What’s the first thing that comes to mind when you hear the word ‘yield farming’? We are sure most of you who are fresh to it must be imagining it to be farming practices related to the latest crop, but it isn’t! Instead, yield farming refers to the Avant-garde trend by which cryptocurrency investors can earn promising returns. In short, it is a way to earn more crypto over the invested crypto.
Yield farming in decentralized finance DeFi is an interesting trick for DeFI companies to benefit users and boost their interest in the platform. No doubt, this exclusive practice is advantageous for both lenders and investors. However, with everything new and unknown, if you are still in doubt about whether to invest in DeFI yield farming or not, we completely understand your concern. It is why here we come up with the best reasons to make up your mind in favor of the trend.
WHAT IS DeFi YIELD FARMING?
To dive into the detailed concept of DeFi yield farming, let’s first understand what ‘yield’ means in connotation to finance.
Yields are the earnings that you gain on an investment over a period of time. These may be either interest generated on the investment or the guaranteed dividends in return of investment. The notion of yield can be applied to various classes of financial assets, but when particularly exercised to cryptocurrencies or DeFI, this is known as YIELD FARMING.
Thus, Yield Farming is a practice to invest in decentralized finance companies in exchange for rewards, in the form of dividends or interest. Here the term ‘farming’ refers to the generation of high levels of interest via liquidity of distinct DeFi protocols.
Yield farming happens within a decentralized finance ecosystem. Lenders and borrowers connect via blockchain-based smart contracts and play their respective roles. While the borrowers look forward to margin trading, the lenders yearn to invest their idle crypto assets for passive income. In this ecosystem, yield farmers lend funds that are meant to yield maximum returns with the use of tokens. This is the reason, DeFi platforms are making headway these days!
WHY INVEST IN YIELD FARMING?
You can make the most out of your best DeFi crypto ownership by investing in ‘yield farming.’ After all, there is a wide range of benefits that it offers to investors. These are –
Maximum Earning Potential
In comparison to the traditional channels of investment like stocks and bonds, yield farming heads towards higher earning potential. The participants who enter earlier into the protocols to stake their cryptocurrency can earn the maximum profit.
Easy To Use DeFi Platforms
Today, there are various applications where users can keep track of their investments. Using the best decentralized finance cryptocurrency platform, stamp out the learning curve and help users ensure the availability of crypto projects with ease.
The best part about investing in yield farming is that you can enjoy the benefits of the high interoperability of DeFi platforms. As Ethereum and cryptocurrency wallets are the two only requirements, you can start with yield farming simply and quickly.
HOW TO INVEST SAFELY IN YIELD FARMING?
Despite the undeniable attractive benefits of yield farming, there are some potential risks that put users in two minds about their future investments. But fret not, here we have the solutions for some common risks to help you make the best returns on your crypto investments –
For APY Risks
Measure the opportunity cost against potential gains and possible variable changes before investing.
For Liquidation Risk
Maintain sufficient levels of collateral. Make sure to evaluate the price actions of borrowed assets and currency of collateral.
For Impermanent Loss
To avoid impermanent loss like the shift in the price, wisely choose the pools and the timings to enter.
The trend of yield farming in decentralized finance (DeFi) is booming at a great pace. As you would not like to miss your chance of earning the maximum returns on your investments, jump into the bandwagon now! Don’t forget to keep in mind the above-said tips to avoid rekt with yield farming.