I’m noticing that LP yields on yield optimizer sites have high yields on various Liquidity pools. How do these work? I get that sometimes protocols give governance tokens or other rewards for using protocols, but the high yield rates seem to be higher than this, right?
4 thoughts on “How do Yield optimizers work on LP’s”
They compound your rewards for you, which is why your APY is higher.
I’m not too familiar with yield rewards on yeild optimizer cause I participate in few LM program and my favorite is the UDO/USDC pool that is offering about 120%APY returns
This has an extremely in depth explanation about exactly this question.
Trading fees are auto compounded in while incentives are not. And then it gives resources to figure out how to calculate the return
There’s two components of the typical LP yields,
1. LP Trx fees
2. LP Farming rewards (available in Pancakeswap, spookyswap and sushiswap)
Yield optimizers generally works by auto-compounding the farming rewards however some others do more complex techniques like leverage or multi cycle derivatives. Anyway, check out my YO at [happyhippo.farm](https://happyhippo.farm) only for PCS LPs.
If the APYS are too crazy like >1,000% APY this usually means the YO is minting its own token and use that to reward you hence the high APYs, though usually the YO reward token crash to 0 in a relatively short time. An example of this is [defihippo.finance](https://defihippo.finance)
So two hippos, one is the good hippo the other is the bad hippo. 🙂