• VanticaTrading

What is Yield Farming?

Yield farming is a way of using your crypto to make more crypto out of it.


It includes using the power of Smart Contracts to lend funds to others. You will receive payments in the form of crypto, in exchange for your service. Just pretty simple, huh? Ah, not so easy.


Yield Farming and DeFi
Yield Farming is the last Hot Topic on DeFi (Photo by https://unsplash.com/@shutterrescues)

Yield farmers use very complicated strategies. They move their cryptos between various lending marketplaces all the time to maximize their returns. They will also be very discreet about the best methods for farming yields.

Why? For what? The more people know about a strategy, the less it may become significant. Yield farming is the wild west of decentralized finance, where farmers are competing to have the opportunity to grow the best crops.


You've probably noticed if you follow DeFi, that the idea of yield farming seems to be all around us lately. And some of the most original memes in the ethereum network to conventional news sources such as Forbes, crop rotation has been one of the defining practices on Defi by 2020 to optimize yield through protocols.


Yield farming is the process of utilizing various DeFi protocols and goods to earn a yield or return on their properties, often achieving returns well above 100 percent APY through a mix of borrowing interest and token rewards. The latest crop yield boom has made total value Locked to new all-time highs on Defi skyrocket, zooming well past $2B.


Yield farming seems to have had an enormous effect on protocols such as Compound, Balancer, Curve, MCDEX, and Uniswap V3 just to name a few because Defi users are trying to cash in on the trend. That frenzy brought to light some critical questions.


Will short-term experimental use of the Ethereum Network be considered an indication of long-term adoption?

Agricultural Analogy


In agriculture, yield (also known as "agricultural productivity" or "agricultural output") is a measurement of the quantity of a crop produced, or commodity produced, such as wool, meat, or milk, per unit of land. One other way to calculate agricultural productivity is by seed ratio.


New technology, such as the use of fertilizer, the development of better farming tools, modern farming methods, and crop improvement variations have boosted yields. The higher the yield and the more intensive use of the farmland, the higher a farmer's productivity and profitability; this increases farming families' well-being.


It is possible to sell or barter surplus crops not needed to feed the family based on subsistence farming. It's when a farmer would grow grain or feed, the more draught animals such as horses and oxen can be supported and utilized for employment and manure manufacturing process.


Steadily increasing crop yields also necessitate fewer hands-on farm, freeing them for industry and trade. This, in turn, resulted in the establishment and growth of cities, resulting in higher prices for food or other agricultural products.


Lending and borrowing protocols

Compound and Aave are the critical protocols for lending and borrowing at DeFi. The two next to each other represent $1.1 billion in loans and $390 million in borrowing. The best way of earning a profit in Defi is by lending funds to financial markets.


Deposit a stablecoin to one of the two, and you'll instantly begin earning returns. Aave usually has better prices than Compound, as it provides borrowers with the option to select a fixed interest rate rather than a variable rate.


For borrowers the fixed-rate appears to be higher than the variable rate, raising the lenders' marginal return.



Make Money on Defi?

The way people communicate with their money is shifting with decentralized finance (DeFi). We do know, though, it could be a lot to process in. Don't panic, as we've brought this short guide article together to give you a quick boost.


By following those top 4 steps, you can make some money on Defi. If you are familiar with Ethereum, it will take just a few minutes for those steps. And when that's everything is said and done, every block you'll earn interest in DAI.


But if you're new to Ethereum, you might also want to check out Zero to Defi, a beginner's guide that breaks down the whole process of having a wallet, acquiring ETH, and renting out your DAI.


Here are 4 steps to follow:


  1. Get ETH into an address that you own

  2. Head to DEX.AG and sell most of that ETH for DAI

  3. Go to Defi Pulse’s Earn Income page

  4. Pick a lending protocol, and start earning interest


And then later, if you are prepared to withdraw money. Hit back to your chosen lending protocol and use your private key to unlock the DAI plus interest that is generated whenever you want to.


You wouldn't have to wait for any "lock-in" period before you earn interest. Every block of your DAI makes interest until you choose to stop.

Resources



Warning and Disclaimer

The information provided in this post is for general advice only. please, take into consideration your objectives, financial situation, or needs. The information on this website is not a substitute for financial advice. Use the information contained in this post at your own risk.

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