Yield Farming
What is Yield Farming?
I, like many, seek to learn more about crypto finance and crypto investments every day, which is why today I come with a new topic that I am still studying to learn even more.
Yield Farming, harvesting on DeFI farms, these words are the ones with which the material I searched for started, then as I read more, watched videos or listened to spotify, it generated more curiosity in me.
Yield Farming is an investment strategy for those who are Token owners and are looking for a mechanism to maximize their tokens through DeFi. The objective: to have your investment in one or several platforms, which they seek after a while, your investment capital grows significantly. In simpler words, yield farmers only look for investment opportunities that allow them to increase their capital.
Image by Gustavo Mory with https://express.adobe.com/es
This form of investment is often confused with staking, however it is a much broader strategy, in which the use of Stake, to a greater extent, is what generates the investment profits.
Pros and Cons of Yield Farming
In the case of yield farming, the main advantages of this strategy are:
- It is a strategy that can be carried out today with different targets or spaces. Currently, there are several DeFi protocols dedicated to yield farming, some of them with several years of operation and proven solidity.
- It allows farmers to make fairly steep profits on their "harvests." Generally these harvests occur in periods of 6 months to 1 year, and are reinvested to generate higher levels of profit. Indeed, yield farming is a strategy that favors cryptocurrency whales.
Among the cons we can mention:
- It is a complex strategy and only recommended for people with advanced financial knowledge.
- The implementation of the strategy favors those who have large amounts of capital to deploy, that is, whales (whales). A person with little capital may not receive any profit at all, and in fact, may lose money facing the payment of commissions.
- Another serious problem is the security of the smart contracts of the yield farming platform. If the platform has not been properly audited, there is a risk of theft of funds and the partial or total loss of them. This is not an isolated thing, in fact, cases like what happened in dYdX or bZx demonstrate this point.
In this publication I wanted to talk to you about Yield Farming, I do not intend to turn this publication into a workshop on how to work and use this strategy, especially because we must understand that every investment strategy represents risk, no person can guarantee that there is an infallible strategy, every investment You are at risk of loss, only some can understand that it is only about opportunities and risk levels.
My best advice for those who like the topic of investments in crypto finance, is to be consistent that if you do not want to take risks, do not do it, but if you still decide to take risks, prudence is necessary, never take high risks, be prudent.
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