Yield farming is a relevant aspect of DeFi, a means of earning more crypto with your crypto assets. Yield farmers distribute their crypto assets around decentralized lending exchanges most time to increase their earnings. They make their strategy a top priority because the more the strategy exposure, the less its effectiveness.
The notion is that you can receive tokens as a reward in return for their contribution to the Decentralize Finance apps. Yield farming is also known to be liquidity mining as it involves offering assets to others through smart contracts. You receive rewards in exchange for the indirect service provided.
The yield farming practice started with offering users a small portion of the transaction fee for participating in liquidity provision to a specific application. Keeping crypto assets temporarily with some startup projects allows for more profit.
The reward assets in a token form can also be put into the liquidity pools, a usual exercise for an individual to invest their crypto assets among different protocols to get higher profits.
DeFi yield farming can give a higher interest than traditional investments. But there are risks involved in farming too, there can be volatility in the rate of return, making it difficult to envisage your rewards in the coming year.
Most people refer to yield farming as staking because of their similar characteristics of the liquidity pool. Farmers lend out their DeFi tokens on different platforms, making profits from the borrower’s payment for the crypto asset.
Yield farming can be dicey and can result in losses. Still, funds investment into most DeFi projects usually depicts a chance for windfall gains.
Before investing in any DeFi protocol, be sure that their users are real, quality, and growing. Then it’s safe to say the project is a good one.
What do you think? Share your comment below.