keronend.blogg.se - Multiledger company file

And most, if not all, DeFi tools use the Ethereum platform. Over the course of 2020, an insane amount of money has been made (and lost) via the Ethereum network because yield farming platforms are built on Ethereum. Interest rates can be volatile, making it hard to predict what your rewards could look like over the coming year-not to mention that DeFi is a riskier environment in which to place your money. Sell the rewards at a profit, and you could treat yourself-or choose to reinvest.Ĭurrently, yield farming can provide more lucrative interest than a traditional bank, but there are of course risks involved too. If you arrive early enough to adopt a new project, for example, you could generate token rewards that might rapidly shoot up in value. The main benefit of yield farming, to put it bluntly, is sweet, sweet profit.

🔗 You can create complex chains of investments by reinvesting your reward tokens into other liquidity pools, which in turn provide different reward tokens.

📈 Your returns are based on the amount you invest, and the rules that the protocol is based on.

💸 Another incentive to add funds to a pool could be to accumulate a token that’s not on the open market, or has low volume, by providing liquidity to a pool that rewards it.

💱 Deposited funds are normally stablecoins linked to USD, such as DAI, USDT, USDC, and more.

💰 Liquidity providers deposit funds into a liquidity pool.

Those providing liquidity are also rewarded based on the amount of liquidity provided, so those reaping huge rewards have correspondingly huge amounts of capital behind them. It is by no means easy, and certainly not easy money. Yield farmers are often very experienced with the Ethereum network and its technicalities-and will move their funds around to different DeFi platforms in order to get the best returns. Reward tokens themselves can also be deposited in liquidity pools, and it’s common practice for people to shift their funds between different protocols to chase higher yields. Instead, lending out ETH on a decentralized non-custodial money market protocol like Aave, then receiving a reward, is yield farming. Note that investing in ETH itself, for example, does not count as yield farming. In return for locking up your finds in the pool, you’ll be rewarded with fees generated from the underlying DeFi platform. Once you’ve added your funds to a pool, you’ve officially become a liquidity provider. These pools power a marketplace where users can exchange, borrow, or lend tokens. The first step in yield farming involves adding funds to a liquidity pool, which are essentially smart contracts that contain funds. While this might change in future, almost all current yield farming transactions take place in the Ethereum ecosystem. Yield farming is normally carried out using ERC-20 tokens on Ethereum, with the rewards being a form of ERC-20 token.

With yield farming, the concept is the same: cryptocurrency that would otherwise be sitting in an exchange or in a wallet is lent out via DeFi protocols (or locked into smart contracts, in Ethereum terms) in order to get a return. When loans are made via banks using fiat money, the amount lent out is paid back with interest. Simply put, yield farming involves lending cryptocurrency via the Ethereum network. More specifically, it’s a process that lets you earn either fixed or variable interest by investing crypto in a DeFi market. What is yield farming?Īt its core, yield farming is a process that allows cryptocurrency holders to lock up their holdings, which in turn provides them with rewards. So what is yield farming and what does it mean for the world of crypto? Without further ado, let’s dive in. One of the latest ones you may have come across recently is yield farming-a reward scheme that’s taken the decentralized finance (DeFi) world by storm during 2020.Īrguably one of the main reasons people are drawn to the DeFi world, yield farming has seen inexperienced investors get burned and tech-savvy capitalists making their fortunes.Īs with most things related to blockchain and cryptocurrency, the concept of yield farming can be intimidating at first, but fear not-we’re going to cover everything you need to know below, kicking off with what it is, how it works, and why you might be interested to explore it further. It’s impossible to sail the crypto seas without constantly navigating through new trends and buzzwords.

The rewards can be far greater than traditional investments, but higher rewards bring higher risks, especially in such a volatile market.

It involves lending out cryptos via DeFi protocols in order to earn fixed or variable interest.

Yield farming lets you lock up funds, providing rewards in the process.