Staking vs Yield Farming: Understanding How to Earn with Your Cryptocurrency

THE WEB3 JOURNAL: Your Diary into Blockchain

Cryptocurrencies have slowly become mainstream, and it is essential to know how to earn with them passively. Not everyone is a spot or futures trader (a bit to complex if you simply want to earn); for such individuals, Staking and Farming (yield farming) is a practical approach. The article would simplify staking and yield farming to provide a practical approach on how to go about it, and ensure you earn!

What is Staking and Yield farming?

Staking is a way to earn rewards by locking up your cryptocurrency on blockchains that use proof-of-stake. In staking, your coins are used to help verify transactions and secure the network. In return, you earn rewards in the form of interest. The amount of rewards you earn depends on the cryptocurrency you stake and the amount of time you stake it for.

Its like putting your money in a savings account, but instead of earning interest, you earn rewards for helping to keep the network secure. You don’t need any special equipment to stake, just your cryptocurrency.

Yield farming on the other hand, is a way to earn more cryptocurrency by lending your existing crypto to DeFi platforms. To do this, you lock up your crypto in a “liquidity pool” on the DeFi platform and in return for locking up your crypto, you earn rewards in the form of interest, fees, and new tokens. The more crypto you lock up, the more rewards you earn.

This is like planting a seed and watching it grow, except instead of crops, you get more cryptocurrency.

Yield farming can be riskier as there are threats of impermanent loss, price volatility, smart contract hacking, and rug pulls, unlike staking, where risks are limited to price volatility and blockchain hacks, but it can also be very rewarding

Benefits and Risks

Staking Benefit: it offers a low-risk, easy-to-manage way to earn rewards on your cryptocurrency investments. With fixed APYs ranging from 5% to 14%, you can rest assured of knowing your returns without having to actively manage your assets. it is also beneficial in the long run, as opposed to short term benefits.

Yield Farming Benefits: It can be more complex and risky than staking. Yield farmers need to actively manage their assets and switch between different strategies in order to maximize their returns. However, yield farming can also offer higher potential returns than staking. In some cases, yield farmers have been able to achieve returns of over 100%. Yield farming is much more flexible than staking in duration, it does not require a lock-up period, and investors can withdraw their funds at any time.

Staking Risks: Loss of funds is the major risk involved in any form of investment, as this can happen due to hacks, validator mistakes, and smart contract exploits. Staked assets are also illiquid, meaning that you cannot easily sell them.

Yields Farming Risks: it is a highly risky endeavor compared to staking, so it is necessary to DYOR (do your own research). It is also more time-consuming than staking because you need to carefully research and understand different farming strategies. Your funds are essentially susceptible to impermanent loss.

Impermanent loss occurs when the price of one of the assets in a liquidity pool fluctuates significantly relative to the other asset. This can result in you losing money, even if the overall value of the liquidity pool increases.

Platforms to Stake and Farm.

There are numerous platforms available for staking and yield farming, each with its own set of features, supported assets, and rewards. Here are some popular options to consider:

Staking Platforms:

1. Binance: Binance is one of the largest cryptocurrency exchanges in the world and offers staking for a wide range of assets, including ETH, ADA, DOT, and SOL.
2. Kraken: Kraken is a reputable cryptocurrency exchange that provides staking services for various assets, such as ETH, ATOM, and XTZ.
3. Coinbase: Coinbase is a user-friendly cryptocurrency exchange that enables staking for ETH, ATOM, and XTZ.
4. Nexo: Nexo is a crypto lending platform that provides staking services for ETH, ADA, and DOT, along with interest-earning options for other cryptocurrencies.

Yield Farming Platforms:

1. Uniswap: Uniswap is a decentralized exchange (DEX) that offers yield farming opportunities through liquidity pools. You can click here to learn more about farming on this platform
2. SushiSwap: SushiSwap is another DEX that provides yield farming opportunities for various liquidity pools. you can click here to learn more about farming on this platform

Always do your research before investing your money in anything!