What Is Yield Farming? And How to Yield Farm?
Over the past two years, yield farming has become one of the most important drivers for developing DeFi and the cryptocurrency market. Thanks largely to farming, billions from the traditional finance sector poured into the industry. The total locked value of liquidity pools in yield farming projects stands at $5,231,073,393.
To help beginners avoid common mistakes, we have compiled a guide on yield farming that goes through several benefits, risks, and the best strategies for leveraging.
What is yield farming?
Yield farming is the process of generating income in the DeFi sector using various investment and reinvestment strategies.
This investment strategy is called “yield farming” because it is a highly profitable and albeit risky investment. With skillful portfolio management and some luck, you can earn high returns.
How can I benefit from Yield Farming in crypto?
To understand the yield farming process, you must understand its basic concepts clearly.
Let’s start with liquidity pools.
These are smart contracts that provide liquidity to decentralized applications. Liquidity pools require liquidity providers to act properly. Liquidity providers can stake their assets in pools to receive rewards from the preferred DeFi platform. These funds are used by decentralized applications such as exchanges, which provide the necessary liquidity to carry out exchange transactions. Some strategies involve investing the tokens received as a reward in other liquidity pools to earn more profit.
In a relatively short time in yield farming, many complex strategies have been developed to maximize the profits of the “farmers”. Since farming uses smart contracts, cryptocurrency owners can earn passive income from their assets. This type of investment happens in a decentralized manner, according to the smart contract algorithm. However, providing liquidity for DeFi applications can deliver varying results, and to calculate the maximum profit different farming platforms offer, the concept of Total Value Locked (TVL) was introduced. TVL is used to estimate the profitability of different DeFi platforms.
How is TVL calculated?
TVL reflects the total value of cryptocurrencies locked in smart contracts on various platforms as an indicator of their effectiveness. It is similar to capitalization for regular cryptocurrencies; only its purpose is to track the total value locked in DeFi applications. TVL is an effective measure for comparing the market share of various DeFi platforms and protocols that provide liquidity to certain ecosystems.
The easiest way to use TVL is to track the liquidity of a particular platform or cryptocurrency. TVL can also be calculated in a specific currency, for example, tracking TVL in ETH, USD, or BTC. Such calculations provide an estimation of the total value of these cryptocurrencies.
What do I need to start yield farming crypto?
There are a few requirements to start yield farming. Here are the main steps:
- Go to the platform you’ve chosen for yield farming and find the section where the different pools are listed with their yield percentages.
- Connect your cryptocurrency wallet and select the number of coins you want to add. Click on the deposit option.
- Approve the transaction from your cryptocurrency wallet.
- Add liquidity to the liquidity pool you are interested in and approve the transaction directly on the platform.
Note: this process might differ slightly depending on your choice of platform.
Is Yield farming worth it?
Despite such a rosy picture of DeFi farming, it has its advantages and disadvantages (although there are more of the former, of course).
Pros:
- A variety of earning strategies (deposits for different periods and in various coins, loans as a way to receive and send coins to landing protocols, liquidity pools, and hundreds of tokens to choose from);
- Profitability is several times higher than that of traditional banking bonds;
- The user receives income in crypto, which tends to appreciate in value, unaffected by inflation.
Cons:
- Since farmers receive income in crypto, you need to carefully choose returnable tokens (i.e., cryptocurrencies in which the user will receive income) — no one has eliminated the risks of falling crypto;
- Smart contracts can be vulnerable, and users can (theoretically) lose their money due to a smart contract hack.
In some cases, you can earn 8%, 15%, or even more APR (Annual Percentage Rate) on yield farming. Still, losses can also be expected, as you may experience losses due to the volatility of cryptocurrency tokens unless you are yield farming with stablecoins.
What are the Benefits of Yield Farming with TheStandard.io?
Unlike other protocols, we combine the yield farming of cryptocurrencies and physical assets such as gold.
We don’t force users to relinquish their existing assets when borrowing in sEURO. In essence, as long as one can repay the loan before the liquidation, the sEURO can be used to farm yield in DeFi while the leveraged asset is retained. This can be extremely useful for someone who has invested in a specific asset to benefit financially from that investment’s long-term returns.
Moreover, our first stablecoins will be minted via an initial bonding curve offering (IBCO) to build up the DAO’s Protocol Controlled Value (PCV) and bring deep liquidity to the stability pool. Early participants will be able to buy sEURO at a discount, and the discount will decrease with every sEURO purchased until we reach a 1:1 price. This discount curve will start at 80 cents for one sEURO.
The second stage of the IBCO will act as a bond, offering people a strong return. The PCV (liquidity) will be used to peg the stablecoins but also earn yields for TST (The Standard Utility Token) stakers.
We provide a win-win solution, creating opportunities for holders of real-world assets and cryptocurrencies while reducing the risks associated with yield farming.
Join our referral program for a chance to earn prizes and get early access to the IBCO and earn yields.
