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.

You can track how much is locked in Avalanche DeFi protocols (its total value locked, or TVL) and how it compares with other blockchains on DefiLlama.¹

Protocols on Avalanche include multichain names such as Aave and Uniswap, as well as Avalanche-native protocols such as LFJ (formerly Trader Joe), Benqi 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 rise and fall with network demand and can be expensive when the network is busy, so check current gas prices before you transact.²

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 was a liquidity incentive programme launched in 2021 to attract major DeFi protocols to Avalanche.

Here's a look at some of the major players in the Avalanche ecosystem. Yields change constantly, so check each protocol's own site for current rates before you deposit.

LFJ (Trader Joe)

LFJ (previously Trader Joe) is one of the longest-running Avalanche-native DeFi protocols, offering an exchange, liquidity pools, farms, JOE staking and even single asset lending.

Pangolin

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

Uniswap

Uniswap is also deployed on Avalanche's C-chain, so you can provide liquidity to its pools there.

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 can be expensive when the network is busy.

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.

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 and AVAX

The X-chain (Exchange Chain) is used to create and trade assets on Avalanche, including AVAX. 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.

Fees on each chain are paid in AVAX held on that chain. Because DeFi happens on the C-chain, you need to keep an AVAX balance in your C-chain wallet to pay gas – you don't need AVAX on the X-chain for this. If you run out, you won't be able to pay for gas until you send more AVAX to your C-chain address.

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

Just make sure you choose the Avalanche C-chain as the withdrawal network, not the X-chain.

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

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

• You don't need the X-chain to pay for DeFi transactions – gas on the C-chain is paid in AVAX held on the C-chain.
• Don't top up the X-chain to pay for gas. If you run out of AVAX on the C-chain, send more from an exchange (choose the C-chain network). Some wallets also offer a built-in fiat on-ramp so you can top up with a card.
• You can move AVAX between the X-chain and C-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.
• Keep some AVAX here to pay gas fees for your DeFi transactions. 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 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 you can use it to pay gas fees.

Next steps (quick-start guide)

1. Set up an Avalanche wallet and connect your MetaMask.
2. Use the Avalanche bridge to transfer assets from Ethereum to Avalanche, 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, but 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 in your C-chain wallet 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

Journalist

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James Edwards is a seasoned cryptocurrency expert and content creator with over a decade of experience in blockchain, DeFi and Web3. An early adopter of Bitcoin, he has contributed to major outlets like Nasdaq, CoinDesk, and The Street, and has reported at leading industry events such as TechCrunch Disrupt and CoinDesk Consensus. James has produced over 200 YouTube videos, including interviews with influential figures like Changpeng Zhao (CZ) and Tim Draper, and holds a Bachelor of Liberal Arts & Sciences in Psychology from the University of Sydney, along with a Tier 1 Generic Knowledge certification in compliance with ASIC standards. James created cryptocurrency content at Finder as a video producer, writer and editor from 2018 to 2023. See full bio