What is Yield farming?
The yield farming process is a relatively straightforward one. You buy up the coins you wish to yield farm, and all that’s left is waiting for them to “mature” in your wallet so they can be harvested with no risk of losing any of their accrued interest. At the inception of yield farming, many protocols were offering double digit % yield, but the underlying price of the tokens was very volatile so users are hedging their risk of the underlying asset price dropping with the yield they are generating. As more entrepreneurs launch new DeFi products and yield farming matures, the volatility and yield rates should eventually taper out.
What does yield mining entail? The main beauty about cryptocurrency yield mining is its simplicity: after buying up crypto assets like Compound or Curve — ones which accrue interest over time — it’s just a matter of holding onto them until they mature enough for yield harvesting. This is very similar to staking, however staking also serves the purpose of maintaining network security as it does on Polkadot, and Ethereum 2.0. However, yield mining is not without risks, as we’ll explore shortly.
Yield farming EternalFinance
https://app.eternalfinance.io/farm
How does Yield farming work?
How does yield farming work? It’s a relatively straightforward process which involves waiting for your coins to mature before harvest time so you can reap their benefits (and avoid risk). The main beauty about yield mining is its simplicity; all that’s really required is purchasing some coins and holding onto them until maturity while avoiding any major market dips or tough regulatory environments like those in China: this latter consideration might be difficult given the tumultuous nature of cryptocurrencies but it remains an important one nonetheless.
There are three types of yield farming on DeFi: Protocol usage, Network tokens, and leverage demand
Protocol usage: yield farming or yield mining involves the process of harvesting through a protocol. You need to purchase tokens from that particular protocol, wait for them to mature and then harvest your yield
Network token: yield farming is also possible with network tokens. The main difference? With this type of yield mining you’re not just limited to waiting until maturity; instead there are yield harvesting periods during which you can harvest yield otherwise known as rewards.
Leverage demand: the third type of yield farming is with leverage demand — it’s similar to protocol usage, except that instead of owning tokens from a particular network or having them in your wallet, you simply borrow capital for a short period of time and then pay back what you borrowed.
One common concern people have when approaching yield-farming is yield-mining’s “risk” factor.
What are the risks of Yield Farming?
What are the risks of yield mining? As alluded to earlier, yield-farming is not without its own set of downsides: namely, the risk that your yield will disappear if you don’t harvest it in time and there are also hacking concerns.
Loss of funds: If yield farming is successful, then the yield-farmed tokens will be sent to a wallet of your choice. However, if you don’t harvest that yield within a certain period of time (30 days) it could disappear!
The good news is that this risk can be mitigated by setting up an automatic harvesting script on Metamask or MyEtherWallet and only running transactions manually when there’s been enough yield mined in order to cover transaction fees.
This technique also helps prevent users from sending their funds out into cold storage wallets and forgetting about them… which leads us to our next point: hacking concerns.
Hacking: Yield-farming is a very tempting target for hackers because yield-farmers are moving funds from one account to another, which makes it easy to intercept yield-farmed funds.
Phishing yield-farmers is a common tactic, whereby yield-farmed funds are intercepted via fake websites (usually in the form of an email or Telegram. To avoid phishing, yield farmers should use different passwords for each yield farming account and always verify the website URL before logging in.
popular wallets like Metamask allow users to install a browser extension like Metasafe to help prevent phishing sites from hijacking their yield mined funds. MyEtherWallet’s latest update includes an anti-phishing filter.
