• Korsholm Bennedsen publicou uma atualização 1 ano, 12 meses atrás

    Decentralised finance (DeFi), an emerging financial technology that aims to take out intermediaries in financial transactions, has opened multiple avenues of revenue for investors. Yield farming is but one such investment strategy in DeFi. It demands lending or staking your cryptocurrency coins or tokens to have rewards in the form of transaction fees or interest. This can be somewhat just like earning interest from your bank account; you are technically lending money on the bank. Only yield farming can be riskier, volatile, and complicated unlike putting cash in a bank.

    2021 has turned into a boom-year for DeFi. The DeFi market grows so quickly, and it is even strict all the new changes.

    Why is DeFi so special? Crypto market offers a great opportunity to make better money often: decentralized exchanges, yield aggregators, credit services, and also insurance – it is possible to deposit your tokens in all of the these projects and have an incentive.

    But the hottest money-making trend has its tricks. New DeFi projects are launching everyday, interest levels are changing continuously, a number of the pools disappear completely – and it’s really a huge headache to maintain tabs on it nevertheless, you should to.

    But remember that committing to DeFi is risky: impermanent losses, project hackings, Oracle bugs and volatility of cryptocurrencies – fundamental essentials problems DeFi yield farmers face continuously.

    Holders of cryptocurrency have a choice between leaving their own idle in the wallet or locking the funds in a smart contract as a way to contribute to liquidity. The liquidity thus provided enable you to fuel token swaps on decentralised exchanges like Uniswap and Balancer, in order to facilitate borrowing and lending activity in platforms like Compound or Aave.

    Yield farming is essentially the method of token holders finding means of using their assets to earn returns. For the way the assets are used, the returns usually takes various forms. By way of example, by in the role of liquidity providers in Uniswap, a ‘farmer’ can earn returns as a share in the trading fees each and every time some agent swaps tokens. Alternatively, depositing the tokens in Compound earns interest, because they tokens are lent out to a borrower who pays interest.

    Further potential

    Nevertheless the prospect of earning rewards won’t end there. Some platforms in addition provide additional tokens to incentivise desirable activities. These extra tokens are mined with the platform to reward users; consequently, this practice is referred to as liquidity mining. So, by way of example, Compound may reward users who lend or borrow certain assets on the platform with COMP tokens, let’s consider Compound governance tokens. A lender, then, not simply earns interest but also, furthermore, may earn COMP tokens. Similarly, a borrower’s interest rates could possibly be offset by COMP receipts from liquidity mining. Sometimes, including when the valuation on COMP tokens is rapidly rising, the returns from liquidity mining can over compensate for the borrowing interest rate which needs to be paid.

    This sort of willing to take additional risk, there exists another feature that allows a lot more earning potential: leverage. Leverage occurs, essentially, once you borrow to take a position; as an example, you borrow funds from a bank to buy stocks. While yield farming, a good example of how leverage is produced is you borrow, say, DAI inside a platform like Maker or Compound, then make use of the borrowed funds as collateral for further borrowings, and repeat the process. Liquidity mining can make vid lucrative strategy in the event the tokens being distributed are rapidly rising in value. There’s, needless to say, the chance this does not occur or that volatility causes adverse price movements, which would lead to leverage amplifying losses.

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