What Is Yield Farming? How to Yield Farm Cryptocurrency Easier?
Yield farming is a process that allows cryptocurrency holders to lock up their assets in return for rewards.
In recent years, the cryptocurrency space has witnessed a number of emerging trends that have not only shifted our mindsets about crypto but also shaped new investing habits. The rapid growth of Decentralized Finance (DeFi) offers investors to yield farm cryptocurrencies. Read this article to discover what yield farming is, how it works, and how to yield farm cryptocurrency easier.
What is Yield Farming?
Yield farming is a process that allows cryptocurrency holders to lock up their assets in return for rewards. More specifically, the yield farming process enables users to provide liquidity to various token pairs and earn either fixed or variable interest in the form of additional cryptocurrency.
Another simple way to understand yield farming is to compare it with the process of lending fiat money. A person deposits an amount of fiat money into his savings account in a bank. After the deposited amount is lent out, the principal and interest will be paid back to the depositor in fiat money. Similarly, in yield farming, cryptocurrencies that are sitting in an exchange or a wallet will be lent out via DeFi protocols or locked into smart contracts to generate maximized returns.
Yield farming transactions often take place on Ethereum with rewards usually belonging to the Ethereum ecosystem (ERC-20 tokens). Nevertheless, the speedy development of cross-chain technologies has enabled decentralized applications (dApps) to run on other blockchains besides Ethereum.
How does Yield Farming work?
In the first step of yield farming, users deposit cryptocurrency into a liquidity pool. Deposited funds are usually stablecoins that are pegged to USD such as USDT, USDC, and DAI. Liquidity pools are powered by smart contracts, which enable various crypto strategies including staking, lending, borrowing, and exchanging. Those who complete this step are called liquidity providers or yield farmers.
Once assets have been locked up in the pools, the underlying DeFi platform will offer liquidity providers reward tokens or incentives coming from lending interest and transaction fees. The rewards are based on the amount of liquidity provided and the protocol’s governance. Experienced yield farmers often reinvest reward tokens into other liquidity pools, or move their funds around different DeFi protocols, which in turn generates various reward tokens. This method allows users to diversify their portfolios while maximizing yields.
Why Yield Farming?
Yield farming has become incredibly popular as it is not only a perfect bridge between lenders and borrowers, but also beneficial to nascent DeFi protocols in gaining liquidity, drawing attention from stakeholders, and growing their communities. The key advantage of yield farming is its ability to generate huge returns. Compared to traditional banks, yield farming is capable of bringing higher interest rates despite some associated risks. Besides interest rates, yield farmers can also earn from transaction fees, reward tokens, or token price appreciation in favorable market conditions. This makes yield farming a more efficient strategy for earning crypto compared to storing crypto in a wallet. It is also an economic alternative to crypto mining as there is no expensive equipment or massive supply of electricity needed for the yield farming process.
How to Yield Farm cryptocurrency easier?
In yield farming, regularly tracking market conditions and moving assets through different marketplaces used to be what a yield farmer had to do to minimize returns. This is a cumbersome process that requires a lot of time and effort. DeltaFi is developed to automate this process. All you have to do is connect your wallet to DeltaFi and deposit your idle assets into Delta Vaults. DeltaFi’s automated digital asset management system will take over the rest. Click here to figure out why you should start multichain yield farming on DeltaFi.
Multichain yield farming on DeltaFi
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