Все публикации

What is yield farming and how can it help you earn money?

Yield farming. A review by a Bitcoin mixer: mixer.money
What is yield farming and how can it help you earn money?

  1. What is yield farming?
  2. The principle of yield farming
  3. The benefits of yield farming
  4. The risks of yield farming
  5. Conclusions

In this article, you will find out about a relatively new source of income known as yield farming. Although some qualify it as usury, this is actually quite an exciting way to make money.

What is yield farming?

DeFi exchanges offer users to provide liquidity by using their tokens and to earn interest. This is similar to a bank deposit but the interest rates are significantly higher. You can lock your assets at up to 20+%.

Yield farms are a way of lending crypto assets to those investors who cannot afford or do not consider practical buying cryptocurrency themselves. For example, this can include major players in the exchange market. They borrow cryptocurrency and then stake these coins. After receiving profits, they pay interest to the farming platform and take the rest. Although this sounds like a lucrative idea, this is only feasible for experienced investors who are good at diversifying their investment portfolio.

For general users even without a lot of money, yield farming is a good source of passive income.

The principle of yield farming

First of all, you need to register on a platform that offers such services. There are already many decentralized exchanges, and the most popular of them is Pancakeswap on Binance Smart Chain.

You can find out about the offer of various services at coinmarketcap, coingecko, and other aggregators.

DeFi platforms offer several ways to make money by using yield farming. In order to invest in a yield farm, you need to buy the platform’s tokens and choose a pair of tokens you would like to stake. Pay attention to TVL (total locked value) which is the total amount of funds locked for this pair. The higher this indicator, the lower your share.

The income is made up of transaction fees and rewards for providing liquidity. The profits are paid out in exchange tokens. You need to monitor their market price because a sharp decline in their price may leave you with nothing.

After receiving coins, you can invest them at interest. This is exactly the same as a bank deposit, and in this case, you do not need to analyze the value of the pair or calculate the potential profits or losses. The interest rate is lower but if the price of the token grows steadily, you will make money.

Many DeFi platforms try to engage users by offering additional, often gamified ways to make money. For example, on Pancake you can try to predict the price of Cake — the platform’s native token. You can also get an NFT avatar and receive a reward for being an active user. The platform also offers team games.

The benefits of yield farming

Most platforms offer investors to swap tokens without intermediaries, using a decentralized wallet. You do not need to install any additional software either, a simple wallet is enough. The interface of yield farming exchanges is a website where you need to register an account to start making money. After that, you simply need to analyze all the parameters and choose the most favorable liquidity pool.

Other advantages of yield farming include:
• the complete anonymity of its users throughout the registration process;
• the platform cannot be hacked because it is blockchain-based and decentralized;
• there is no management structure that could be interested in reallocating the assets;
• there is no management structure that could be interested in reallocating the assets;
• the distributed architecture protects users from government sanctions.

The risks of yield farming

The risks of yield farming. A review by a Bitcoin mixer: mixer.money

The main risk of yield farming is impermanent loss. It is mainly associated with the high volatility of cryptocurrencies and, in particular, native tokens. If the price of one of the assets in the pair changes sharply, you may lose money because the pool liquidity remains the same. As a result, you might receive more of the cheaper tokens and less of the expensive tokens. According to Binance, a 5x price change will result in a 25.5% loss. Usually, this loss will be covered by fees and interest charges.

Another risk is related to the decrease in the price of the platform’s native tokens. Since users receive all fees and rewards in the platform’s tokens, these must be more or less stable. It is quite easy to monitor the tokens’ market price which is why we advise you to take a look at the platform’s tokens when choosing a DeFi exchange.

Conclusions

In conclusion, we would like to refer to the results of a study by the DeBank ranking platform that estimates the growth of the TVL at $70 billion in the last year, from $2 billion in 2020 to $72 billion in 2021. This means that people invest a lot of money into liquidity pools, and such services are in great demand. Despite all the risks, yield farming offers a source of passive income that is superior to anything that bank deposits could offer. All you need to do is invest a small amount of money and monitor the crypto market.


logo bitcoin mixer mixer.money

Our Bitcoin mixer publishes a weekly roundup
of interesting news from the world of cryptocurrencies.
Visit our blog: