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The Best Guide On Yield Farming

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If you own a cryptocurrency, this is the way for you to continuously, indirectly, and passively exploit profits from the money you own. Why not do Yield Farming now.

Yield Farming is to earn profit from investing your cryptocurrencies through smart contracts on the DEFI system. This sounds pretty simple to implement, check out a guide on yield farming below.

To implement Yield Farming you must spend much time researching how to invest your cryptocurrency between various DeFi platforms to get the highest profits. Passive income from Yield Farming now is very attractive to many crypto holders. It also means that you will face numerous competitors to make a profit. Join Yield Farming now before there is no space left.

What is Yield Farming?

Anyone who owns an Internet-connected device can join the decentralized financial community, own cryptocurrencies, and participate in making their passive profits.

Yield Farming is how you use lending protocols without any custodial intermediaries and earn rewards (tokens) aka interest from the cryptocurrencies you own. The form of making profits without leaving the crypto investment idle has helped investors get a large passive income on the DeFi ecosystem.

How do investors do Yield Farming?

We will try to explain it most understandably so that even those who are completely new in the field of cryptocurrencies can figure out how to make passive profits and join Yield Farming right now.

The investor who already owns a cryptocurrency is a liquidity provider. Investors deposit their cryptocurrency into a Liquidity Pool. On the DeFi system, the liquidity pool is a smart contract in which holds cryptocurrency. Users exchange cryptocurrencies by lending, borrowing, or exchanging tokens in Liquidity Pool. The exchange of money on the platform produces a fee (interest). This cost will be sent to liquidity providers in proportion to the amount of crypto they invest in the liquidity pool.

When investors transfer cryptocurrencies to the liquidity pool, they will receive LP tokens and rewards. Rewards can be the fees generated by the platform or other tokens. Investors continue to use the received tokens to transfer to other liquidity pools, thereby reaping even more rewards.

So, how do you choose the best DeFi platform and Liquidity Pool to invest in? We advise you to research the Total Value Locked index. The more users invest in the platform, the more cryptocurrencies will be locked. As a result, the Total Value Locked index becomes higher. TVL represents the prestige and health of the DeFi system. You can check the TVL index at Defipulse.com.

How is Yield Farming profit calculated?

Yield Farming experts will calculate the profit annually by Annual Percentage Rate (APR) or Annual Percentage Yield (APY). APR does not include the gross profit, while APY does. Gross profit is directly reinvesting profits to generate more profits. You can use APR and APY interchangeably.

These are estimates and projections only, not the exact number you will get as the market changes and fluctuates very rapidly from hour to hour. Therefore, you also need to estimate daily and weekly profits.

What is Mortgage in DeFi?

If the user borrows property, the user needs to have collateral to secure his loan. The mortgage depends on the protocol you send your funds. You should keep a close eye on your mortgage rate. If the value of your collateral falls below the threshold required by the protocol, your collateral could be liquidated on the open market. To avoid liquidation, you must invest more assets.

Each platform will have its own rules with required mortgage rates. And the mortgage must be more than the value the user wants to borrow (over mortgage). It means users have to deposit more than the value they want to borrow. This helps the system reduce the risk of collapse when users liquidate a large amount of collateral.

Mortgage rates usually range from 200% to 750% to protect the entire platform.

Pros and Cons of Yield Farming

Pros

  • This is an extremely effective passive profit channel for crypto investors who own stable coins.
  • Investors can directly reinvest profits to generate multi-fold profits.

Cons

  • To become a Yield Farming investor requires you to learn more about the cryptocurrency market as well as the decentralized financial system.
  • The decentralized financial system is new and quite complex, constantly changing every day.
  • Error smart contract in some cases.

Some popular Yield farming platforms in DeFi

MakerDAO: Users can invest in MakerDAO and receive DAI tokens. Then, using DAI for Yield farming in other protocols like Compound.

Compound: Liquidity provider invests in Compound to farm COMP and earns profit from borrowing and lending activities.

Uniswap: The liquidity provider invests in this pool to receive transaction fees.

Balancer: Users farm BAL and receive other governance tokens on the Balancer.

Synthetix: Liquidity provider uses SNX to mint sUSD. Then, you can invest sUSD in other platforms to yield farming.

Aavee: This platform provides flash loans and lends money. Users use Aavee’s rewards to yield farming on other platforms.

Curve Finance: Liquidity provider invests in Curve Finance to farm CRV and collects fees, interest.

yEarn Finance: Liquidity provider invests yEarn Finance to farm YFI and collects fees.

Conclusion

On the market, there are many DeFi projects that provide Yield Farming features for users. Understanding how Yield Farming works as well as the benefits and risks that it brings will help you to inform investment decisions. High returns will always come with high risks. Be alert and carefully consider your investment capital.

Yield Farming is not entirely suitable for retail investors who cannot afford to pay transaction fees (which are quite high) after a series of investment transactions transferred between different platforms. However, these difficulties can be solved if you choose an investment channel in which there are experts in this field ready to help you plan and optimize effective passive returns.

Register now for an account here on Yield App to manage your crypto investment and choose the most suitable platform to start Yield Farming right away.