Yield farming crypto – an awesome side hustle?

Over the last two months I have been yield farming crypto as a side hustle. It’s definitely not for everyone, but here’s how I’ve been doing it.

This is not financial advice. Don’t blindly trust some random on the internet with your financial future, even if it’s me. By all means, use this post as inspiration for your own side projects, but do so knowing that this is not risk free and that you need to make your own judgements.

With that out of the way, I hope you enjoy the article!

This isn’t an investment, it’s a side hustle

An investment is something that puts your capital to work for you. Sadly, yield farming isn’t it.

Yes, there’s an investment element to it, but you have to stay on top of things. Automated? Not really. At least, not if you want to compound your gains.

I used my side hustle fund to set this up. As with any high risk investment, I treat anything that goes into yield farming as gone from the second it’s committed. Fortunately, I have since taken out my seed capital and de-risked it, but things could’ve gone differently.

What yield farming is and what it isn’t

I have written about using crypto for financial independence before. In that article, I wrote about getting a steady interest rate of around 10% for a quite low risk (for crypto) deposit. This is described as a “yield”, but that’s not the same thing.

The main mechanism for yield farming is one where you, the user, deposit two different crypto tokens on a (usually) decentralised exchange. You earn a small percentage of the fee another user pays to exchange one of their tokens for the other. The farming mechanism is where the exchange rewards you with a third (well, fourth) type of token for providing liquidity to their exchange. Which you can sell. For money.

That’s absolutely nails to think about so I’m going to walk you through *exactly* what I’ve been doing. It will make sense by the end, I promise. I’ve written this as a walk-through guide, but please make sure you’re comfortable with doing this before you decide to actually follow it through. Read to the end, then sleep on it.

How I do yield farming on Tezos

I have been using Tezos to do this. It works in a similar way to Ethereum, and the decentralised exchange I use is pretty much a copy of an Ethereum exchange called Uniswap.

I use Tezos because it’s cheaper than Ethereum by a loooong way (something like a factor of 100x cheaper, but that’s just an anecdotal estimate) and it’s energy efficient. You don’t have to use Tezos; you can do this on any smart contract blockchain you find with a farming mechanic, you just need to find the equivalents for that crypto blockchain.

You need a wallet

Wallets are effectively what stores your crypto.

That’s… Not entirely true. They actually just store the crypto code that allows your crypto to be used, but don’t worry too much. In user terms, you feel like your crypto tokens are stored on your wallet.

There are many types of crypto wallet available. The type you need for yield farming is called a “hot wallet”.

I’m using Kukai. This is a Tezos specific hot wallet that works as a web app. This means I don’t have to download much, I can access it through a web browser like Chrome (or in my case, Brave) and this particular one works on a mobile.

Keys, seed phrases… Eh?!

Don’t sweat too much about the jargon, we’ll just cover the basics here.

When you create a seed phrase/recovery phrase, you’re basically creating a cloning vat for your crypto wallet. This is cool because if your laptop dies/ phone gets stolen/ you lose your password, you can clone all of the contents into a new wallet on a new device. Hooray! So, you want to keep it safe somewhere.

The downside is that, like Arnold Schwarzenegger in the Sixth Day, it’s possible to create a clone of your wallet somewhere else before the original is lost/ destroyed. Therefore, if someone steals it, they can clone the wallet and rob all your crypto. Keep the seed phrase secret and secure; writing it down on a post-it note is an Obviously Bad Idea.

Keys are interesting. Your wallet will be identified as one long code – it will start with tz then becomes a string of completely unmemorable numbers. That’s like your account number and sort code. It’s called a public key, and people can send you stuff to it, but they can’t use it to rob you. Share it all you want.

There’s also a private key. That’s stored on your wallet and is the real approval code that your wallet gives when you tell it to approve a transaction. You probably won’t see it. You wouldn’t share them if you did, though.

Using this new Kukai wallet, I connected to the decentralised exchange, AKA the Dex.

Connecting to Plenty Dex

I’m using Plenty.

This is a Dex that works on Tezos and, as I said before, is basically a Tezos equivalent of Uniswap.

Open this in a different browser tab if you’re using Kukai.

I need Kukai to talk to Plenty. Plenty has a cool button labelled “Connect” to do this. I push the button, then it sends an approval box to Kukai. You’ll now see why I need two browser tabs open.

I then switch to my browser tab with Kukai and type in my password to approve the connection. It takes a few seconds to do anything on blockchain, so if you’re looking at a loading screen for 5-20 seconds, just wait for a bit. That’s normal.

When it stops showing a loading screen, go back to Plenty on the other tab. You’ll see that the long public address – “tzxXx42069HaRaMbE” or whatever – will now be in the top right of the screen, where the “connect” button was. If it’s there, well done! You’ve successfully connected to a wallet, which is further than most of the global population and probably puts you into the top half of crypto hodlers.

Connect to Quipuswap

Quipuswap is another exchange. This isn’t (yet) a Dex, but it’s an exchange that only trades in Tezos. You’ll need this later.

Connect your wallet to Quipuswap, just like you did with Plenty. It’s easy when you know how, isn’t it?

At the end of this step, you’ll be connected to two blockchain apps (Plenty and Quipuswap) using a wallet (Kukai). That’s probably going to be a huge leap forward in your understanding of crypto, and you should be proud of yourself.

No, really! Most crypto buyers just buy tokens to sit on them, then wonder what the value of crypto is. Binance reports that only 13% of people hodling crypto are “crypto natives”, and 60% of users keep their crypto on an exchange instead of using a wallet – which means that they’re not using dApps like Quipuswap and Plenty, which have to be used with a wallet. If you’re following this, you’re probably ahead of the global drag curve.

Buy some Tezos

You basically have a train track with no trains on it at this point. To remedy it, you need to buy some layer 1 tokens. As this is the Tezos blockchain, that means you need Tezos tokens – XTZ \, also called “tez” or “tezzies” – to start you off.

I’ve been using crypto.com recently since I started using their visa card for cashback. You don’t have to, though. Coinbase will sell you XTZ, but it’s usually a bit pricey. Other good options include Kraken, Binance or Kucoin.

The important thing is that you will need to sign up to an account with them and buy some XTZ. Pick the one that appeals most to you and has trading fees you can tolerate (i.e. probably not Coinbase at this point). I’ll leave some affiliate links at the end if you would like an extra sign-up bonus, where I have some.

Signing up to a centralised crypto exchange can take a bit of time. They will want you to show your identification documents, usually a passport or driving licence, so that they comply with the UK anti-money laundering regulations. It’s not complicated, but it’s not quick either. Plan for it to take about a day while you wait for approval.

You can then deposit some money using a credit card or the faster payments scheme and use that to buy XTZ. I use faster payments, because it’s generally free to deposit.

If you’ve come this far, you’re officially a crypto hodler. You’re embracing the future, today. Kudos!

Now to knock it up a notch.

Add Kukai to your account

Now, your XTZ is sat in the greasy hands of the centralised exchange. It’s no good there – we need it to be in our possession. We need it sent to our wallet.

Go to your Kukai wallet and copy the long public address. You know, the one that starts with “tz…“. Copy it to the clipboard or write it down, whatever works for you.

Then, go to your centralised exchange (Coinbase or whatever). Tell it you want to withdraw your XTZ. Of course, you can’t – so the exchange will ask you to add a wallet address. Paste your public address into that bad boy and go through the steps until it’s recognised.

You can now withdraw your XTZ to Kukai!

Pro tip: the first time, withdraw a small amount – like 0.5 XTZ or something. That way, if you’ve messed up typing the address in, you haven’t lost all your crypto. Unlike with banks where transfers might be protected a bit, in crypto you are completely live without a net. If you fall, that’s on you: no-one is coming to help you.

The first time you do this it might take 20 minutes while the exchange checks that you’re not a thief or a hacker. Later on, it takes a minute or two.

Using Quipuswap to make a trade

Well done – you’ve come so far already! If you were to keep doing this, it eventually becomes easy. It’s like driving a car: after a while you forget about all the steps and just do it.

We can now have our two tabs set up: one with Quipuswap, one with Kukai.

Go to Quipuswap and play with the drop-down menus so that you are going to trade some/ a lot of your XTZ for the PLENTY token. Then, in the numbers box, put in the number of XTZ you want to trade.

Warning: do not trade all your XTZ. Any time you do a transaction on any blockchain, you have to pay for it with a bit of the layer 1 token (or layer 2, if you ever try this on more complex chains). This is called gas fee. On Tezos, each deposit, trade, withdrawal or whatever costs between 0.002-0.01 XTZ. I would make sure you have at least 2 XTZ in your wallet at all times, but I’m paranoid. Take whatever risk you want.

When you click the swap button, a pop-up will tell you that this is awaiting approval in Kukai. Go to Kukai, look at the pop-up and put in your password. This will lead to a loading screen as Kukai tells Quipuswap that you’re happy to accept, then go back to Quipuswap where a loading icon will show while Quipuswap executes the trade.

You will have just interacted with your first smart contract. That’s honestly further than most people will ever get. The thing about smart contracts is that there’s no-one who monitors your trade, no market intermediary, nothing. You’ll become a crypto native in no time!

Common problems

Crypto is still new and new tech sometimes doesn’t perform well. The important thing is that if something doesn’t work, don’t panic. There are some common problems that you can solve if the transaction says that it has failed or has an error or something.

If you have too many numbers after the decimal point, sometimes the smart contract doesn’t process correctly. Try playing with the numbers until you have fewer decimal places. I aim for fewer than 10, but that’s not based on anything scientific.

Sometimes the exchange rate changes while you’re in a transaction. You can either increase the slippage (that “0.5%” note underneath the drop-down boxes) or just wait a second then try again. I usually just wait for a bit.

Finally, sometimes I get stuck on the loading screen while the network is busy. Walk away, have a cuppa tea, try it again later.

Using Plenty

You’re done with Quipuswap for now. Change that tab so that you’re now looking at Plenty in one tab and Kukai in the other.

If you’re now thoroughly terrified, you can go to “staking” in the menu and drop your Plenty there. It’s the easiest but least lucrative option. If you’re feeling more adventurous, we’re going to try some liquidity pair yield farming.

Firstly, click on “Farm” in the menu. As you scroll down this page, you can see lots of what are called liquidity pairs. I’ll explain those before we go on.

Liquidity pairs and market making

When you used Quipuswap, you deposited XTZ and got PLENTY. Crypto tokens aren’t made like alchemy, you can’t turn one into the other. No, what happened is that there was a liquidity pool in the background for XTZ/PLENTY. You added your XTZ into the pool of tokens, then you pulled two or three PLENTY out.

There’s a slight difference: you always pull out a bit less than you put in. The pool keeps a little bit (it’s usually about 0.03%, so not much). This way, the pool is always growing in size. That’s important and it’s how we’re going to use it to make money.

This is pretty close to how a bureau de change works when you buy holiday money. You buy dollars/ Euros/ Romanian Lei with GBP, putting one bit of money into the Post Office’s accounts and drawing a different type out. They keep a fee, so their money pool is always getting a bit bigger.

What we’re doing in yield farming is adding to both sides of the pool, to get a share that represents our contribution. Yup, we’re crowdfunding a bureau de change. That means we get a share in the profits (some of that little bit that gets left over). The added benefits that make this “farming”, however, come in the form of a reward token that is given to us by showing the platform that we’re shareholders in this bureau de change.

OK, I’ve said “shareholders” because most readers know what a share is. The correct term though is liquidity providers, and the share of the pool is represented by an LP token.

Choosing a pair

I generally provide liquidity to stablecoins, ideally solid stablecoins that I’ve identified in my update on using crypto for financial independence. Most of those live on the Ethereum blockchain network, so aren’t directly shown on Plenty, but can you see the “wBUSD” or “wUSDC” tokens? Those are “wrapped” tokens, which means that buying them gives you the right to claim the BUSD or USDC token on Ethereum if you ever want to.

I like BUSD. It’s operated by the Paxos Trust Company, who are a regulated financial services institution in New York. As stablecoins go, that’s a low-risk pick. That said, I also have some other LP tokens from providing liquidity to other tokens as they’ve arisen, where there has been an introductory bonus or really good return that outweighs the risk.

Pick one you like. If you’re playing with £1,000+ (I love your bravery) you can even get wWBTC or BTCtez, which give you the right to Bitcoin from their operators. That’s right, you can own Bitcoin while being on a completely different blockchain.

Getting the LP token

This takes a couple of trades.

Step 1: Trade some PLENTY tokens for the other one.

Firstly, you need to trade roughly half of your PLENTY tokens for the other token. So, in my case, if I had 20 PLENTY, I would swap 10 PLENTY for whatever that was in wBUSD.

Step 2: Adding liquidity

Now that you have a bit of both, you can add them in a 50-50 split into the pool. Note that the figures don’t align for a couple of reasons: firstly, the dex has taken some of them as a fee for doing the swap in step 1; secondly, the exchange rate has changed in between. Yes, it moves that quickly.

Staking LP tokens

Once you’ve gone through all of the choosing and approving on Kukai, you’ll have LP tokens in your Kukai wallet. You probably won’t see them (unless Kukai has upgraded again between me writing this and you reading it), but they’re there.

Now, go back to the farms page on Plenty. You can now “stake” them, i.e. tell Plenty that you own some LP tokens and therefore have a right to any reward tokens that are offered. It’s hidden under the little arrow beneath the trading pair.

Now once you’ve done that and approved it on Kukai, that’s it – you’re yield farming like a pro!

Can you see that “harvest” button on the photo? That means I’ve accumulated some rewards – more PLENTY tokens – which I can claim. Not bad, eh? At the time of writing, PLENTY has a cash value of between $2-$2.70.

When I want to turn PLENTY back into cash, I need to trade them on Quipuswap for XTZ. I can then send this XTZ back to the exchange from Kukai and sell it for other crypto or cash if I want to. Simple.

A note on rewards from yield farming

I’m making about £15-20 a day on Plenty, having built the capital up through reinvesting the profits until it’s at around $3,700. I mostly just reinvest it.

The APR shown on the photo looks insane – and it is pretty damn awesome – but it’s a bit misleading, for a few reasons:

• The payout is in PLENTY, which might rise in price or shrink in price against the other token in the pool – in my case, against the US$. This means that the APR fluctuates quite a bit.
• The way the rewards are paid is that a fixed amount is split amongst all the LP token stakers. As more people join and put more money in, the pool gets diluted, so I’m expecting the earnings to reduce over time.
• Your growth comes from both the reward tokens and the little bits that are kept by the pool, but you only harvest the reward tokens. The maths gets messy quite quickly.
• The tokens in the pool (PLENTY, plus the other one) can rise in value, so you might get capital growth too.

I’m quite happy with this as a side hustle but I don’t think it’s a reliable income source for financial independence in the long term. I certainly wouldn’t retire on it.

There’s also the possibility that the token becomes very popular or very unpopular. For example, PLENTY might become unpopular, leading to a rush of people taking out wBUSD from the pool to get rid of their PLENTY tokens. this might mean that you get back more PLENTY than wBUSD when you decide to cash out – or the other way around.

Can you withdraw your tokens?

Yes. You can work this backwards by unstaking the LP tokens, then removing liquidity in the swap menu, then cashing back into XTZ on Quipuswap.

There’s a slight trap, though. To prevent a run on the bank, Plenty has a removal penalty fee of 4% of whatever is staked if you withdraw it in 9 days. It drops to 0% after that (as at October 2021), so make sure you are comfortable leaving it 9 days.

Is yield farming an awesome side hustle?

It wouldn’t be fair to call it a side hustle without a side hustle review! Let’s see how it scores.

Factor 1: Enjoyment

I’ve enjoyed it because of the little dopamine hit you get when you harvest a good £15-20 in the morning before work. It’s not everyone’s cup of tea, but it’s a smug feeling. Plus, there’s something cool about using new technology that most of the world doesn’t understand yet. I’m giving it a bold 4.

Factor 2: Variety

I guess it scores quite low here. Not much variety once you’ve identified a yield farming opportunity. A token 2.

Factor 3: Scalability

Oh yes, this is definitely scalable. You can do this quite quickly after a while, and the gains can be compounded to counteract the drop in yield. That’s a solid 5!

Factor 4: New Skills

Crypto is probably a new skill for most people. It was for me. Most yield farming mechanics work in a similar way to this, so it’s transferable, and it helps you to assess the value of a crypto project once you’ve got a bit of experience in using it. I think a comfortable 3.

Factor 5: Energy Drain

Definitely a 5. This is only draining the first time. For perspective, after a few goes I was able to harvest and compound my returns in less than 10 minutes, using only a smartphone and 4G connectivity.

Overall scores

Factor	Score
Factor 1: Enjoyment	4
Factor 2: Variety	2
Factor 3: Scalability	5
Factor 4: New Skills	3
Factor 5: Energy Drain	5
Overall rating (mean)	3.8

That’s a pretty good score. It’s quite a lucrative side hustle, but it’s effectively a click-and-repeat job once you know what you’re doing. I wouldn’t expect a life of fulfilment from it, but I still think it’s something worth considering.

If you would like to try out yield farming yourself…

I don’t think this is worth trying out with less than £200. This is just because the fees eat your capital up faster than you can make a profit. For an indication, I started with about £800.

That might make this a deal-breaker for you.

If you decide to join me in the lunatic fringe of DeFi, Coinbase will give us both £7.36 in Bitcoin if you buy your first £73.56 in crypto through them. Not bad, might soften the blow from the fees, but definitely check other exchanges mentioned.