Crypto market intelligence provider IntoTheBlock compared the best risk-adjusted methods for generating returns in the world of decentralized finance (DeFi) in a report published Thursday. 📊🔍

The firm claims that despite a "nearly infinite number of combinable strategies," it's best to stick to "simple strategies." These strategies can be reduced to “a handful of different primitives.”

The first strategy the firm highlights is AMM Liquidity Provisioning. AMM is an automatic market maker. DeFi users can deposit their assets into AMM pools for various trading pairs, thereby providing liquidity to enable trades. Traders earn returns from trading fees every time a user exchanges between two assets using this pool. 🔄💰

Another source of high returns is "recursive lending". Protocol users can provide and borrow the same asset, profiting from the difference between borrowing costs and protocol incentives. Like AMM pools, returns decrease as more capital is added to the strategy, so the firm recommends using lower leverage when investing more than $3 million in assets.

The report highlighted “leveraged staking” as a strategy to generate “moderate” returns on assets such as ETH or SOL. With this strategy, the return remains positive as long as borrowing rates for the asset in question remain below the staking rate. Returns increase as leverage increases, can exceed 10% APY compared to the 2% to 4% returns typically seen with simple staking.

“The combination of these strategies can create a complex chain of risks when it comes to rebalancing and taking profits,” IntoTheBlock warned.

What do you think are the smartest ways to make money in DeFi? We are waiting your comments! 💬👇