One of the initiatives of 1Hive ecosystem is Honeycomb aka HNY Farming!
Important! The second round of farms just finished, and the new farms are not active at the moment. New details coming soon!
#1 What is (yield) farming?
Yield farming, also referred to as liquidity mining, is a way to generate rewards with your cryptocurrency holdings. In simple terms, it means getting rewards by locking up your cryptocurrencies.
However, there’s a lot of complexity going on in the background. In most of the cases, it works with users called liquidity providers (LP) who add funds to liquidity pools.
#2 What are LP tokens, how do I get these and what can I do with them?
What is a liquidity pool?
It’s basically a smart contract that contains funds. In return for providing liquidity to the pool, LPs receive rewards that comes from fees generated by the underlying DeFi platform.
On Honeyswap, tokens can only be swapped against other available tokens. So, in order to be able to swap, there must be ‘liquidity’ which means ‘a sufficient amount’ of tokens.
Why would I add liquidity to a pool?
- To earn fees - A small percentage is charged over every Honeyswap transaction, swap fee. These fees are divided pro-rata over the liquidity providers. Your fees generated from the pool could be anything from something close to 0% to sometimes over 100% APY (Annual Percentage Yield) depending on the specific pool, tokens in the pool, total liquidity and growth.
- To help jumpstart a project. Often project owners/teams supply a certain part of their native token in one or more pools. The first liquidity will determine the first price and from there the market can grow. But you do not need to be a project owner or a whale, even small contributions create a more stable value and make sure that trades can go ahead without much ‘slippage’: one trade will not influence the price much if there is sufficient liquidity.
- To hedge against loss of token value. This will be discussed below in the “risks” section, but in principle the idea is: if one token in a pool changes its value relative to the other, your capital will change accordingly, but not by the same amount. This can create a slight opportunity cost (“Impermanent loss”), but it can also help reduce losses.
Honeyswap only has 50/50 pools
There are different ways to define pools, but because Honeyswap is based on Uniswap, we are limited to “50/50 pools”. This means that in order to add tokens to a pools, you have to add a pair of tokens at the same time, divided equally (50/50) so with the same value for each half of the pair.
As an example, if 1 HNY is worth $200, and you want to add 0.1HNY ($20) to the HNY-xDai pool, you need to combine this with $20 worth of xDai.
Honeyswap is the 1Hive decentralised token exchange, where you can exchange (‘swap’) different tokens, like xDai for HNY, STAKE for HNY etc.
How do you add liquidity to the pools?
We will use the HNY/xDai pool as an example as it is one of the largest, but the following steps are valid for any other pools.
- First of all, you must have funds in your wallet. If you already have both tokens of the 50/50 pair you want to add liquidity to, then you can go to Step 3
- If not, then you need to buy one or both coins. This can be done using Honeyswap — https://honeyswap.org/#/swap
- Click on the ‘Pool’ tab on Honeyswap or use https://honeyswap.org/#/pool
- Select “Add Liquidity”.
5. You’ll see a new screen where you can select the token pair you want to add liquidity to. Click on ‘select a token’ and choose the token you want. Then do the same for the other one.
6. Choose the amount of one of the tokens you want to add and the corresponding amount for the other token will be filled in automatically, based on the current exchange rate.
You can also click “MAX” on both sides, although this will only work on the side where you have the lowest value in your wallet.
Important! Don’t click ‘max’ on the xDai side. You will need few xDai to pay for the transactions fees. If you add all your xDai to the pool, you might not be able to do anything else without adding new xDai to your wallet. So, always leave a few xDai in your wallet.
Underneath the pair you will see the exchange rate as well as your share of the pool after you have deposited the tokens.
7. First time you swap a token you need to approve it , Honeyswap will inform you and you will need to sign one or two messages with Metamask. If you have already approved these coins before, you can click “Supply” and a confirmation screen with all numbers will come up, so you can do a final check before confirming.
8. After making the deposit, you will receive the LP tokens in your wallet.
9. Also, if you return to the pool page, the LP tokens and pool share should show up.
#3 Where can I farm Honey?
HNY Farm is called Honeycomb and can be found here: https://hny.farm/
#4 How do I farm?
If you go to the farm page, you will see it has changed as well after connecting your account.
- Select the farm you want to join.
- The left side will show you how much HNY you have earned. This number should rise every 10 seconds or so, but of course it depends if you have staked.
- The right will show the number of tokens staked.
2. In order to start farming click on “+” button to add your UNI-V2 LP tokens
3. Approve the transaction in your wallet.
You don’t have to change anything, just click confirm and the staking will be approved and you are now farming Honey!
#5 What are the risks
When staking and farming there are definitely risks and possible downsides as well:
- Smart contract issues — In any software product and smart contract can be bugs, some of them so severe that you could lose everything. Never farm/pool more than you are prepared to lose.
- Impermanent Loss (IL) — Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited tokens changes compared to when you deposited them. The greater the change is, the more you are exposed to impermanent loss.
Why “impermanent”?
Because as long as the relative prices of the tokens in the pool return to their original state when you entered the pool, the loss disappears and you earn 100% of the trading fees.
However, this is rarely the case. More often, impermanent loss becomes permanent, leaving you with negative returns. To compensate, you will get rewards from farming and fees from trading.
👩🌾 Happy Farming! 👨🌾
If you have any questions, join our amazing community, there are many people who will be more than willing to help you.
🍯Love&HNY from the team!🍯
Follow us on Twitter to keep up with the latest news: https://twitter.com/Honeyswap
In case you run into any trouble hop on Discord: https://discord.gg/kYF8uHy6
Get involved in the conversation on Telegram: https://t.me/honeyswapDEX
For Reddit lovers join: https://www.reddit.com/r/HNY
[1]: Harry — Honeycomb: how to stake and farm tutorial, benefits and risks
https://forum.1hive.org/t/honeycomb-how-to-stake-and-farm-tutorial-benefits-and-risks
[2]: 1Hive Gitbook
