War is declared between trading algorithms and Yield Optimizers. If you are looking for passive income, these two solutions are surely the most used in the crypto world. Let’s take stock and see together which solution is best suited to your needs.
Also called “automated trading” or “trading robot”, a trading algorithm is defined by a programming code. Its objective is to act on the market in place of its user.
This type of service has mainly been deployed in large institutions, hedge funds, but also to promote high-frequency trading. They are now tending to become more popular with the general public.
More concretely, it is a program that sweeps the markets at the search for trading opportunities. Depending on the parameters of the algorithm, the latter must have a attractive earning potential.
A trading algorithm decides automatically whether or not to enter a position in a market. It takes into account the timing, the value of the asset, the trading volumes, etc… And this without the intervention of a third party.
There are thousands of them and their effectiveness depends on several parameters, the most important of which is the strategy used. Contrary to what one might think, structuring a trading algorithm is not a simple thing.
In addition to the required knowledge, research and development represent a considerable work for the people wishing to build their own program.
This takes time, since it requires a large number of backtests, but above all requires one or more strategies that have proven themselves upstream.
These should actually be based on a series of relevant patterns and indicators. Which is unfortunately not the case with all trading robots.
Indeed, the vast majority of trading algorithms on the market are based on a system that is too simple. Some are programmed to spot crossovers between the 50 and 200 moving averages, for example. Obviously, this kind of strategy is not enough and it generates very little gains, even losses, for the users of these trading robots.
It is for this reason that trading algorithms have relatively bad press. Lots of scams are springing up, splashing the best, most effective programs.
Yield optimizers: really profitable tools?
Yield Optimizers, on the other hand, have the same objective as trading algorithms: to optimize the earnings of their users. However, even though the background is the same, the form is different.
To begin with, Yield Optimizers are also called ” yield optimizers“. It is more obvious now that the translation is done that they are not meant to be traded. They play the role offarming platform aggregator.
With this label of aggregators, their mission is to optimize the returns generated by the activity of crypto farming.
This practice is specific to decentralized finance (DeFi) and is mainly based on lending and borrowing mechanisms of cryptocurrencies.
More specifically, Yield farming represents a means of generate rewards with the cryptocurrencies held. In other words, it is about locking cryptocurrencies in pools and getting rewards or interest in return. It often resembles staking although Yield Farming is more relatively complex than the latter.
Yield Optimizers, such as Beefy or Yearn Finance, have been on the rise for some time. Their main advantage remains the APYsyields, which sometimes reach very high percentages defying all competition.
However, the risk taking specific to this activity is much more substantial than for any other crypto financial service. Indeed, the structure of these platforms makes it attractive to hackers.
Recall that the liquidity pools where the tokens of the lenders are blocked are in the form of smart contracts, computer programs. They are therefore often fallible. Total extraction of value from a pool can occur at any time. This is all the more true when it has not been audited and whose reliability is ultimately unknown.
Moreover, the risk of capital loss or gain remains the major drawback of this practice. Whether on the lender’s side with the risks associated with impermanent losses or on the borrower’s side with the liquidation risk from its position, yield farming is reserved for experienced users who have mastered the mechanisms of the practice.
The differences between trading algorithm and yield optimizer
As we have seen previously, trading algorithms and Yield Optimizers have the same objective, that of generate passive income in an automated way.
However, they are very different in their construction, but also in their mechanism.
Trading algorithms are automated trading programs. They do not move users’ funds, but make the investments themselves based on a chosen strategy and chart patterns. That implies purchases and sales on trading platforms like Binance or FTX. The trading algorithm is prone to a graphical analysis sustained and constant.
Also, trading algorithms are not looking for returns, buttrading opportunity. They seek to grow the capital of their users by positioning themselves on the markets.
Yield Optimizers work differently. They move funds users between different pools in order to generate returns.
The strategies used by these protocols are also included in their program. However, this is not a graphical analysis. Their reasoning is based more on a pure search for yield on the platforms on which they are implemented. They do not analyze the entire market but a tiny part of the crypto universe.
In addition, Yield Optimizers induce the notion of ” rewards ” and D’ “compound interest » more than that of pure gain as is the case for trading algorithms.
Finally, trading robots have certain particularities depending on their architecture.
On the one hand, users retain some power over the management of their capitalwhich is not necessarily the case with Yield Optimiezr.
On the other hand, they offer additional security benefits. That of EnBourse, for example, consolidates the reliability of its service to that of a manual human verification. Called ” Oversight Deck“, this service includes an ultimate filter managed by a real expert trader. The latter verifies the signals detected by the algorithm so that those which reach the users are closer to the ideal opportunities.
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Which solution to choose to earn cryptos?
In raw data, Yield Optimizers generate returns far superior to any known financial services. They can achieve yields over 300% on some protocols. In this sense, they are very profitable.
However, as we have seen, they are not without risk. the piracybut also the profit loss are important risk factors when using a Yield Optimization platform.
For their part, trading algorithms are certainly risky, but in much more reasonable proportions. Indeed, the risk of hacking is greatly reduced.
On the most serious platforms, users do not deposit their funds directly into the algorithm. On the contrary, it is the algorithm which logs into an exchange account or sub-account used through an API system. Thus, if the algorithm is hacked, the funds remain safe on the exchange.
In addition, Yield Optimizers require a very advanced understanding DeFi solutions. They are therefore not within everyone’s reach and their accessibility can put off many users.
On the other hand, the trading bots have the advantage of being very accessible, even for beginners. Of the simple settings and an account on an exchange are enough to access the service and start generating passive income. A simple glance once or twice a month is necessary.
Trading algorithms therefore represent a time savinga increased security and consistent passive income with the various desired short, medium and long term strategies. They are accessible to all, experienced or beginner. They allow you to make interesting profits provided you choose the best ones.
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