DeFi Yield farming – What it is & how you can make money from it

DeFi Yield farming – What it is & how you can make money from it

In order to understand DeFi Yields, it is useful to first understand how a yield curve works. In a rising interest rate environment, most investors want to see the yield on investment grade bonds rise (in order to compensate for the risk of holding that investment). When the yield on an investment rises, this makes that investment look more attractive and investors want to buy it. The result is a larger supply of bonds in the market and a lower yield on the remaining investment grade bonds, which is what is known as a yield curve. When the yield on an investment falls, this makes that investment look less attractive and investors want to sell it. This results in a smaller supply of bonds in the market, which pushes up the yield on the remaining

DEFi Yield is an exciting new concept in cryptocurrency investing. By investing in DEFi Yield tokens you receive payment for holding and earning interest. This doesn’t sound too groundbreaking, but the concept is unique. DEFi Yield tokens are created by a unique investor-friendly method called yield farming. By linking your DEFi Yield wallet to your Coinbase account, you can earn interest by holding your tokens in your account. It’s simple! You can move your tokens on to a different exchange whenever you want, if you choose to, or you can keep them on Coinbase and start earning interest through the DEFi Yield platform. DEFi Yield is a platform for investors, creating an opportunity for anyone to make money from cryptocurrency.

DeFi Yield Farming is a practice whereby you rent out your idle BitShares (native asset to the BitShares Platform) as collateral for collateralized debt obligations (CDOs). You need to provide collateral for the CDO, and BitShares are a collateral that has a strong cash flow and a low risk of default. CDOs are a good and stable instrument to diversify your investment. You can find DeFi Yield Farming on BitShares.Net at https://goo.gl/6lpq3M or at https://goo.gl/fQ3gVL.

Do you have any cryptocurrencies on your phone or in your wallet?

Why not park them in DeFi protocols and earn returns on them that would otherwise be lying idle and producing no returns?

This is known as DeFi yield farming.

It’s similar to putting money in a high-interest savings account.

The main difference is that, unlike conventional savings accounts, the yield farming ecosystem is decentralized and provides enormous profits. In yield farming, you may achieve an annual percentage yield (APY) of above 100%.

Read on to learn yield farming in detail. We will discuss everything from what is DeFi yield farming, top yield farming projects to a step-by-step guide to getting started with yield farming.

Let’s get started!

What is DeFi Yield Farming, and how does it work?

Yield Farming is a method of earning passive income from your bitcoin holdings by depositing them in DeFi (decentralized finance) protocols.

Staking should not be confused with yield farming. In most instances, yield farmers are obliged to contribute money to liquidity pools in order to expedite transactions, and in exchange, you get fees depending on your liquidity pool contribution.

You may be wondering what a liquidity pool is.

Liquidity pools are decentralized smart contracts that hold user money to enable trading (exchange, borrowing, and lending). Liquidity providers (LPs) put money into these pools in exchange for incentives.

Yield farming is most frequently done using Ethereum-based tokens (ERC-20) and Binance Smart Chain-based tokens (BEP-20).

What Is DeFi Yield Farming and How Does It Work?

You just need to deposit money in liquidity pool smart contracts to start yield farming. For providing liquidity, you will begin receiving incentive tokens.

You may also receive rewards by reinvesting these reward tokens in other liquidity pools. As a result, determining a yield farming plan may be very difficult.

The yield farming protocol’s rules and the money you put in it determine your yield farming results. Furthermore, to optimize your profits, you may transfer your money into the highest-yielding DeFi protocols. This, however, requires a thorough understanding of the yield farming industry.

How to Begin Farming With DeFi Yields

1. Understand The Benefits And Drawbacks Of Yield Farming

As previously said, yield farming techniques may be complicated. Let’s look at the benefits and drawbacks of yield farming to get a better understanding.

Pros

APY of up to 100% is possible.

Normally, in staking protocols, you would get 8-10% APY on stablecoins such as USDT, USDC, and DAI. However, DeFi yield farming can give you as much as 100% APY (annual percentage yield) on your crypto holdings.

There are no barriers to admission.

To become a DeFi yield farmer, all you need is Ethereum, Binance Coin (BNB) in certain instances, and a crypto wallet.

There are a lot of dApps that are focused on farming.

Yield farming applications abound in the decentralized financial sector. You will be overwhelmed when monitoring your portfolio if you have invested in a range of DeFi protocols.

Don’t worry; there are a number of dApps that can assist yield farmers in keeping track of their investments and yearly percentage yield from a single, easy-to-use interface.

Cons

Ethereum Has Exorbitant Gas Fees

Gas costs are the amount you pay for transactions on the Ethereum blockchain, for those who don’t know. Gas costs have been rising recently due to heavy usage on the Ethereum network.

You must pay gas costs when making transactions since many yield farming smart contracts are based on Ethereum.

In other words, be cautious when calculating your yield farming returns. Gas costs may sometimes be considerably greater than the anticipated return.

However, with the Ethereum 2.0 update, gas costs may be drastically reduced. Before estimating agricultural returns, keep an eye out for petrol costs.

Returns on Investment in the Short Term

The cryptocurrency market is very volatile and unpredictably unpredictable. As a consequence, in the Defi yield farming sector, there is a danger of uneven returns.

Furthermore, since anybody may become a yield farmer and make money, successful yield farming techniques are difficult to come across.

Impermanent Loss Risk

When the price of your crypto deposits diverges dramatically from when you placed them in liquidity pools, this is known as impermanent loss.

In a technical sense, an Automated Market Maker (AMM) adds money in pairs. The pair is unbalanced as a result of the large divergence, causing the value of your deposits to decrease.

2. Recognize What TVL Is

The amount of crypto tokens presently staked in a particular liquidity pool is known as total value locked, or TVL.

TVL is a key measure for determining how well a DeFi yield farming technique is working. The arithmetic is simple: the larger the total value locked, the greater the number of individuals who trust the platform, and the higher the platform’s returns.

Remember that as the overall value locked in a yield farming technique grows, so will your farming profits.

3. Choose a Yield Farming Platform based on DeFi.

In this part, we’ll go over how to get started using Compound and Uniswap, two of the most popular DeFi yield farming methods.

Before we go into these procedures, let’s take a look at what you’ll need to get started with yield farming.

How Can You Get Involved In DeFi Yield Farming?

  1. Purchase coins that are associated with a certain yield farming system. ETH, BTC, and stablecoins like USDT, USDC, DAI, and BUSD are the most commonly used cryptocurrencies (for farming on Binance Smart Chain).
  2. Get your hands on a decentralized wallet. Metamask, Trustwallet, and Wallet Connect are the most popular wallets. Make sure the private keys and seed phrase are protected and stored safe for backup when installation.
  3. Transfer your crypto assets to your chosen wallet after you’ve downloaded it.
  4. Start by going to your wallet’s dApp area and farming.

Uniswap Yield Farming

In the DeFi sector, Uniswap has the biggest liquidity pools. It’s one of Ethereum’s most well-known Automated Market Maker (AMM) protocols.

By investing money in Uniswap liquidity pools and earning LP incentives, you may become a Liquidity Provider (LP) at Uniswap. When a trade is completed on the liquidity pool to which you contributed money, you will be paid a fee for facilitating the transaction.

Uniswap now charges a 0.30 percent trading fee each token swap. For the purpose of providing liquidity, these fees are allocated to LPs.

You must deposit the equal value of each token in a liquidity pool to become a liquidity provider on Uniswap.

Assume you want to contribute money to the ETH-DAI liquidity pool. To balance the 50-50 pool ratio, if you want to contribute 1 ETH, you will need to add 2,675 DAI (at current exchange rates).

What Is The Best Way To Farm On Uniswap?

  1. Visit Uniswap.org for more information.
  2. Choose the ‘Launch App’ option.
  3. Select ‘Pool’ from the drop-down menu.
  4. By clicking on the ‘Connect Wallet’ button, you may connect your wallet.
  5. After connecting to Uniswap, you must choose a liquidity pool. You may either choose to explore prominent liquidity pools by clicking on ‘Top Pools,’ or you can choose to create a new position by selecting ‘New Position.’
  6. Let’s say you pressed the ‘New Position’ button. You may now choose your favorite token pair.
  7. Examine your current fee tier. There are three distinct Fee Tiers in Uniswap v.3: 0.05 percent, 0.3 percent, and 1.0 percent. Stablecoins, for example, trade at a fixed or strongly linked rate, thus the 0.05 percent fee tier is ideal. On pairs that experience price volatility, such as the ETH-DAI pair, the 0.3 percent fee tier provides higher returns. The 1.0 percent charge tier is for wagering on riskier exotic pairings. In other words, the greater the risk, the higher the price tier.
  8. Set a specified price range for the liquidity you can offer.
  9. Now, add the appropriate token quantities to your account.
  10. Select Add > Preview and Approve Transaction on your wallet.

Compound Yield Farming

Compound is a credit network built on Ethereum that enables users to lend and borrow cryptocurrency.

As a lender, you will give a loan in exchange for putting money in the liquidity pool and receiving interest on the loan supplied. The interest rate is determined by the supply and demand of the crypto assets you provide.

One of the simplest methods to make returns is to lend bitcoins on Compound. You may start earning dividends right now if you deposit stablecoins like DAI or USDC.

Nonetheless, Compound’s main draw is its native governance token COMP, as well as their interest-bearing cTokens.

Here’s how it works:

COMP tokens are earned when you lend or borrow on Compound. On Compound, 2,312 COMP coins are issued every day.

When you do the arithmetic, you’ll see that each governance token costs almost $400. Every day, this equates to $920,000 in extra incentives.

On the Compound platform, these incentives are provided to both lenders and borrowers. As a result, despite the Compound’s low APY, the yield farming returns remain substantially high.

cTokens, Compound’s native interest-bearing tokens, are paid to yield farmers in exchange for providing liquidity on the platform.

If you deposit 5 ETH, for example, you will get 5cETH tokens to represent your money. You may collect interest on these tokens and redeploy them on other DeFi sites as well.

What Is The Best Way To Farm On A Compound?

  1. Go to Compound.Finance to learn more.
  2. Click on the word ‘App’ in the upper right corner.
  3. Connect your wallet to your computer.
  4. Accept the connection by entering your password and approving it.
  5. To begin farming COMP, choose the crypto token you want to deposit.
  6. If you want to deposit a stablecoin like DAI, for example, you must first click on ‘Collateral’ and then ‘Use DAI As Collateral.’
  7. After that, you must confirm DAI collateralization and pay a tiny ETH transaction charge. You may then put DAI on Compound and begin cultivating COMP once your purchase is complete.
  8. Go to the ‘Dashboard area’ to see your APY. You’ll see your ‘Supply Balance’ as well as your ‘Interest earned and paid, plus COMP.’

Final Thoughts

Yield farming is one of the most effective methods to generate passive income from your cryptocurrency holdings. To begin harvesting liquidity rewards, just store your crypto assets in high-yielding DeFi sites.

As previously said, DeFi yield farming may provide you with an APY of over 100% on your coins. This is why a growing number of bitcoin investors are turning to yield farming.

If you’re new to the game, Compound is the greatest option. As you acquire expertise in yield farming, you’ll use sophisticated yield farming techniques and invest in several yield farming protocols to maximize your profits.

Also, keep in mind that DeFi yield farming is quite appealing because to the high earnings. However, you should only become a yield farmer after thoroughly knowing all of the dangers.

DeFi Yield farming – What it is & how you can make money from it

Yield farming is not profitable in the long run."}},{"@type":"Question","name":"What is DeFi mining?","acceptedAnswer":{"@type":"Answer","text":" DeFi is a new type of mining that uses the blockchain to verify transactions."}}]}

Frequently Asked Questions

What is yield farming in DeFi?

Yield farming is a strategy in decentralized finance that involves investing in a project with the intention of selling it at a profit.

Is yield farming profitable?

Yield farming is not profitable in the long run.

What is DeFi mining?

DeFi is a new type of mining that uses the blockchain to verify transactions.

This article broadly covered the following related topics:

  • defi yield farming rates
  • what is yield farming
  • yield farming definition
  • yield farming list
  • best yield farming defi
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