Quick Facts
- Farming yield on L1 blockchains: The majority of farming yield on L1 blockchains comes from token inflation, which incentivizes users to participate in the network and secure the blockchain.
- The most popular L1 blockchains for farming, in order of yield, are Ethereum, Binance Smart Chain, and Polygon.
- Farming yield on L1 blockchains is typically higher than on L2 blockchains, due to the higher TVL (total value locked) and the more established user base.
- The average APR (annual percentage rate) for farming on L1 blockchains ranges from 15% to 50%, depending on the specific protocol and token.
- L1 blockchains like Ethereum and Binance Smart Chain have lower gas fees compared to L2 blockchains, making it more efficient to farm on these networks.
- Farming yield on L1 blockchains is often influenced by the supply and demand for specific tokens, as well as the overall market sentiment.
- L2 blockchains like Optimism and Arbitrum have lower yields due to the more limited user base and lower TVL.
- The average APR for farming on L2 blockchains ranges from 5% to 20%, depending on the specific protocol and token.
- Some L2 blockchains like Polygon and Solana offer higher yields due to their expanding user base and higher TVL.
- Incentivized farming on L2 blockchains is becoming increasingly popular, as it offers users a chance to earn yield while also helping to secure the network.
Farming Yield Across L1 and L2 Blockchains
As a seasoned DeFi enthusiast, I’ve had my fair share of yield farming experiences across various blockchain networks. In this article, I’ll be sharing my personal experience with farming yields across L1 and L2 blockchains, highlighting the pros and cons of each, and providing practical insights for fellow yield farmers.
What are L1 and L2 Blockchains?
Before we dive into the nitty-gritty, let’s quickly define what L1 and L2 blockchains are:
- L1 Blockchains: The base layer of a blockchain, responsible for executing and settling transactions. Think of it as the main highway where all transactions take place. Examples of L1 blockchains include Ethereum, Bitcoin, and Solana.
- L2 Blockchains: Secondary layers built on top of L1 blockchains, designed to increase scalability, speed, and reduce costs. Examples of L2 blockchains include Polygon (formerly Matic), Optimism, and Arbitrum.
Yield Farming on L1 Blockchains
My experience with yield farming on L1 blockchains has been a mixed bag. On one hand, I’ve enjoyed the liquidity and depth of popular DeFi protocols like Uniswap and SushiSwap on Ethereum. The TVL (Total Value Locked) on these protocols is substantial, which can attract more liquidity and increase yields.
Here are some pros and cons of yield farming on L1 blockchains:
Pros:
- Liquidity: Deep liquidity pools attract more users, increasing yields.
- Established protocols: Battle-tested protocols with proven track records.
Cons:
- High gas fees Congested networks lead to high transaction fees, eating into yields.
- Slow transactions: Confirmations can take minutes, even hours, which can be frustrating.
Yield Farming on L2 Blockchains
My experience with yield farming on L2 blockchains has been more optimistic. The lower gas fees and faster transaction times make it more appealing for yield farmers. The increasing adoption of L2 blockchains has led to more protocols emerging, offering competitive yields.
Here are some pros and cons of yield farming on L2 blockchains:
Pros:
- Low gas fees: Faster and cheaper transactions, increasing yields.
- Faster transactions: Faster confirmations, allowing for quicker yield harvesting.
Cons:
- Liquidity risks: Smaller liquidity pools can lead to reduced yields or even impermanent loss.
- New protocols: Emerging protocols may not have the same battle-tested reputation as established L1 protocols.
Real-Life Example: Yield Farming on Ethereum vs. Polygon
I recently had the opportunity to yield farm on both Ethereum and Polygon. Here’s a comparison of my experience:
| Network |
APY |
Gas Fees |
Liquidity |
| Ethereum |
12% |
$50-100 per tx |
$10B+ |
| Polygon |
18% |
$0.01-0.10 per tx |
$500M+ |
In this example, the higher yield on Polygon was attractive, but I did have to consider the lower liquidity on the network.
Frequently Asked Questions
Farming yield across L1 and L2 blockchains carries inherent risks, and individuals should always do their own research and consult with financial advisors before making any investment decisions.
FAQs
Farming yield across L1 and L2 blockchains:
Q: What is Farming in Cryptocurrency?
A: Farming, also known as yield farming, is a process of generating passive income by providing liquidity to decentralized applications (dApps) protocols. This involves depositing cryptocurrencies into a liquidity pool, earning rewards in the form of interest, tokens, or a combination of both.
Q: What is the difference between L1 and L2 Blockchains?
A: L1 (Layer 1) refer to the base blockchain protocol, such as Ethereum, Binance Smart Chain, or Polkadot. These blockchains have their own consensus mechanisms, node networks, and smart contract execution environments. L2 (Layer 2) refers to secondary scaling solutions built on top of L1 blockchains. Examples include Optimism, Polygon (formerly Matic), and Arbitrum. L2 chains provide faster and cheaper transactions, while still benefiting from the security of the underlying L1 chain.
Q: How does Farming Yield differ between L1 and L2 Blockchains?
A:
L1 Blockchains:
- Higher yields, often with higher risks.
- Higher transaction fees, affecting profitability.
- Slower transaction processing times.
- Typically offers more decentralized and secure environments.
L2 Blockchains:
- Lower yields, often with lower risks.
- Lower transaction fees, increasing profitability.
- Faster transaction processing times.
- Still benefits from the security of the underlying L1 chain.
A: The choice between L1 and L2 blockchains for farming depends on individual preferences and risk tolerance. If you prioritize higher yields and are willing to take on more risk, L1 blockchains may be suitable. However, if you prefer lower risks, faster transactions, and lower fees, L2 blockchains could be a better fit.
