DeFi on Avalanche: How to get started yield farming

If you missed the golden days of high yield and low fees on Ethereum, then Avalanche has you covered. It is cementing itself as one of the DeFi hubs for low-cost, high-yield farming.

The Ethereum competitor hosts around US$1.4 billion of assets (TVL), making it the ninth largest economy in cryptocurrency.¹

Despite the success, you can still find APRs in excess of 100% on leading asset pairs, with fees less than a dollar.

Right now you will find this extra yield in blue-chip services including Aave, Curve and SushiSwap or with Avalanche-only protocols such as Trader Joe, Snowball and Pangolin.

Using Avalanche is easy enough, but even seasoned Ethereum users need a few more details before jumping in.

Here's what we will cover today

• Why use Avalanche
• Where to farm and a detailed breakdown of rewards
• How to create an Avalanche wallet and onboard funds (important – don't skip this)
• Next steps

Why Avalanche?

The reason that Avalanche has protocols like Aave and Curve is that it is compatible with the Ethereum Virtual Machine (EVM).

This basically means that any application that runs on Ethereum can also run on Avalanche. But for a fraction of the fees.

Ethereum fees are still around $10 for a standard Uniswap transfer, making it prohibitively expensive for most users.²

On Avalanche the same type of transaction costs around 50c.

Avalanche is able to do this because it uses a different consensus algorithm from Ethereum, while still maintaining the same application layer.

So in some ways, Avalanche is a cheaper and faster version of Ethereum.

Where to earn bonuses on Avalanche

Avalanche Rush is one of the biggest incentive programs in history, and has allocated $180 million of additional capital to yield farms and other DeFi services on Avax since 2021.

Here's a look at some of the major players in the Avalanche ecosystem and the yields they are currently offering. All yields were last updated on 25 November 2024, but are likely to change.

LFJ (Trader Joe)

LFJ (previously Trader Joe) is the largest full-service DeFi protocol on Avalanche, offering an exchange, liquidity pools, farms, JOE staking and even single asset lending. It is Avalanche's biggest DeFi platform.

JOE/AVAX – 16.60% APR

You can earn up to 16.6% yield on pools on LFJ, or up to 6.19% stablecoin yield (USDC).

Pangolin - 1988% APR

Pangolin is an Avalanche AMM like Uniswap that lets you deposit liquidity and earn yield in return.

You can earn up to 1988% on a WBTC.E/USDC pair on Pangolin, with yield paid in PNG tokens.

Uniswap - 1460% APR

You can currently get up 1460% on Uniswap on a USDC/SHRAP pool.

Transactions on Avalanche: The C-chain and X-chain explained

You're going to need to pay attention here.

Once you're set up, Avalanche is just as easy to use as Ethereum. Metamask and dapps work the same way.

But getting set up takes a bit more effort than usual.

You're best off using the official Avalanche guide to get started.

That being said, I will highlight some of the key points you need to know.

Avalanche uses a multichain architecture, so sending funds to the wrong chain could see them lost forever.

There are 2 main chains you need to know about for now.

The C-chain – The home of DeFi, smart contracts and tokens

This is where you will spend most of your time.

It is the contract chain and is used to interact with Ethereum-compatible smart contracts.

It essentially hosts dapps and tokens, allowing you to work your DeFi magic.

Addresses on the C-chain start with a "0x" which is an easy way of making sure you're in the right place.

The official Avalanche Bridge (AB) supports token transfers from Ethereum to Avalanche's C-chain. This is an easy and safe way to transfer tokens across, as it only lets you transfer compatible tokens (basically, ones that exist on both Ethereum and Avalanche).

The catch though is that you will need to pay gas fees on Ethereum, which are currently quite expensive.

On the other hand, if you transfer over $75 of assets, you will receive some free AVAX to help pay for gas fees once on Avalanche.

Another way to transfer assets to the C-chain is to use an exchange that supports C-chain withdrawals.

C-chain compatible exchanges include:

• Binance
• KuCoin
• Gate.io

Using an exchange instead of the bridge to get assets onto AVAX is much cheaper as you avoid the Ethereum network altogether. Think of $50 versus 50c.

Remember you will need to specify the C-chain, as AVAX can also be withdrawn to the X-chain (more on that below).

Remember: C-chain addresses start with a "0x"!

The X-chain: AVAX and gas fees

The X-chain is where AVAX coins live. AVAX is the native coin of the network and equivalent to ETH on Ethereum or ADA on Cardano.

It is used to pay for gas fees and can be staked for rewards.

To use Avalanche, you will need to maintain your AVAX balance on the X-chain. If you run out, you will be unable to pay for gas and need to send more AVAX to your X-chain account.

Once again, you can use an exchange to do this and avoid fees.

Several support X-chain withdrawals, more so than C-chain withdrawals. Although I expect the gap will rapidly decrease between now and the end of the year if Avalanche's success continues.

Remember, if you use the Avalanche Bridge and transfer over $75 of assets or more, then Avalanche will donate some AVAX into your X-chain address to help pay for your first round of fees.

Not bad at all, but given the fees on Ethereum, I chose to deposit AVAX via an exchange.

Using the C-chain and X-chain together

Understandably, 2 chains might sound like a headache and be putting you off.

So let's recap the key points:

X-chain

• Keep the X-chain topped up with AVAX to pay for gas fees. Think of it like a train or bus pass you need to top up once in a while.
• If you run out of AVAX, you can send more from an exchange or use the built-in fiat on-ramp and top up with a credit card.
• You can also transfer wrapped AVAX (wAVAX) from the C-chain back to the X-chain using the cross-chain tab of the wallet.

C-chain

• Your C-chain wallet is where all of your tokens and non-AVAX crypto lives.
• This is the wallet you will use to interact with dapps.
• It can hold wrapped AVAX (wAVAX) too which is a good idea to have, in case your X-chain runs out, you can just swap it back. AVAX is also the base asset for many trading pairs.
• Fund your C-chain by withdrawing AVAX or compatible tokens directly from an exchange. Alternatively, you can use bridge assets from Ethereum if you're not worried about fees. You can also transfer any spare AVAX from the X-chain to the C-chain, where it becomes wrapped AVAX.

Next steps (quick-start guide)

1. Set up an Avalanche wallet and connect your Metmask.
2. Use the Avalanche bridge to transfer assets from Ethereum to Avalanche for free, or buy some AVAX on an exchange and withdraw it. The bridge will drop you some AVAX to pay for your first few rounds of gas fees, you will still pay ETH fees.
   1. Remember: If using an exchange, choose one like Binance that allows withdrawals straight to the C-chain.
3. Decide on which farms you want to participate in. Weigh up the risk of impermanent loss and consider what token rewards are paid in, rather than choosing the farm with the highest APY.
4. Use a DEX like Trader Joe or Pangolin to purchase the assets you need. Remember you will need some AVAX at all times to pay for gas fees. Don't run out!
5. Deposit your tokens in the relevant liquidity pool and make sure to stake your LP tokens in a farm for additional rewards. Also consider single asset lending or staking (Aave, Joe, Benqi) if you want to avoid impermanent loss.
6. Set a reminder to check on your farms each week to collect the rewards. Consider depositing your rewards to grow your portfolio or swap them for stablecoins to lock in a profit.
7. Now you're equipped – go out and learn more about what makes Avalanche tick, explore some of the other protocols on it and keep an eye on its Twitter for official updates and news.

Written by

James Edwards

Cryptocurrency editor

James Edwards was the cryptocurrency editor at Finder. He led the editorial strategy and reported on the latest industry news to further Finder's mission of helping people make better financial decisions. A relatively early adopter, James has been using Bitcoin since 2013 and began working in the industry in 2017. He takes pride in his ability to boil down complex topics into language his parents can understand. His expertise has seen him called on to report at events such as TechCrunch Disrupt, CoinDesk Consensus and IBM Think, and he has coordinated a vast number of high-profile interviews with the industry's brightest minds. He is a regular contributor to Nasdaq and is frequently called upon for market commentary in Australia and abroad. See full bio