10 Best DeFi Protocols to Invest During Bear Markets

[TL; DR]

🔹 The best methods of investing in cryptocurrencies during bear markets include yield farming, staking and liquidity provision.

🔹 Yield farming, liquidity provision and staking involve depositing and locking cryptocurrencies in DeFi protocols.

🔹 The DeFi protocols where users can stake, hold or lock their cryptocurrencies to earn high yield include Aave , Compound Finance, Yearn Finance, Curve Finance , DeHive, AQRU, Balancer, BlockFi, NEXO and Solend.

🔹 Staking and yield farming stablecoins are valuable investment options during bear markets.





Introduction

---

There are various economic factors that affect the crypto market resulting in high volatility and cycles. Since the inception of cryptocurrencies we have experienced bull and bear markets that call for different investment strategies. One sad truth is that the crypto bear market can be brutal and long, resulting in a reduction of net worth of the securities. For example, the 2022 crypto bear market has been long resulting in many losses.

In this article, we cover investment strategies suitable for prolonged bear markets. Yield farming, liquidity provision and staking are examples of such crypto investment strategies. It is worth noting that these three strategies are similar in a way. With all of them, investors lock their cryptocurrencies in some decentralized finance (DeFi) platforms and earn interest for that.

Yield farming
Investors can hedge their crypto assets against unfavourable market conditions such as depreciation through yield farming stablecoins. Yield farming is an investment strategy where the investors put their cryptocurrencies into DeFi platforms in order to earn interest. In another sense, the investors lend their cryptocurrencies to decentralized finance (DeFi) platforms. In return, DeFI protocols issue loans to interested individuals and institutions. Usually, the interest rate ranges between 1% and 20%.
Liquidity provision
Although liquidity provision is similar to yield farming there is a remarkable difference. With liquidity provision, an investor deposits two cryptocurrencies with equal monetary value in a decentralized platform. In return, the decentralized platform gives the investor a share of the trading fees the pair generates through trading.

Staking
Staking is the third best strategy to use during prolonged bear markets. Simply defined, staking is a process of locking a cryptocurrency in a smart contract to support the proper functioning of a blockchain. This is important for blockchains that use the proof-of-stake consensus mechanisms. As a result, the platforms reward the investor with periodic returns using the same token or coin.




The best 10 DeFi protocols to invest in during bear markets

---

There are many DeFi protocols that provide staking, liquidity provision and yield farming services. We are going to discuss 10 of them.

Aave
Aave is one of the best lending decentralized platforms in the market at the moment. Investors deposit and hold their cryptocurrencies on the platform and earn either stable or variable interest, based on personal choice. In fact, Aave’s interest rate depends on the average market rate.
To determine the interest rate, Aave uses an algorithm to track the amount of funds distributed to borrowers. The higher the amount issued as loans the higher the demand and consequently the greater the rate of return. The interest rate ranges between 4.78% and 13.49%. In addition, Aave has its own cryptocurrency called AAVE which exists on many crypto exchanges.

Compound Finance
Compound Finance, with its governance token COMP, is a lending platform where investors can contribute cryptocurrencies in its pools. As in the case of Aave, the platform uses the cryptocurrencies to give loans to its users. Notably, the platform rewards both lenders and borrowers with its native token, COMP, as a bonus. However, the lenders earn interest from their crypto deposits. On the other side, users with collateral can get low-interest loans.

Yearn Finance
Yearn Finance is a decentralized finance platform that offers several products which include yield generation, lending and insurance. When investors contribute their cryptocurrencies to the lending pools they get reasonable yields. The good thing is that the users deposit stablecoins such as USDT, DAI, USDC and sUSD and earn interest. In fact, Yearn Finance has over 30 pools, giving the investors a wide choice of investment assets.

Curve Finance
Curve Finance is another decentralized lending protocol that offers investors stable investment opportunities. Crypto depositors earn a share of the fees generated from the lending pools and crypto saving accounts.

The investors can deposit stablecoins and earn the same type of cryptocurrencies. Apart from stablecoins, they can also lend related cryptocurrencies such as wBTC and tBTC. They also get a portion of its internal token, called $CRV, as an additional reward.

DeHive
DeHive is a staking and yield farming platform that offers investors the chance to invest in clusters of cryptocurrencies. By merely holding their clusters, the users earn interest. In other words, it aggregates cryptocurrencies that are performing very well in the market into investment pools. However, every pool should have a certain amount of its native token, DHV.

Furthermore, they can also stake DHV, and earn interest. One advantage of DeHive is that the cryptocurrencies remain in the hands of the investors who can unstake them at any time.

AQRU
This is a reputable crypto staking platform that deals mostly with stablecoins. Nevertheless, the investors can also deposit fiat currencies such as the United Kingdom pound, United States dollar and EURO.

The interest for staking depends on the asset you have invested in. For instance, you can earn 7% for depositing and holding BTC and ETH. The advantage of AQRU is that you do not lock your cryptocurrencies, giving you the opportunity to withdraw them at any time.

Balancer
Balancer, a market maker based on the Ethereum blockchain, allows investors to create their pools or lock their cryptocurrencies in existing ones. Each pool can support up to 8 cryptocurrencies which have different weights. In other words, the investors provide liquidity to the Balancer pools and earn interest in return. They also get an additional reward in the form of its internal token, BAL.

BlockFi
BlockFi is a decentralized yield farming platform. As such, investors earn interest for depositing and keeping their cryptocurrencies there. What this means is that the users earn interest from the tokens/coins they lend to the platform.
On the other hand, BlockFi allows its users to borrow the invested digital assets as long as they have collateral. The cost of borrowing the cryptocurrencies is as low as 4.5% APR. Interestingly, BlockFi allows the users to borrow USD.

NEXO
NEXO is a cryptocurrency lending platform that offers high Annual Percentage Yields (APYs) on invested amounts. For example, it has a yield of between 6% and 32%, depending on various parameters such as the period, the cryptocurrency and the amount. The users can invest stablecoins which guarantees them a fair constant net worth.

In addition, Nexo has an additional incentive for its loyal users. The holders of its internal token, NEXO, have preferential incentives which include low interest rate loans and higher APYs.

Solend
Solend, based on the Solana blockchain, is a decentralized lending protocol. The users can deposit their cryptocurrencies on the platform and earn interest. Although Solend promises to add more cryptocurrencies, it currently has ETH, BTC SOL, USDC, USDT, SRM, RAY and FTT. The protocol algorithmically sets the interest rate.


Conclusion

---

Many investors do not find joy in trading or holding cryptocurrencies during bear markets. Nevertheless, there are better investment opportunities than holding the tokens. For example, during bear markets investors can invest in liquidity provision, staking and yield farming and earn stable returns.



Author: Mashell C., Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.