DeFi yield farming

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Assalamualaikum steemians

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How are you?Hope so everyone would be safe and sound just like me as I am also safe Alhamdulillah....

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My today's topic is DeFi yield farming so I would like to explain it's working and some of the benefits and risks associated with it.

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DeFi is basically decentralized finance yield farming which is an investment strategy in which users lend crypto in decentralized lending protocols in exchange for interest payments. It has gained a lot of attention in decentralized finance because of its potential for high profits and capacity for leveraging decentralized platforms.

Here is something about its working

• First of all investors would lend crypto to different decentralized lending protocols such as Aave, or dYdX.

• Some of protocols may pay their interest at lending assets more specifically in form of borrowed assets.

• Earned interest is this yield could be harvested and reinvested for generation of more and more interest.

There are some of the strategies of yield farming I'm going to explain here;

• First of all there's a need to maximize your yield by investing in those protocols which are offering highest rates of interest.

• Diversification is another strategy that should be kept in mind.For this purpose there's a need of spreading investments in various protocols by minimization of risks.

• There's a need of borrowing assets for enhancement of lending positions and for significant yields and this unique strategy is termed as leveraging.

Benefits associated with decentralized finance

• Passive income could be earned through this investment strategy so here's a chance for you to earn interest with no need of active trading.

• You can have a decentralized ,trustless and permissionless platforms that may eradicate any need of intermediaries.

• Decentralized finance provide a lot of flexibility so investing and withdrawing your assets at any time is up to you.

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Risks which are associated with it are here

• Sometimes market becomes volatile and price fluctuates which may affect assets and earned interest.
• Sometimes default risks increase and borrowers could default at loans which may impact yields.
• There are also smart contract risks associated in which different bugs may cause big losses

If I conclude this topic then DeFi yield farming strategy is offering an advanced way for earning passive income in decentralized finance.But it brightens opportunities for making high profits so it's really crucial for understanding its risks and for developing different strategies for managing them effectively.

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Thanks

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