Farms or Vaults and What Makes KogeFarm Different
For those who are starting to invest in the DeFi ecosystem, many questions may arise regarding the allocation of capital, and how this invested capital can generate great profits over time. Among all the forms of investment within this decentralized ecosystem, two of them, farms and vaults, stand out and can generate misinterpretations by investors.
Understanding the difference between a farm and a vault can lead to a wildly different yield return so it’s critical you understand how each yield-bearing asset works.
To Know a Farm is to Know Liquidity Pools
DeFi resolves around liquidity. Because automated market makers (AMMs) don’t use a traditional order book for trading, they need to provide a platform for traders. AMMs use liquidity pools or LPs. LPs allow a place for traders to come and swap tokens.
Liquidity providers put their tokens into LPs which then provides a special type of token known as an LP token that represents their share of the LP they “own”. The liquidity providers then share in the trading fees the AMMs charge traders based on their share of the LP.
Why are we talking about LPs? Because they are the underlying construct of most farms. Once you understand LPs, you already know 90% of what you need to know about farms.
What’s a Farm?
To encourage liquidity providers, many platforms decided to give additional yield to providers on top of their normal trading fee percentage in the form of rewards. Rewards, typically in the form of the platform’s own token, are given to liquidity providers at a standard rate.
These reward tokens are emitted or automatically given to LP providers as long as the provider maintains their stake in the farm.
Reward Token Harvesting
So now the LP provider has funds in a farm and is receiving reward tokens. Now what? Those reward tokens are not just transferred to the provider’s wallet. They are technically set aside for the provider to “harvest” whenever they’d like.
These reward tokens accumulate on the farming platform over time. To realize those reward tokens, you must manually “harvest” these rewards as often as possible. Once you harvest the rewards, you’re transferring them to your wallet. From there you can do whatever you’d like with them. Most providers choose to roll those reward tokens back into the farm to receive more LP tokens increasing their share of the trading fees.
What’s a Vault?
Recall that to actually realize the value of the reward tokens given to providers, those rewards must be manually harvested. Manually harvesting reward tokens is not only time-consuming but costs gas fees every time you do it. What’s the answer? Vaults!
A vault takes a more active approach and can drastically increase the yield that you see from your farm. All vaults harvest those reward tokens for you and take a fee for the service. Like farms, vaults typically also give you their own reward tokens.
What Makes KogeFarm Different
Unlike many other vault providers out there, Koge is different. Rather than “rewarding” you with our own token, we simply “convert” those reward tokens for more LP tokens and put them right back into your farm. This process is known as auto-compounding.
What does this mean? It means we don’t force you to accept our own KogeCoin token. Even though we’d love for you to have more KogeCoin tokens, we realize that you’ll probably want more of the same kind of token you have in the first place.
KogeFarm rewards you with more LP tokens and not with our own token.
Conclusion
If you are looking for a fast ready-made strategy that is implemented automatically without your direct participation and fewer gas payments, you should definitely take a close look at KogeFarm vaults. They are perfect for those who don’t have enough daily time to do all the needed tasks.
If you have any questions about farms or vaults, stop by the KogeFarm Telegram or Discord communities where you’ll typically find someone willing to help out.
