What Is Yield Farming in Decentralized Finance

Hi friends, in my today post i discuss about Yield farming. Hope this give little bit knowledge to all.

In Decentralized Finance Yield Farming another type of finance. Here we get good returns without doing anything. Just providing our liquidity is enough. For this, we get an additional form of crypto as an interest.

Here we lending our funds to others through smart contracts. So we get full security for our funds. All those processes complete in a decentralized way, so our assets are in our control so no issues.

Here those funds movie to various platforms automatically for getting good returns. So here lenders get good returns.

After coming to centralized finance for doing like that finance is very simple and easy. Anyone can create very easily. For this, we need a strong network connection, a little bit of crypto, and skills in smart contracts. If we have those we can start Decentralized finance very easily

In my today post, I discuss how we get good returns on these platforms.

What is yield farming

Yield farming means mining other crypto using our crypto. Simply liquidity mining.

Means here we earn additional rewards for holding our cryptocurrencies on those platforms. Or lick our crypto for a certain period on those platforms.

Here no risk, for keeping in exchanges or in wallets we dont get any additional rewards, if we use for mining we get good returns.

It's also known as staking. On staking our assets we get LP tokens. Those are tradable. There are some pools also available, according to the pair we need to staking there, for this supply we get an additional reward.

We can remove it when we need it. All those work on smart contracts of ERC-20 token most. Slowly TRC 2O also starts it's a journey.

If you have your funds in other networks also we can change those to our needed network very easily in using the Cross-chain bridge.

Means BTC to possible to convert ETH also, without changing value. It gives a good opportunity.

When yield farming boom start

Yield farming starts nearly 2017-18, but in that type, no one uses those. Very low people know about it.

On seeing COMP token price, all start to think about it. COMP token is a governance token of the Compound Finance ecosystem. Who lends this platform they get good returns. After seeing this ecosystem growth lot of people start to invest there.

Now in this pandemic it giving good hype now. Who incest at starting they getting good returns.

One of my friends gets 14ETH from 1ETH within 2 days. It changes his complete life. That's the power of crypto and yield farming now.

What is Total Value Locked (TVL)Now

For knowing this platform's strength and health we can analyze very easily on seeing current (money locked )TVL value in Defi.

We can check easily in checking https://defipulse.com/ platform. Here we get complete details and possible to analyze for making good decisions.

In https://defipulse.com/ platform we get all details about Defi, currently $10.63 Billion dollars locked in all finance platforms. At first, Defi starts with only $2 billion dollars but now it's value increase to $10.6 Billion, very huge growth in this sector we see now. Currently, Defi hype going on.

Currently
uniswap is number 1 position with 22.13% Dominance in complete Defi.

Here we get licked money in ETH. But there is a lot of platforms they low in form of USD, or even BTC too. Those values here we cont possible to check.

How does yield farming work

Yield farming is closely related to the automated market maker(AMM), here we lend our assets based on the liquidity pool.

Here liquidity providers deposit their funds, so here another marketplace starts slowly. So we can do borrow, lend, or even exchange those as per our needs. For those transactions, they collect some fee those again distribute lenders depend on our pool percentage.

Those rewards vary depend on pools and our choice yield finance.

Some give additional governance tokens for lending our assets, some give interest.

In general, those crypto assets lend in form of stable coins. In Defi DAI, USDT, USDC, BUSD are major stable coins. Some platforms accepting other coins too.

Some protocols provide mint tokens on our deposit. For example if we provide DAI at end of returns we get CDAI means Compound DAI. For ETH we get CETH. It depends on our choosing yield farm.

For understanding all those is not easy for common people, need crypto knowledge. Otherwise, we cont earn any returns here.

How is yield farming returns calculated

For investing anything first we think about our profits. Here we can calculate our returns based on Annual Percentage Rate(APR) and Annual Percentage Yield(APY).

The main difference is APR our returns not directly occurred on our funds it depends on the market. But in APY our funds directly reinvesting profits to generate more returns. Hear me get more returns than APR.

Here investors always think for short period, good returns with high risk. That's why they go for APY. But for small investors, it is not a good choice. So choosing APR is reasonable for us.

The risks of yield farming

In yield farming, we get good returns but there are some risks too. Those returns not fixed it may vary due to market conditions.

If a lot of people invest we get low returns, if few people invest we get good returns.

In that platform, there is a lot of scams that also occur, so do your own research before investing.

All yield farming platforms build in smart contracts. So anyone can build with low liquidity if we lend our assets there, here is a chance to close those platforms after collecting our funds. So be careful in investing your funds in new platforms.

After losing our funds not possible to recover. Like those platforms is suitable for whales only, for small investors it is not a good choice.

Yield farming platforms and protocols

I think after reading my post you can understand what is yield farming, how it works.

Yield farming means for lending our assets we get some interest or other crypto assets in a small period of time.

All most all yield farming platform work in the Smart contract protocol of Etharium.

There is a lot of platforms available from these trusted and good returns giving platforms I listed here for knowing the purpose.

1.Compound Finance

It works on compound algorithmic, on connecting our Ethereum wallet anyone can lend or borrow very easily.

On supplying our asserts to the Compound’s liquidity pool we get good returns.

This platform is most trusted and giving good returns. It works on the core protocol.

2.MakerDAO

Maker is a decentralized credit platform. Its governance coin is DAI.DAI is one of the stable coins, so it algorithmically pegged to the value of USD. This means its values almost maintain to USD value.

So here for investors, we having very little risk. Currently, they supporting ETH, BAT, USDC, or WBTC , these coins for lending.

From those, we can generate DAI, here they using mint DAI for yield farming.

3.Uniswap

I think all most crypto holders and traders well known about Uniswap.

If we know how to use and connect Uniswap to our wallet you become a master in the crypto field.

That's much hype going on about Uniswap now.

This platform runs on a decentralized exchange (DEX) protocol that allows for trustless token swaps.

Here anyone can provide liquidity and start trading too. A lot of scam coins are also listed here, so be careful about doing a swap on this platform.

So always copy the coin contract address in Coingeko, then after going for the swap. Otherwise, you can lose your funds.

Here we can swap any ERC token to any other ERC coin within a click. Very easy to use but a lot of scam coins are listed there.

So be careful about using this platform

The above platforms are my trusted and my favorite yield farming platforms.

Thanks for reading.

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