus on the Annual Percentage Yield (APY) but scrutinize its composition (rewards vs. base yield) and sustainability.

• Sub-step 1: Protocol Due Diligence: Check the protocol's audit history (e.g., audited by OpenZeppelin), TVL (Total Value Locked), and team reputation. For example, Curve Finance (0x...9a48c) is a well-established stablecoin DEX.
• Sub-step 2: Strategy Types: Compare:
  • Lending: Supplying USDC to Aave (Ethereum: 0x...a855) for ~3% APY.
  • Liquidity Providing (LP): Providing USDC/DAI to a Curve pool for trading fees + CRV rewards.
  • Vaults/Auto-Compounding: Using Yearn Finance vaults that automate strategy execution.
• Sub-step 3: Calculate Real Yield: Subtract network gas fees and any potential deposit/withdrawal costs from the gross APY.

Tip: High APYs (>20%) often involve high-risk reward tokens; ensure you have an exit strategy for these volatile assets.

Detailed Instructions

Secure wallet connection is paramount. Use a hardware wallet like Ledger. Never share your private keys or seed phrase. This step involves on-chain transactions, so prepare for gas fees.

• Sub-step 1: Bridge if Necessary: If farming on a different chain (e.g., Arbitrum), bridge your stablecoins using a trusted bridge. For example, use the official Arbitrum Bridge to move USDC from Ethereum.
• Sub-step 2: Token Approval: Before depositing, you must approve the protocol's smart contract to spend your tokens. This is a one-time transaction per token/protocol.

javascriptCopy
// Example using ethers.js to approve USDC spending for Aave
const tokenContract = new ethers.Contract(usdcAddress, erc20ABI, signer);
await tokenContract.approve(aaveLendingPoolAddress, ethers.constants.MaxUint256);

• Sub-step 3: Initial Deposit: Execute the deposit transaction. For a Curve LP pool, this would be add_liquidity.

Tip: Always do a test transaction with a small amount (e.g., $50) first to verify the entire process works as expected.

Detailed Instructions

Active portfolio management separates successful farmers from passive depositors. You must monitor for APY changes, reward token prices, and protocol health.

• Sub-step 1: Daily/Weekly Check-ins: Use a dashboard like DeBank or Zapper to track your positions' value and current APY. Set alerts for significant APY drops.
• Sub-step 2: Reward Harvesting & Compounding: Decide on a frequency (e.g., weekly) to claim and reinvest rewards. Auto-compounding vaults do this automatically. For manual compounding, you might:
  1. Claim CRV rewards from Curve.
  2. Swap 50% of CRV for more stablecoins.
  3. Re-deposit the stablecoins to increase your LP position.
• Sub-step 3: Exit Strategy Execution: Have clear triggers for exiting, such as APY falling below a threshold (e.g., 2%), a major protocol exploit announcement, or your stablecoin depegging by more than 1% for over 24 hours.

Tip: Use a spreadsheet to log your principal, rewards, and net APY after fees to accurately measure performance.

Detailed Instructions

Begin by conducting a thorough smart contract audit review. Never deposit funds into a protocol without verifying its security track record. This is the most critical line of defense against exploits and hacks.

• Sub-step 1: Research Audit History: Check the protocol's official documentation or website for links to audits from reputable firms like CertiK, OpenZeppelin, or Trail of Bits. Look for the date of the last audit and whether findings were resolved.
• Sub-step 2: Analyze Code and Admin Controls: Use a block explorer like Etherscan to inspect the contract. Look for functions like pause(), upgradeTo(), or setAdmin() which indicate significant centralization risk. For example, check if the contract owner is a multi-sig wallet.
• Sub-step 3: Monitor Community Sentiment: Use platforms like DeFi Llama, Twitter, and Discord to gauge community trust. A sudden withdrawal of large funds ("whales") or unresolved complaints on GitHub are major red flags.

Tip: For a contract like a common vault (e.g., 0x5f18C75AbDAe578b483E5F43f12a39cF75b973a9), verify it on Etherscan's "Contract" tab to see if it's verified and read the source code.

Detailed Instructions

Impermanent Loss (IL) is less severe with stablecoin/stablecoin pairs (e.g., USDC/DAI) but can still occur during de-pegging events. The primary risk shifts to yield source sustainability and protocol token emissions.

• Sub-step 1: Deconstruct the Yield Source: Determine if yields come from sustainable fees (e.g., 0.05% swap fees in a DEX pool) or inflationary token rewards. High APYs driven solely by new token emissions are often unsustainable and may crash.
• Sub-step 2: Calculate Breakeven Points: Use an IL calculator. For a USDC/USDT pool, input the current prices (e.g., $1.00 vs $0.998). The calculator will show the potential loss if one stablecoin deviates. A 1% depeg could result in a ~0.25% IL.
• Sub-step 3: Monitor Peg Stability: Set up price alerts for your stablecoins using a service like CoinGecko API. A command to check the DAI/USDC price on-chain via a node might look like:

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cast call 0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48 "balanceOf(address)(uint256)" 0x6B175474E89094C44Da98b954EedeAC495271d0F

Tip: Always assume advertised APY is variable. Track the protocol's TVL (Total Value Locked); a rapidly declining TVL often precedes reduced yields or instability.

Detailed Instructions

Counterparty risk involves the entities backing your stablecoins (e.g., Circle for USDC) and the bridges you use to move them cross-chain. Custodial risk arises if you use a centralized platform's "earn" product instead of a non-custodial DeFi protocol.

• Sub-step 1: Diversify Stablecoin Holdings: Do not farm with a single stablecoin. Allocate across at least two major, regulated ones (e.g., USDC, USDP) and one decentralized one (e.g., DAI) to mitigate issuer-specific collapse risk.
• Sub-step 2: Audit Bridge Security: When farming on L2s or alternate chains, research the bridge. Prefer native, canonical bridges (e.g., Arbitrum Bridge for ETH) over third-party ones. Check the bridge's TVL, age, and audit reports.
• Sub-step 3: Use Non-Custodial Wallets: Always interact with DeFi protocols using a self-custody wallet like MetaMask or a hardware wallet. Never deposit funds into a platform that does not give you control of your private keys. For large sums, use a multi-sig wallet setup.

Tip: For cross-chain actions, verify contract addresses on the destination chain's block explorer. The official USDC contract on Arbitrum One is 0xFF970A61A04b1cA14834A43f5dE4533eBDDB5CC8, not an impersonator address.

Detailed Instructions

Passive farming is high-risk. You must implement active portfolio monitoring and have a pre-defined exit strategy to withdraw funds quickly if conditions deteriorate.

• Sub-step 1: Set Up Alerts: Use tools like DeFi Saver, Zapper, or custom scripts with the Tenderly API to monitor your positions. Set alerts for: APY dropping below a threshold (e.g., 5%), pool TVL decreasing by 20%, or stablecoin price deviating by >0.5%.
• Sub-step 2: Plan Exit Triggers: Write down clear conditions for exit. Examples: "If USDC depegs below $0.99 for >1 hour, exit 50% of position." or "If protocol token (e.g., $XYZ) price drops 30% in 24h, exit farm and claim rewards."
• Sub-step 3: Practice the Exit: Know the exact steps and gas costs. For a Curve pool, this involves calling remove_liquidity. A simulated transaction might look like:

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cast send 0xbEbc44782C7dB0a1A60Cb6fe97d0b483032FF1C7 \
"remove_liquidity(uint256,uint256[3])" \
1000000000000000000 \
"[1000000000,1000000000,0]" \
--rpc-url $RPC_URL --private-key $PK

Tip: Always keep an emergency fund for gas fees on the network you're farming on. During network congestion, high gas prices can trap your funds.