As one of the digital-based assets currently on the rise, it is no surprise that this currency Crypto Over time it has become more popular and well known among many people. Aside from the fact that it is expected to become the Mecca of the business world in the future, Crypto also offers various potential profits and promising returns to each owner.
A way to receive benefits or gifts from the world Crypto is by the name Yield farming. What is generally meant by this Yield farming is a possibility to get reward through assets Crypto. Has another name Liquidity mining, yield farming can also be understood as liquidity mining.
Although it can be a way to make money in the world crypto, But still understand that this process has its own risks and disadvantages. For this reason, before using the method Yield farming To make profits from crypto assets, first read the complete guide on the same, carefully summarized below.
Also read: So this is an important aspect in the crypto world. This is a guide to Total Value Locked or TVL
What is that Yield farming?
Yield farming
As explained a little earlier, Yield farming is a practice that one can benefit from Crypto. Basically, Yield farming occurs through placement of assets Crypto be loaned and held at a platform DeFi.
Another name for Yield farming Is Liquidity reduction or liquidity reduction. When Liquidity providers or liquidity provider acts as user and placement of assets Crypto Hello son liquidity pool, Proceedings Liquidity reduction then it will be able to work. In other words, Liquidity providers act as a lender Crypto to other users.
Related yield farming, There are several things you need to know. One of them is when Crypto put on liquidity pool, Users who give loans receive a gift or reward. In general, the number of prizes to be won depends on the amount Crypto which he lends to other users and refers to the policy platform needed.
Connection Yield farming and DeFi
For those who don’t know, decentralized finance or DeFi is a decentralized digital financial system and the technology is currently developing rapidly. Through the development of decentralized finance During this time, various new methods emerged around the world crypto, One of them is Yield farming.
DeFi itself offers opportunities for owners Crypto to lend these assets to other users who need them. This can be done by changing the smart contract or smart contract, allowing lending activities to function without intermediaries as long as they are still connected to the Internet.
Yield farming or Liquidity reduction make Yield farmer can have Crypto and generate returns from owning these assets. In addition, they can also be considered earned Crypto through assets Crypto what he has. You can do this by donating the assets to other users.
Information about how it works Yield farming
How it works Yield farming he himself is the owner of the asset Crypto Collect the funds and deposit them Liquidity pool. The function of Liquidity pool itself is a place where assets can be deployed Crypto to other users. In addition, this liquidity pool is also a forum for asset exchange Crypto with tokens of type ERC-20.
When investing his assets liquidity pool, The user will be billed for a certain nominal amount. This fee is paid to the liquidity provider and the notional amount is adjusted to the amount paid to the liquidity provider Liquidity pool. The distribution of new tokens added to the protocol will help the liquidity pool get funds into circulation.
The larger the number of tokens in a protocol, the larger the number of assets stored in the liquidity pool. This can benefit everyone involved, including implementation Yield farming.
Also read: So what does one of the biggest threats in the crypto world mean and how does a 51 percent attack work?
Benefits of trading Yield farming
Through the process Yield farming, return on investment investors can get Crypto much higher. Additionally, the chances of returns are definitely greater if investors have followed this process since its initial launch.
A number of Platform liquidity pool will take and place some assets Crypto belongs to the user to ensure that funds circulate in it. The loan is made automatically via platform other. In this way, the money turnover can become more stable and continue to increase.
risk Yield farming What to expect
Even though it offers advantages in the form of higher returns, still understand whether Yield farming It also carries risks that must be taken into account. risk Liquidity reduction in connection with the contract. When placing assets on platform DeFi is managed by developers with low liquidity, so there is a possibility that it will develop insect regarding the programming of the contract device.
If an audit change occurs in the audit process, this triggers an emergence insect This could put user resources tied to the protocol at risk. As a result, these assets may be lost and not returned.
Additionally, the DeFi ecosystem is dependent on its constituent parts, making the protocol vulnerable to disruption at any time. If there is a… Blog If problems occur with the compiler, the entire network ecosystem will also be disrupted. In more severe conditions, this may cause users who have issued loans to incur losses and lose them to return that was received.
Calculating the return Yield farming
Returns from Yield farming Generally it is calculated annually and the metric used is Annual percentage rate or Annual percentage yield. These two types of metrics differ in terms of token aggregation. At Annual percentage rate, The calculated value is compounding tokens, while for Annual percentage yield does not calculate this value.
Using this metric is actually better when calculated weekly or even daily. The reason is that the calculation results of these two metrics cannot be accurately predicted. Therefore, if done daily or weekly, the results can be more accurate and profitable than if calculated annually.
How to get coins from Yield farming
Do Yield farming You could say it’s simple and difficult, especially for those who don’t really understand it. This is because you need a sophisticated strategy to execute this and make a profit. Aside from that, you also need to figure it out platform that offers this feature, including the type of token and the amount of rewards granted.
No less important: Also pay attention to risks and ways to anticipate them so that you can deal with potential losses or resulting dire consequences. This is particularly important for users lending assets using this strategy.
Also be aware of the volatility that often occurs Yield farming. This way, you don’t have to sacrifice the assets you own and are more likely to earn interest income Yield farming.
Bede Yield farming with Mark out
Besides that yield farming, other activities known to the investor or Trader crypto Making profit from it is through Mark out or betting. Between Yield farming with Mark out Of course there are a number of differences. Difference Yield farming And Mark out itself can be recognized from the following 4 aspects.
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mechanism
Mechanism switched on Yield farming when comparing Mark out could be described as more complex. The reason for this is that investors must first determine the type of token platform to use, each of which has its own advantages and disadvantages. The return itself depends on the given nominal token Liquidity pool and required to move actively platform and tokens to help you achieve more optimal returns.
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risk
Danger of Yield farming is an asset loss Crypto and there is potential Pull carpet or hacking smart contract. Now move on Mark out, The main risks lurking are network hacking and price volatility crypto, and loss of ability cutting loss due to the lockdown for a certain period of time.
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Benefit
In terms of profits, as there is a more complex mechanism and high risk and return opportunities Yield farming greater than Mark out. Actually profit Yield farming can achieve 100 percent. Now move on Mark out, The annual return is usually between 5 and 14 percent and is fixed; management can be passive.
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Time horizon
Finally, as far as the investment period is concerned, Yield farming more flexible than Mark out and requires no phases Lock. Even so, Mark out can deliver immediate daily returns, although this will not necessarily be optimal in the short term.
Use as needed, Yield farming Could be a way to make money with it Crypto
The main thing is, Yield farming is a method that can offer advantages. However, it must be used sensibly and according to needs. Of course, do not use this method as the only way to make profits and combine it with other methods.
Also read: Learn about the consensus mechanism and activity buffering program in the crypto and blockchain world
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