The cryptocurrency market is broad and lucrative. While crypto trading remains the best way to make money in the industry, yield farming comes in second.
Yield farming is a process that allows an investor to earn from their crypto holdings. It works similar to earning interest by saving money in your bank account. Yield farming requires you to lock your cryptocurrencies, also known as staking, for a period of time, after which you receive interest or other rewards in the form of additional cryptocurrencies.
It is an ideal strategy if you have some unused cryptocurrencies in your wallet that you want to work for yourself. Yield farmers earn returns in Annual Percentage Yields (APY). The APY is determined by the yield farming platform.
While yield farming can be lucrative, it also comes with a high level of risk. The coins earned are subject to the high volatility of cryptocurrencies. Additionally, some yield farming protocols become carpet trains, with developers exiting the project and taking off with investor funds.
If you want to invest in yield farming, below are the top 3 yield farming coins to keep an eye on in 2022:
1. aave
Aave is one of the most popular yield farming platforms. The platform was founded in 2017 to facilitate cryptocurrency lending and borrowing. Aave has evolved over the years into one of the leading decentralized finance (DeFi) service platforms.
The native token for the Aave platform is AAVE. AAVE is a governance token and yield farming coin. Users can stake the AAVE token to generate rewards.
You can stake AAVE tokens via the Aave Decentralized Application (dApp). The AAVE token is typically deployed for the financial security of the Aave network; Therefore, the rewards you earn are offered by the Aave platform.
AAVE staking is a low-risk option for you to generate passive income from your holdings. Additionally, yield farming with the AAVE token is one of the easiest processes due to the token’s interoperability with its own dApp. In just a few steps, you can stake your AAVE tokens and sit back while you await your rewards.
There is no definitive win rate you will get from staking AAVE. The rewards you receive are determined by several factors. Some of these include the number of tokens you wagered, the time period you wagered, etc.
Aside from the simplicity of the staking process, the AAVE token has also seen notable gains on its own. The token is increasing by more than 100% annually, and its growing community promises more gains in the future. Therefore, this token allows you to generate returns from both staking and price appreciation.
Before investing in AAVE, you must consider that this token is based on the Ethereum blockchain. It is subject to the high gas fees on Ethereum, which means you need to make large transactions to avoid the high fees.
To learn more, visit our Investing in Aave guide.
2. SushiSwap (SUSHI)
The other top yield farming coin is SUSHI. Launched out of a fork of Uniswap, SUSHI lured Uniswap users by promising them free SUSHI tokens. Since its inception, SushiSwap has grown into one of the largest yield farming protocols. Like Aave, it was also built on the Ethereum blockchain.
SUSHI is the native token for the SushiSwap platform. SUSHI is an ERC-20 token issued to liquidity providers on the SushiSwap DEX. You can also earn additional SUSHI tokens by providing liquidity to pools on the platform.
Wagering SUSHI will earn you rewards in the form of Smooth Love Potion (SLP) tokens. SLP is the governance token used to control the protocol. Staking SUSHI is an easy and quick process as you need a Metamask wallet that contains SUSHI. You also need ETH to pay gas fees.
You can also earn income on this platform by staking SUSHI in the Sushibar staking contract. This converts your SUSHI tokens into xSUSHI, which entitles you to participate in the 0.05% swap fees through SushiSwap.
The SushiSwap platform has a lot of potential in the market and is increasing its ranking by market capitalization. SUSHI currently has a market cap of over $1.1 billion and since last November the token has gained around 114%. This makes it a formidable buy for both trading and staking.
The only challenge that comes from investing in SUSHI is the high gas fees on Ethereum. However, if SushiSwap is built on a more scalable blockchain, it could eliminate this problem in the future.
To learn more, visit our Investing in Sushi guide.
3. PancakeSwap (cake)
The other leading yield farming coin is CAKE. PancakeSwap is a decentralized exchange (DEX) that facilitates the exchange of BEP20 tokens. Unlike the other two platforms, PancakeSwap is built on the Binance Smart Chain.
The PancakeSwap protocol uses an automated market maker model (AMM) that allows users to trade against a pool of liquidity. The pools hold user funds, with those who contribute to the pool receiving rewards in return.
If you want to stake CAKE tokens, you need CAKE and BNB tokens in a wallet that supports PancakeSwap, e.g. B. Metamask. BNB tokens are used to pay for transaction fees on BSC.
You generate additional CAKE tokens when you put the CAKE tokens on the CAKE pool. Additionally, you can also receive your rewards in other supported tokens such as HAKKA and CGG.
The platform has a user-friendly interface that simplifies staking. After wagering your CAKE tokens into the pools, you can claim your rewards with a “Harvest” icon, which will send the rewards received to your wallet.
Additionally, after winning your first set of rewards, you are under no obligation to withdraw. You can choose to reinvest your tokens on the platform using the “Compound” icon on the staking platform, which increases your rewards.
The CAKE token is one of the leading yield farming coins in terms of profits. The coin has gained more than 6000% annually and is currently the 56th largest cryptocurrency by market cap. CAKE is one of the largest trading and yield farming investments.
Furthermore, unlike the other two platforms, PancakeSwap is based on BSC which charges lower gas fees. The low gas fees are an advantage for those handling large and small transactions. PancakeSwap is also one of the largest DEXs with support for more than 3000 cryptocurrencies, proving its potential.
To learn more, visit our Investing in PancakeSwap guide.
Conclusion
DeFi farming coins represent some of the best investments out there as they allow investors to benefit from both staking and price gains on these coins. The DeFi market is one of the largest sectors in the crypto space and has seen a multitude of new projects in such a short period of time.
Although yield farming can be a lucrative endeavor, an investor must understand that it can be very risky. In addition, it can also be a complex area for a beginner. So, before investing in the sector, one needs to understand the dynamics involved, the APY and the risks.
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