Hello, not so long ago I told you about staking, and today we will analyze a very similar thing called yield farming + several additional investment instruments. Also, in the near future I plan to write a series of posts about scam schemes in cryptocurrency. So if you're interested, let me know in the comments.
What is it?
First, let's take a quick look at what staking is. Roughly speaking, this is a deposit in the world of cryptocurrencies. You block a certain number of coins on your crypto wallet and after a while you will receive a reward in the same coins. Rewards are received for providing liquidity and maintaining a network that runs on the Proof of Stake algorithm. In general, the profitability from such an occupation is slightly higher than the income from bank deposits. On average, you can earn 15% per annum. By its principle of yield farming, or profitable farming is very similar. You also lock a certain amount of crypto and get even more crypto. But if staking is a simple and conservative activity, then farming is a whole art. For example, you can compare these processes with conservative spot trading and aggressive leverage in futures. Accordingly, there is more potential profit in farming, as well as risks. Now we'll figure it out.
Liquidity mining
There are tons of cool DeFi projects out there. For example, let's take the well-known decentralized exchanges - Pancake Swap, UniSwap, SushiSwap, and so on. They provide people with the ability to exchange one coin for another. But they also need to take these coins from somewhere. Therefore, they call private investors and collect their coins in the so-called liquidity pools (these are coins that act as "raw materials" for exchange). For providing their coins, pool members receive their percentage of the commission. This is yield farming, or it is also called liquidity mining. The commission depends on what percentage of the pool coins you own. For example, if you have 70% of the total pool, then you receive 70% of all commissions from the exchange. And now we turn to the most difficult thing and now you have a mess in your head. Why is farming a difficult activity exclusively for professionals? It's all about the layering. First, farmers can provide liquidity not only for decentralized exchanges, but also as loans and other loans. In short, they can lend money to any DeFi project that deals with all possible financial transactions. Most interestingly, farmers are constantly shifting their assets from one DeFi project to another, in pursuit of higher rewards. Further coins. For example, LP (liquidity provider) flies into a conditional DeFi exchange, into some kind of cryptocurrency pair. Let it be BNB-UNI. He must provide an equivalent amount of both coins in order to become a member of the pool (for example, $ 50 in BNB and $ 50 in UNI). At the same time, income can be paid to him in a completely different coin, which is called the LP token. In total, we have - you lock two coins, and you get a third. At the same time, the price of each coin is constantly changing, depending on the market, and very often it happens that this LP token is banally drained. But it also happens that he will be pumped up by "tu ze moon".
Also, when you are in the pool, you can earn less if you just held a coin. For example, BNB grew by 400%, and you got only 50% from your farming. It works the other way too. That is why yield farming is an art. You must constantly operate with the most complex strategies, transfer assets from one pool to another, while everyone is constantly monitoring the changes in the value of your coins. So the roof can go. But the percentages can be equine -1000%, 100000%, in short, as many percentages as the imagination suffices. I hope you at least understand something. I deliberately did not leave a single name for the farm projects, so that you do not foolishly carry your money to them. If you really want to start farming, you will first figure it out, and then decide for yourself whether it's worth it or not.
What is it?
First, let's take a quick look at what staking is. Roughly speaking, this is a deposit in the world of cryptocurrencies. You block a certain number of coins on your crypto wallet and after a while you will receive a reward in the same coins. Rewards are received for providing liquidity and maintaining a network that runs on the Proof of Stake algorithm. In general, the profitability from such an occupation is slightly higher than the income from bank deposits. On average, you can earn 15% per annum. By its principle of yield farming, or profitable farming is very similar. You also lock a certain amount of crypto and get even more crypto. But if staking is a simple and conservative activity, then farming is a whole art. For example, you can compare these processes with conservative spot trading and aggressive leverage in futures. Accordingly, there is more potential profit in farming, as well as risks. Now we'll figure it out.
Liquidity mining
There are tons of cool DeFi projects out there. For example, let's take the well-known decentralized exchanges - Pancake Swap, UniSwap, SushiSwap, and so on. They provide people with the ability to exchange one coin for another. But they also need to take these coins from somewhere. Therefore, they call private investors and collect their coins in the so-called liquidity pools (these are coins that act as "raw materials" for exchange). For providing their coins, pool members receive their percentage of the commission. This is yield farming, or it is also called liquidity mining. The commission depends on what percentage of the pool coins you own. For example, if you have 70% of the total pool, then you receive 70% of all commissions from the exchange. And now we turn to the most difficult thing and now you have a mess in your head. Why is farming a difficult activity exclusively for professionals? It's all about the layering. First, farmers can provide liquidity not only for decentralized exchanges, but also as loans and other loans. In short, they can lend money to any DeFi project that deals with all possible financial transactions. Most interestingly, farmers are constantly shifting their assets from one DeFi project to another, in pursuit of higher rewards. Further coins. For example, LP (liquidity provider) flies into a conditional DeFi exchange, into some kind of cryptocurrency pair. Let it be BNB-UNI. He must provide an equivalent amount of both coins in order to become a member of the pool (for example, $ 50 in BNB and $ 50 in UNI). At the same time, income can be paid to him in a completely different coin, which is called the LP token. In total, we have - you lock two coins, and you get a third. At the same time, the price of each coin is constantly changing, depending on the market, and very often it happens that this LP token is banally drained. But it also happens that he will be pumped up by "tu ze moon".
Also, when you are in the pool, you can earn less if you just held a coin. For example, BNB grew by 400%, and you got only 50% from your farming. It works the other way too. That is why yield farming is an art. You must constantly operate with the most complex strategies, transfer assets from one pool to another, while everyone is constantly monitoring the changes in the value of your coins. So the roof can go. But the percentages can be equine -1000%, 100000%, in short, as many percentages as the imagination suffices. I hope you at least understand something. I deliberately did not leave a single name for the farm projects, so that you do not foolishly carry your money to them. If you really want to start farming, you will first figure it out, and then decide for yourself whether it's worth it or not.
