How to Calculate DeFi Yield Farming
What is DeFi Yield Farming?
The DeFi Yield Farming Calculator estimates total returns from providing liquidity to decentralized exchange pools, combining trading fee APY, token reward APY, and accounting for impermanent loss that erodes returns when token prices diverge.
Formula
Net APY = Trading Fee APY + Reward Token APY - Impermanent Loss - Gas Costs
- LP
- Liquidity Provided ($) — Total value of liquidity deposited into the pool
- FA
- Fee APY (%) — Annualized yield from trading fees distributed to LPs
- RA
- Reward APY (%) — Additional yield from governance/farm token emissions
- IL
- Impermanent Loss (%) — Value loss from price divergence vs holding tokens directly
Step-by-Step Guide
- 1Enter the amount of liquidity you plan to provide and the token pair
- 2Input the trading fee APY (based on pool volume and your share of liquidity)
- 3Add any governance or reward token emissions (farm incentives)
- 4Subtract estimated impermanent loss based on expected price movement of the token pair
Worked Examples
Input
$10,000 in ETH/USDC pool, 15% fee APY, 20% SUSHI rewards, 5% impermanent loss, $200 gas
Result
Net return = $10K × (0.15 + 0.20 - 0.05) - $200 = $2,800/year (28% net APY)
Input
$50,000 in stablecoin pool (USDC/DAI), 4% fee APY, 8% CRV rewards, ~0% IL
Result
Net return = $50K × 0.12 = $6,000/year — low IL makes stablecoin pools safer
Common Mistakes to Avoid
- ✕Chasing high advertised APY without accounting for impermanent loss on volatile pairs
- ✕Not factoring in the depreciating value of reward tokens (farm token inflation)
- ✕Ignoring gas costs for entering, claiming rewards, and exiting positions
Frequently Asked Questions
What is a realistic sustainable DeFi yield?
Sustainable yields (from trading fees, not token emissions) are typically 2-10% for major pairs and 5-20% for volatile pairs. Yields above 50% are almost always from unsustainable token emissions and will decline.
Should I farm with volatile pairs or stablecoins?
Stablecoin pairs have near-zero impermanent loss but lower yields (3-8%). Volatile pairs offer higher yields but impermanent loss can exceed the extra income. Stablecoin farming is better for risk-averse capital.
Ready to calculate? Try the free DeFi Yield Farming Calculator
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