Crypto Real Yields: Hottest Trend in DeFi
Yield Farming is a creation emerging from the realm of DeFi technology. The crypto yield farming is one of the easiest crypto passive income streams.
In order to effectively "farm" the best crops and provide the largest returns, yield farming comprises the practice of actively seeking out the best APYs and transferring assets around the ecosystem.
The idea of yield farming was first introduced when the Ethereum-based DeFi project Compound started offering incentives for users to use its network in exchange for $COMP, which is COMP's native governance token. To this day, everyone who lends or borrows Compound continues to receive $COMP tokens from the network.
What are Real Yields?
Real yield is a portion of a protocol's revenue that holders of its governance tokens may obtain by staking their assets. In simple terms it resembles a dividend being paid by a company to its shareholders.
Real yield projects like Redacted Cartel, Umami Finance, Gains Network, GMX, and Synthetix are being hailed high in regard for profit sharing with their investors.
What is Yield Farming in Cryptocurrency?
Yield Farming is a mechanism which allows token holders to deposit cryptocurrency into a pool with other users in order to seek financial returns, often in the form of an interest.
Although little risky, Yield farming has the following benefits:
- A great option to make high returns in cryptocurrencies. Investors that place a high priority on aggressive returns may find high-interest rates, up to 100%, in yield farms.
- With the use of smart contracts, yield farms are decentralised financial investing instruments.
- Yield farm participation implies accepting the risk of losing your entire investment thus filtering out investors of weak risk appetite.
Yield Farms can be found via decentralised finance (DeFi) services like PancakeSwap.
How to start Yield Farming?
To start with Yield Farming, users can deposit their cryptocurrency tokens in yield farming projects for a predetermined amount of time and then start to receive incentives in return.
Token locking and interest payment is done via smart contracts. The borrowers of the token are required to pay interest of their loaned amount, a part of which goes to the exchange. The transaction fees usually serves as a passive revenue stream for yield farmers.
Risks in Yield Farming
There have a fair amount of blowups which hit the reputation of Decentralised Finance. Incidents involving Celcius and Terra raised major doubts on the legitimacy of DeFi.
On the face of it, yield farming could appear to be a simple method to use tokens to make money on cryptocurrency exchanges however it does involve certain risks.
First can be lack of understanding of decentralised money. Second are the Yield farming strategies whom don't evolve with time and remain fixated on set parameters.
Yield farming is an effective strategy for making money on DeFi platforms but it required thorough research and analysis of personal risk apetite.
Gains from being a yield farmer can be quite alluring, but it is always advisable to proceed with caution specially in yield farming which is challenging, fast-paced, and a highly lucrative DeFi niche.
Image Credits: Tutto Crypto; Pixelplex; The Defiant.