How to yield farm LINK using Yearn Vaults

A couple of inquiries came up to a reply I made on Twitter about yield farming Chainlink‘s $LINK token, so I wanted to write this up a quick guide for people who are holding LINK and want to increase their holdings.

I was fortunate enough to get in on the ChainLink ICO during what seems like an eternity ago, and I’ve been holding ever since. It’s turned into one of my best performing assets. ChainLink serves as an on/off ramp for Ethereum and other blockchains, functioning as an oracle for real-world data and payment. Any input to any output, as they say on their home page.

$LINK Chart. I recently added to my position after this last pullback.

What is this DeFi stuff?

For those who are unfamiliar or new to DeFi, what we’re doing here is basically lending our LINK to Aave in exchange for a liquidity token, aLINK. Aave lends the LINK out to other borrowers, and lending fees are then distributed back to the pool, and gains are distributed to the lenders. Borrowers are required to over-collateralize their loan, meaning that in order to borrow LINK they will have to provide ETH or other asset worth more than what they are borrowing. If the underlying asset value drops in price due to the price spread between the borrowed asset and the collateral increasing, then the borrower is at risk of being liquidated, which means that they forfeit their collateral. This process is a bit more complicated than that, but it insures that the lent assets are recovered to the pool. There is also what’s called a “flash loan”, where assets are lent and returned to the pool within a single block.

As borrowing fees accumulate in the pool, it increases the value of the liquidity tokens. Liquidity providers (LPs) collect these returns based on their percentage of the pool’s total assets, as well as trading volume. In addition to the yield in the base asset, LPs are sometimes rewarded with governance tokens in the lending protocol or platform, in this case $AAVE. These governance tokens can have their own value, but must be claimed via interacting with a smart contract.

What the Yearn vault does is pools these aLINK tokens. By depositing your aLINK in Yearn’s vault, you receive a yaLINK token. Each time a user interacts with the contract, either via deposit or withdrawal, the gas they provide is used to claim all of the $AAVE tokens that the vault is entitled to and then execute the strategy that it has set. This strategy could be as simple as selling the accumulated $AAVE, buying more $LINK, staking it for aLINK and depositing it back in the vault. Or there may be more complicated leveraging going on. The strategy can change depending on what’s providing the best value, and is automatically executed each time someone enters or exits the vault. If you’re interested in the actual strategy being used, I suggest you head over to the Yearn.Finance documentation and pop into their Discord.

Other strategies may involve leveraging platforms such as Curve, so just keep this in mind before you go risking anything more than you can afford to lose.

Current yaLINK vault yields, three day average (10/14/2020)
Current yaLINK vault yields, one month average (10/14/2020)


What are the risks? Namely, it all comes down to smart contract failure. DeFi has seen a number of rug-pulls lately, not to mention untested, unaudited contracts being deployed and failing spectacularly, but I don’t hold Aave and Yearn in this regard. According to DeFi Pulse, Aave currently has just under $1.25 billion locked, which makes it quite the honeypot. They’ve been around since January of this year, which is ancient history in the DeFi space, and they have a number of audits on their contracts.

Risk is further compounded by an additional layer through yearn. If you’ve ever watched The Big Short, we’re basically talking about a derivative of a derivative at this point. Yearn has around half a billion dollars under lock currently, and only launched in July. Audits for the project are available, but do not prove that the system is secure.

In fact, Yearn developer Andre Cronje is a bit of a controversial figure right now due to his propensity to deploy experiments to the Ethereum mainnet. Thankfully, governance of Yearn has been handed off to the Yearn community.

There’s also the risk that the yield will decrease. If you look at the two pictures above, you’ll see that the growth rate fluctuates quite a bit depending on the timeframe that you’re looking at. I believe that this depends mainly on the underlying asset performance, so your yield is likely to be higher when LINK is performing. One of the main goals of the Yearn Vaults is that you will never wind up with less of your asset than you started with, so if you are planning on hodling, this is probably the place for you.

Tax Ramifications

A quick note for US residents. Lending your LINK, or any other asset in the way we describe is likely considered a taxable event, and I’m treating it as one personally. I’m not a tax accountant, but from what I have read, if you provide custody of an asset to a third party and they lend it out, it is is considered a sale.

ETH fees and position size

Here is where I got tripped up. Interacting with these contracts cost a lot of gas, and you have to keep this in mind when you move in and out of these lending platforms and farms. In fact, one of Yearn’s main use cases was to spread reduce the cost for users to move their funds from whichever platform was offering the best rate, so you’ll pay a lot to move in an out. You’re basically rebalancing the entire vault when you do.

And gas fees were very high a few weeks ago, with some people paying over $100 in ETH to get some of their transactions through. Things are less crazy right now, so you’re looking more along the lines off $15 or so to use Zapper as I describe below.

That said, plan ahead!

If you’ve got less than a thousand dollars to lend or stake, then you may want to reconsider. I also recommend that you plan on leaving your funds in the vault for the long term, weeks, or months. Performance may vary greatly from week, to week, so And make sure you keep enough ETH in your wallet to withdraw your funds when the time comes.

Current LINK lending APR rates (10/14/2020) Source:

Rates can fluctuate quite a bit from day to day, so have strong hands and resist the urge to move funds around to make a higher yield. Unless you’re dealing with five-digit sums (lucky you!) your gains will quickly get eaten up by transaction fees.

How to use Zapper.Fi

Ok, so if you made it this far, you’ll want to head over to Zapper.Fi, click on Invest, and search for LINK vault. In addition to the yaLINK vault, you’ll see other liquidity pools such as those on Uniswap and Balancer. Both of these platforms are automated market makers, (AMM) which are basically decentralized exchanges for the various assets. Simply put you provide multiple assets to a pool, such as LINK and ETH, and the pools allow trades between the two, with the fees going to the LPs. Normally, you would have to provide equal amounts of both assets to stake in these pools, but Zapper takes care of the heavy work and will manually convert the proper amount of one asset into the other, stake both, and provide you with the liquidity tokens.

LINK related pools available throuh Zapper

In the case of the yaLINK vault, it will stake your LINK tokens on Aave, then stake the resulting aLINK tokens in the vault, all in one transaction.

Well, almost one transaction.

You’ll still need two transactions to interact with Zapper, which is still less than going through both Aave and Yearn. The first thing you have to do is approve the Zapper contract the ability to spend your LINK tokens. This is the cheap part. Last night it only cost me $0.75 to approve the first transaction. One thing you will want to look out for at this point, as well as with any interaction with a smart contract, is adjust the approval amount on the transaction. Usually these platforms will default to unlimited approval amounts, meaning that they will theoretically have the ability to spend any all all LINK that you have or will have in your wallet. As a precaution, as as a good habit, I recommend that you edit this amount in Metamask or your wallet to equal the amount that you plan on staking. It may cost you a bit more in gas in the long run, but is a best practice from a security standpoint.

After the approval has been submitted to the blockchain, the next step is the actual confirmation. This is where the gas fees will really hit you and make you do a double take. At this point you’re basically funding a transaction to interact with both Aave and Yearn, so the fees are pretty steep. Last night this was only a reasonable $15 for me, but four weeks ago when gas prices skyrocketed due to the Uniswap governance token airdrop, I remember it being much, much higher.

When you’re ready to pull your funds out, it’s just a matter of hitting withdrawal, selecting your preferred payout asset, and confirming a single transaction. From my testing, it appears to be much less than they entry cost, gas wise.

And another note about Zapper that is worth mentioning. You don’t actually need LINK to participate. You can deposit ETH, USDC, Tether, DAI, or WBTC in addition to LINK. All the conversions are managed automatically.

Zapper is a superb tool for DeFi, and one that I use almost every day to check the value of my wallet assets, and stakes and lending across multiple platforms and wallets. If you’re holdings. They’re great.

And that’s just a quick look at how to get started with Yearn vaults. DeFi is one of the most exciting parts of the crypto space, and I hope you find this article useful. If so, please share it with your network, and feel free to leave a comment or @ me on Twitter if you have any additional questions. As always, this is not financial advice, and don’t risk what you can’t afford to lose.

Buying opportunities

Yesterday, $CELO pumped tremendously. This one has been on my radar for a week or two, and I passed up an opportunity to pick it up last week. For one, it was on Bittrex, and I didn’t feel like moving funds around to pick it up, and two, I was focused on moving funds into Yearn. So I missed out on this pump.

I’ll continue keeping an eye on this one. In the meantime, here’s an Epicenter podcast with two of the founders of Celo.

In light of this missed opportunities, I thought I might share some other positions that I are hitting my buying criteria.

ChainLink ($LINK)

LINK hasn’t been this weak since May, when it last touched it’s 200-day moving average. It would be a great time to pick some more up if I wasn’t still holding from the ICO. I might reconsider if it touches the 200MA.


I’m not sure how I feel about this project anymore, I haven’t heard anything out of it in some time, which is more my fault than theirs. I’ve been holding on to this one since 2017, meaning that while I’m still up 90% from my entry, I’m still down 90% from early 2018. Another lesson in why you should take profits, or at least set trailing stops.


They’ve pivoted from their original project, REN Protocol, which was a dark pool trading platform, and now have one of the most popular tokenized BTC assets on the market. That last green sell signal may be acting as a strong support right now. I would size my position with the last sell signal as my stop and aim for another bounce off the ATH.

Litecoin ($LTC)

I could care less about LTC these days, but here it is. I’m not sure where the bottom is on this one, it could be anywhere between 3000-42 sats. I might just still be feeling burned when I bought it at $300 during a FOMO phase.

Basic Attention Token ($BAT)

My stop limit (orange line) would seem more brilliant if I hadn’t already been down 60% due to apathy. This seems like a really good entry, with some strong support slightly below the current level on the wider chart. Still, I took a loss on this one and should have shown better risk management on it about two years ago.


This one was probably one of the biggest mistakes in my trading career. I blame the TV trollbox. I managed to cut it after 90% losses. Another project that I don’t think got any traction, and one that I should have cut a long time ago.

Not quite there yet

These coins are all on a downward eight-count: Tezos, 0x ($ZRX), ZEC, Cardano ($ADA), Ravencoin ($RVN). I think AMMs like Uniswap have killed 0x, Cardano might have the most life left of them out of the bunch, but I’d probably feel differently if I had more at risk on that position. I mined a good deal of RVN when Overstock’s former CEO name dropped them; I wish I’d unloaded more back then, and might be hoping they have another run before I can take some profits.

So what’s the lesson here? Probably that I’ve been really bad with risk management in the past. I think I can excuse myself since most of my losers were ones I FOMOed into during my intro to crypto during the 2017 bull run. I’m definitely more wiser now (I hope), so I hopefully won’t make more of the same mistakes in the future.

I’ll be sitting out with these. Earlier this month I opened positions with ALGO, ZEN, and SOL, which are all down, and I made another position with COSMOS that finally triggered after everything else dropped. While technically, I could set some stops to limit my downside on these positions an allow myself to deploy more capital, I’m locked up in Yearn right now, and plan on waiting until October to make any further moves.

Still, I’ll be watching these symbols to see what happens to them, and will do some more research to see if any are worthy of further investment.

Evening update

Today was supposed to be my self-designated RDO, or regular day off from work, something I’m experimenting right now as a way to reclaim some of my time so that I can work on personal projects. I did wind up doing a fair amount of reactive work for my day job, but got a surprising amount done still.

Of course I was focused on money: activities in the equities markets, crypto, and trying to make sense of what the hell is going on in DeFi right now, which is just a bit mind boggling.

I did finally say goodbye to my Basecamp account. As much as I like the product, the monthly fee of a hundred dollars is just too much for me when I don’t have any active projects going on. I think I can do most of what I need there in Notion, anyways.

Of course I rewarded myself by starting a TradingView trial. After god knows how many years I’ve been using that, and I’ll never have to see a stinking nag screen or ad again. Hallelujah.

I caught some nice profits off of Materialize ($MTLS) earlier this week after placing a trailing stop on them after they hit a nine on the TD sequential. It got pulled up with a spike on Wednesday I pocketed a nice one hundred percent gain. I’ve had a value averaging protocol in place on this one for more than three months now, and reset the position to start accumulating again while I watch and see if the TD generates a buy signal.

Materialize ($MTLS). Value average accumulation period in white box.

I’m not seeing any good entries in the crypto markets right now. Cardano (ADA) looks like it might be setting up for a buy zone. It seems to be at the support formed by the June buy setup. I would probably size my position here to stop just under the 200-day MA.

Cardano ($ADA) chart

Tezos ($XTZ) seems to be a bit of a mess, but might be worth a look. It looks like it takes 1000 XTZ to stake, which is a bit much for me to accumulate, so I’ll keep this one on the back burner at the moment.

Tezos ($XTZ chart)

The topics of staking came up in conversation with an associate today. My IDEX holdings are maintaining for right now, and I’m eagerly awaiting the release of IDEX 2.0 in the coming weeks. I don’t know whether that will be a “sell the news” type of event or not, but I’m hoping I’ll have enough of a stake to operate a Tier 2 node when the specs are released. Still no word on what that’s going to look like. In the meantime, it looks like I’ll be getting double the staking rewards every two weeks.

Perhaps the biggest decision right now is whether to accumulate more Ethereum in advance of the planned change to poof of stake. 32 ETH seems to be the magic number needed to create my own money-printing machine. That’s going to require a substantial investment, but will it be worth it? I’m guessing yes.

I was also exploring the possibility of running a ChainLink node. Interestingly, it doesn’t actually require staking LINK, although ETH is needed. The hardware requirements are pretty steep though, requiring 16GB of RAM. Running one in AWS isn’t going to be cheap, but if LINK continues to perform, it may be worth it also.

And speaking of LINK, half of my original ICO proceeds are now officially locked up in a Yearn Vault. I may have been overzealous, cause I still don’t understand fully how it works or is paid out. So far it has cost me a bit of gas to purchase Aave’s aLINK and deposit it in the Yearn vault, not to mention the cost I’ll incur to pull it out. For now I can just wait and see what happens, and watch to see if any more buying opportunities arise. The price has really pulled so far ahead of the moving average that I would expect it to consolidate or pull back for a while. Given how much ChainLink has been up to, though, there’s really no telling how far up this is going to go. I just can’t see selling any of this right now.

And I still won’t be buying anything yet, until I get my trade plan program up and running. I haven’t looked at it in a year, and who knows what I was doing last time I worked on it. I’m almost scared. I’ve got a few more things I want to do with my BEAM converter before I change gears to work on it, so hopefully we’ll have several more weeks of opportunity before things start to take off.