Yield Farming - Yearn Finance - Crypto Academy S5W3 - Homework Post for @jovita30 #club75
Hello Great Minds Trust you all are doing just fine? actually this is my first assignment for Intermediate level hope am welcomed. In this article i will be competing my assignment on Yield Farming lectured by @imagen. Below are my answers.
Describe the differences between Staking and Yield Farming.
Both Staking and Yield Farming are similar in the sense that crypto holders has the opportunity to generate passive income. But the common difference between them is that Staking needs a crypto holder to use their funds to assist the blockchain and help validating transactions and blocks on the blockchain system.
The chances of loosing your staked crypto is slim but while in Yield Farming are open to risks that happens die to the rapid and upredicted price of digital assets. In a tabular form below are the difference between the both.
| Difference | Staking | Yield Farming |
|---|---|---|
| Profit | Staking has a fixed reward which is around 5% but can be higher. It can varies depending on the method and token been staked and the token is illustrated as an APY. | This method is not straight forward like Staking and it needs a proper strategy for investing but it yield more profit up too 100% or more than. |
| Security | In Staking fraudulent users tries to steal from the system by doing so they loose their funds. This is due to it's strict policy on the blockchain's consensus. | This method depends on DeFi smart contracts and protocols which might be unsafe for fraudster to when the programm was carried out poorly. |
| Time | Most blockchain require little amount to allow users to stake their funds for a particular time. | But in Yield Farming it is not so. Users are not required to lock up their funds for a given time. |
| Rewards | In Staking rewards are given to those who are in charge in verifying transactions for the help the render to the blockchain to create new blocks. | Rewards In Yield Farming are not stable or constant because of the price that changes and the rewards are based on the liquidity pool. |
SourceLogin to Yearn Finance. Fully explore the platform and indicate its functions. Describe the process for trading on the platform (wallet connection, funds transfer, available options) Show screenshots.
In this article I will be talking about the main features of Yearn.Finance The key features of yearn.finance are the Values, Earn and Zap.
- Vaults
This features allows people to deposit assets and earn yields. Funds deposited by its users are managed by a strategy that tries to increase yields and reduce risks. They are very important due to they reduces high cost of Ethereum transactions. Anyone that has accounts with yeran.finace hay to pay a particular amount for gas fee.
- Earn
This has similarities with vaults that backs stablecoins and tokenized Bitcoin.
- Zap
This allows people to exchange traditional stablecoins for liquidity provider's token that represent stablecoins.
Below I will be telling you on how to buy and sell YFi token.
you can see I used Bianance exchange toolHow To Buy
First, if you don't have an exchange tool on your phone please do well to download it for your self.
Fund the exchange tool either trough bank transfer or by transffering cryptocurrencies through your crypto wallets.
Then click on the buy button and choose the amount of yearn you want to buy and place an order, transfer your tokens to your wallets connected to your yearn.finance.
How to Sell
First sign in to your exchange tool that has YFi on it. Then compare your crypto exchange with yearn saved in your wallet.
- Place your sell order after choosing the amount of yearn you want to sell, price fees and then close the sale.
- When you login to yearn.finance, at top right corner you will see connect wallet click on it
- An interface will display showing you the of wallet to choose due to I don have metamask wallet I will be using wallet connect so as to connect my external wallets.
- Then an interface will display showing connect then I clicked on connect.
Then an interface showing my wallets in my phone displayed then I chose Trustwallet.
After that I clicked on connect and finally my wallet has been connected Successfully.
What is collateralization in Yield Farming? What is function?
The term collateralization I Yield Farming is refers to the use of valuable assets or token the lenders accepts as a means of security to a loan. It acts as a means of protection for the lender. In a case where the borrower fails to meet up with the agreement between the lender, the lender has the right to seize and sell the assets provided by the borrower to recover his or her losses.
- It is the foundamental building blocks that affects the economic growth and financial stability.
- It reduces risks for both parties (Lender and Borrower) by giving protection to lenders and makes borrowers to get more credit at a better rate.
- It plays a vital role in a variety of market functions.
At the time of writing your assignment, what is the TVL of the DeFi ecosystem? What is the TVL of the Yearn Finance protocol? What is the Market Cap / TVL ratio of the YFI token? Show screenshots.
)- At time I was making this post yesterday, the Total Value Locked (TVL) for the DeFi ecosystem is $ 1,204,530,346 with it's marketcap that is $1,269,644,492.
- As at yesterday the TVL of the Yearn Finance Protocol was, $6,016,964,287 billion dollars
- At the time I was writing this post the YFI price was $28,674 with a Market Cap / TVL ratio of the YFI token of 0.1746 shown in the above image.
The YFI token, is it overvalued or undervalued? State the reasons.
To me I think YFI is overvalued my reasons are
- It is difficult to manage.
- It requires advance skills to trade with YFI, much time and also you are risking your money.
- It is not fast due to lots of orders and also it is mostly driven by the number of coins that are burned.
<centerQuestion No.(5.)
If on August 1, 2021, you had made an investment of 1000 USD in the purchase of assets: 500 USD in Bitcoin and the remaining 500 USD in the YFI token, what would be the return on your investment in the actuality? Explain the reasons.
First of all the amount of Bitcoin in August 1, 2021 was 41,714.07 which 500USD was equivalent to 0.0125. presently BTC is $54,987.03 so my profit will be 687USD gain of 187dollars. This is due to the rise and fall of Bitcoin. Bitcoin has been struggling to surpass 57, dollar resistance against US dollar for some days now. Btc is declining and night go lower I'd there is a close below the 56000 support.
SourceIn your personal opinion, what are the risks of Yield Farming? Give reasons for your answer.
The business of Yield Farming has been risky no matter how hard you cultivate the soil to harvest millet or try to grow Yields on DeFi system it is very risky. Below are some risk in Yield Farming.
Risks in Smart Contract:
Smart Contract most times, advertise as a reliable and secure a means to carryout deals and transactions. In this technology everything is done automatically in agreement with the terms fixed in the contracts. This technology have bugs due to developers tries their best in making the project work as planned. But there are still small errors that are overlooked by the developers given hackers the chance to exploit people's money from the project in other words making users loose their money. In this system hackers make use of a little error to outsmart alogrithms and go away with people's money.
Risk In Impermanent Loss
This is a type of risk you would never expect. For example UniSwap or similar projects that needs people to fun their money into liquidity pool to gain more rewards. The risks in Impermanent moves is that if the providers of liquidity does not have proper understanding about it can make users loose their money. When an assets value market goes down, users may not benefit from the movement of a price and cannot bear the looses if it goes down. The issues are from the Automated Market Makers did not update their prices atuomatically serially with the market movements. This feature brings trading opportunities and creating a notable risk to the liquidity providers.
Risks In Liquidation
This the process where banking sectors make liquidity available using money deposited by their and earn from lending money to borrowers. DeFi systems bypasses middlemen and makes it available for their users to complete deals and transactions directly with each other and makes it cheaper and transparent. This process comes with risk when the price of the collateral falls bellow the price loaned. In this situation the collateral is not enough to cover the loan amount so, it is liquidated making people to bear loss.
For example I took a loan on shiba against Btc an provided Ethereum as collateral. Alongside the price of Btc rises up, creating a liquidation risks due to the Ethereum I provided as collateral will be smaller than the value of the Btc borrows.
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