Yield Farming is a complex of means that can make your crypto assets work and bring you the maximum possible passive profit in the form of an interest rate. It involves staking or lending crypto assets (tokens, cryptocurrencies, stablecoins etc.) to others using the power of smart contracts.
The general idea lies in the possibility for the owners of crypto assets to earn tokens for participating in DeFi applications. DeFi or Decentralized Finance is an ecosystem of financial applications that are built on the blockchain basis.
It is based on the so-called liquidity pools – smart contracts that hold funds, where liquidity providers deposit their tokens in order to give others the possibility to use them under certain conditions. The liquidity pool pays users a reward for providing liquidity. The specific mechanism of “making a yield” depends on the conditions and peculiarities of the certain DeFi Application.
Farming is definitely not the simplest way of raising money as success here depends on the conditions and capabilities of a specific protocol and on the chosen strategy. The most successful farmers make the maximum possible profits by adopting tricky and sophisticated investment strategies. Therefore, before starting to work with DeFi, you should thoroughly examine the peculiarities of working with decentralized liquidity protocols.
In general DeFi farming has the following advantages:
– the possibility of passive profit on cryptocurrency,
– dealing with the promising high-tech industry with huge potential,
– the profitability is much higher than the one in the banking system,
– large selection of DeFi products with a variety of characteristics.
The disadvantages and risks to be aware of:
– errors and vulnerabilities are often found even in the acknowledged protocols,
– high risk of errors in smart contracts,
– DeFi tokens have the highly volatile nature that leads to variability of earnings.
The yield farming in Decentralized Finance has definitely opened up a whole world of new opportunities for investors who are in search of deep liquidity, different ratios of risk and reward, as well as interesting and affordable modern financial instruments.
It is for those, who instead of keeping their assets idle, uses new opportunities to make them work.