Hello professor @stream4u. I have attended your lecture and it was very informative. I got to learn about Yield Farming which seems to be very informative. I am here to present my Homework Task given by you. Let's get started.

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What is the Importance of the DeFi System?

Well, Decentralized Finance (DeFi) allows it's users to do all the transactions without the need of any third party. Users have full freedom to do their own transactions.

Users can take any decisions on their own and they have full control all over their money and assets. Users can lend their assest to anyone at any preferable interest.

If we Store our money in Banks, Then Banks gives a very insignificant return.
But through Defi, We can invest our money and can make it efficient to earn more by using it

Investing our money becomes easier through DeFi. Users don't need to do their KYC or indentity verification in DeFi.

If We want to use our full assets by own and want to use it in efficient way, Then here comes DeFi.

Flaws in Centralized Finance

• Users don't have full control over their assets as they cannot take their decision on their assets as their assets are managed by a third party in Centralized Finance.

• If We put money in Banks as Banks comes under Centralized Finance, Then we will get a little amount of return of our invested money in banks.

• We can't use our money in an efficient way if we are under Centralized Finance. We can't do anything with our own money by taking our own decisions as Third Party ha control over our assets.

• It is also a time consuming lime If a user want to withdraw their money, then It will take sometime as it cannot be done instantly.

DeFi Products

Let me talk about 2 Defi Products in details. Le me started with the first one.

(1)DAI

DAI is a Defi coin which is fully decentralized stable coin and it is popular coin in the market. DAI is now multicollateralized coin and hence we can collateralize it with some other coins along with Ethereum.

DAI has grown a lot in this year and it's price is around 1$ and also became popular DeFi coin. Any User Storing collateral like Ethereum can issue DAI tokens.

DAI tokens interact with Ethereum dApps and defi projects. It also provide liquidity.

Let's talk about it's Market Stats:
Market Cap of DAI - $5.48 Billion
Circulation Supply - 5.47 Billion
Market Rank - 18

Image from Coinmarkecap.

Now, Let's come to the second one which is going to be DeFi Exchange.

(2) UniSwap Exchange

Uniswap Exchange is a decentralized exchange which is Ethereum based exchange. It allows us to contribute to liquidity pool for any ERC-20 token.

We can swap any ERC-20 token through Uniswap Exchange. Uniswap Exchange doesn't charge any fees for listing a coin in this exchange which is a very great thing.

Users can be a liquidity provider by depositing an equivalent amount of two tokens in the pool. And users can also swap tokens through Uniswap Exchange.

How to use Uniswap Exchange?

Go to https://uniswap.exchange
Then, You can Swap tokens through Uniswap Exchange as you can see in the image below.
Firstly, You have to connect wallet to Uniswap Exchange like Metamask.

After connecting wallet, You can easily select token and swap tokens through Uniswap Exchange.

Risk Involved in DeFi

• Users can face loss due to market movement of tokens if the price goes down of the token in which you have invested.

• If you have mistakenly give your private key or entered your private key in fake or fraud websites then you can lose all your assets.

• Most of the DeFi are built on Ethereum blockchain. There can be high gas fees and slower transaction processes.

• If a User has borrowed a coin like DAI or AAVE from Defi against a collateral. Then, If market becomes volatile or the price of collateral asset decreases, then the user can face loss in this condition.

What is Yield Farming?

Yield Farming is a process through which users can earn by holding their assets. Users receive rewards by holding their assets.

Yield Farming is a simple process like a Banking Loan System as the amount is lend out. While in Yield Farming, Users who has lended their assets receive a fixed or variable interest on them.

Through Yield Farming, Users can lend their assets via Ethereum Network.

How does Yield Farming Work?

Let's talk about the work process of Yield Farming.

You have to add funds in your liquidity pool first. Through these Pools, Traders will borrow or exchange tokens.

After adding fund to a pool, You will become Liquidity Provider. When a Trader borrow or exchange tokens from the pool, You will get fees which is in process of borrowing ot exchanging tokens from the Pool by the Trader.

Receiving a reward as fees from the trader is the Yield Farming. Lending out Ethereum on a decentralized market protocol like Aave and then you will receive a reward is Yield Farming.

What are the best Yield Farming Platforms and Why they are best?

(1)AAVE - AAVE is a decentralized protocol based on Ethereum blockchain which allows users to lend and borrow crypto assets.

Aave is very easy to use. We can swap tokens and also stake in it. We just have to connect our Ethereum wallet to it and then we can swap our tokens.

After connecting our Ethereum wallet, We can easily swap any tokens through it.

(2)Uniswap Exchange- Uniswap is also a decentralized exchange based on Ethereum. I usually use Uniswap for swapping tokens.

We can stake tokens, swap tokens in Uniswap Exchange by connecting a wallet like MetaMask to it.

We can also supply liquidity to traders and then we can earn fees by becoming a liquidity provider.

The Calculation Method in Yield Farming Returns.

There are two calculation methods for calculating interest.
(a) APR
(b)APY

APR- Annual Percentage Rate (APR) is the percentage rate of interest paid to lender. It is a kind of simple interest.
Let's take an example of calculating interest by APR:
Let's suppose You have lended 2500$. And you have lended it for 2 years at 8% annual rate.

Then, It will be calculated through simple interest formula which is (P × R × T) where P= principal amount, R= rate of interest and T= time(years).

Then, Principal amount is 2500$ and rate of interest is 8% and time is 2 years.

So, Simple Interest will be 2500×0.08×2 = 400$
So, You will receive 400$ as interest after 2 years which means You will receive a total of 2900$ after 2 years by APR.

APY- Annual Percentage Yield (APU) is also the percentage of interest paid to lender from borrower. It is calculated through compound interest forumula.

Let's take an example of calculating interest by APY :
Let's suppose You have lended 2500$ for 2 years at a rate of 8%. Then, We will calculate it through compounding daily interest.

It's forumula is P × ( 1+ R/N)^NT
where P is principal amount, R is rate of interest, N is no. of days and it will be 365 as it is compounding daily interest and T is time in years.

Lets calculate it:
Interest will be 2500×(1+0.08/365)^2×365 = $2933.72.
Which means interest is 433.72$.

Advantages Of Yield Farming

1. We can earn much higher interest through Yield Farming by storing by storing funds in pool as compared to storing funds in banks.

2. Users just have an Ethereum Wallet for becoming a liquidity provider through Yield Farming and can earn higher interest as compared to banks.

3. APY is the calculation method through which you can calculate how much you will earn in a period of time.

Disadvantages of Yield Farming

1. There is gas fees which should be pay by the user to carry out a transaction in Ethereum blockchain which is quite high.

2. Lending little or less amount will not result in much higher profit. Usually, lending high amount results in profit. So, If you have little amount to lock, then You can not earn much higher profit .

3. If In case Defi Project is hacked, then It will result in the loss of all your crypto assets.

Conclusion

DeFi is very well system in which users have full right to take their own decisions, can use their money in any way without interfere of any third party.

Yield Farming allows users to store their money or assets and then users can earn a very good amout of interest on their deposited or lended assets whereas If We deposit our money is banks, then We will receive a very very little amount of gain in our deposited money.

I have learnt very informative things from your lecture. Yield Farming is a new thing for me but through your lecture, I got to know a lot about it. Thanks for this wonderful and much informative lecture.
@stream4u