The yield farming token sector is a part of the decentralized finance (DeFi) ecosystem that focuses on giving users incentives to provide liquidity to different DeFi protocols.
Yield farming tokens are typically governance tokens that give their owners the right to vote and a portion of the fees made by the protocol. Users can get these tokens by staking or bringing liquidity to different DeFi platforms. This lets them get a return on their investment.
In most cases, the Ethereum network is used for yield farming, which entails lending cryptocurrency. When banks lend out fiat money for loans, the money is paid back with interest. The idea behind yield farming is the same: a cryptocurrency that would normally be sitting in an exchange or wallet is lent out using DeFi protocols (or locked into smart contracts, in Ethereum terms), in exchange for a return.
How does yield farming work?
The first step in yield farming is to put money into a liquidity pool, which is essentially a collection of smart contracts that hold money. These pools run a market where users can buy, sell, borrow, or lend tokens. Once you add your money to a pool, you are now a liquidity provider.
In exchange for putting your finds in the pool, you will get fees from the DeFi platform that runs the pool. Note that yield farming does not include things like investing in ETH itself. Instead, yield farming involves lending out ETH on a decentralized, non-custodial money market protocol like Aave and getting paid back.
Reward tokens can also be put into liquidity pools, and it’s common for people to move their money from one protocol to another in search of higher yields.
It’s complicated. Yield farmers are often very knowledgeable about the Ethereum network and its technicalities, and they will move their money to different DEFI platforms to get the best returns.
It’s not easy, and it’s definitely not easy money. Those who provide liquidity are also paid based on how much liquidity they provide, so those who make a lot of money have a lot of capital behind them.
Who can participate?
If you have no prior experience in the crypto world, getting into yield farming is difficult. Projects like Compound and Yearn.finance are working to make the world of borrowing and lending accessible to everyone.
But because yield farming has caused high gas prices on the Ethereum network, people who make a lot of money by lending their crypto usually have a lot of money to start with.
What can yield farming be used for? One strategy involves Compound, one of the most popular DeFi platforms in the world. The platform gives investors COMP tokens for both lending and borrowing capital, and many users make the most money by doing both:
When you borrow money on compound, you get COMP Tokens as cashback. The more you borrow, the more COMP Tokens you receive. If the cashback is worth more than the cost of borrowing, you can keep borrowing to get more cashback rewards.
Since liquidity miners get paid for both lending and borrowing, one strategy is to lend the asset with the highest interest rate, borrow as much as you can against the tokens, and then return the remaining assets to the lending pool.
The (potential) end result is 100% APY instead of the 0.01%–1.0% that most banks offer, which is a very large increase. In-depth strategies are beyond the scope of this article, but the basic idea is to put down money and then borrow against it. It goes without saying that it’s very risky, and as always, you shouldn’t invest money you can’t afford to lose.
Is yield farming a sustainable practice?
Several Ethereum developers have said some yield farming projects won’t last and are simply not sustainable. These projects frequently raise a lot of money in a short amount of time and are then forgotten about. Some have even been called scams, especially the projects that involve “flash farming.”
Other “experiments” with yield farming have used experimental code that hasn’t been checked, which has led to unintended results.
For now, yield farming is still a high-risk, high-reward practice that might be worth doing if the right research and risk assessments are done first.
Some of the yield farming projects include:
1.Landshare’s token, which is fully integrated with the Binance Smart Chain and has gone up 44% in the last 24 hours, seems to be the main reason for the rally in the sector.
The project enables the trading of tokenized real estate assets on the blockchain. It is a platform that combines the features of DEFI and real estate investment. For example, tokenized assets and crowdfunded house flipping provide direct access to assets on-chain.
2.Badger DAO, a project that aims to build the products and infrastructure needed to speed up Bitcoin as collateral across other blockchains, is another low-cap token that has risen in value over the past 24 hours.
With a market cap of $72 million and a token price of $3.79, Badger has seen a +6.75% increase in price over the last 24 hours.
Badger DAO released eBTC, a decentralized Bitcoin that runs on Ethereum staking, on February 22.
3. Uniswap is a decentralized exchange for digital currencies that uses an automated market-making system and runs on the Ethereum blockchain. It is seen as a major player in the world of decentralized exchanges, and it has its own token called UNI that is used for governance.
The current price of Uniswap is $6.81 USD. The token has increased by 3.31 percent in the last 24 hours and is currently ranked #18 on CoinMarketCap with a market cap of $5 billion.
4. Another yield farming token, Aave, is also available today. Aave is a decentralized finance protocol that lets users lend and borrow cryptocurrencies by putting their digital assets into liquidity pools. Borrowers can use crypto as collateral to get instant loans.
With a 24-hour trading volume of $82,338,720 USD, the price of Aave is currently $82.32 USD. In the last 24 hours, the price of the token has gone up by 4.26%.
5.yEarn.finance is a DeFi lending protocol built on Ethereum. It is an aggregator service for DeFi investors that uses automation to help them make the most money from yield farming. For investors who aren’t as tech-savvy or who want a less intensive approach than professional traders, the platform aims to make the complex DeFi market easier to understand.