Summer yield farming hype may have died down as assets have shifted Bitcoin And ether have come under the spotlight, however DeFi Protocols are still working hard to distribute their governance tokens while rewarding DeFi users.
1inch is a popular decentralized exchange aggregator that helps users find the best prices when trading assets. After launching a “liquidity mining” program last month, it announced today a second round of governance token distribution, set to begin on January 9th. The first round started on December 25th and ends today.
In the new round, the DEX aggregator will distribute 1% of the 1INCH token supply over the course of a month to users providing liquidity in the form of ETH. WBTCand pegged to the dollar stablecoins on the platform.
Liquidity mining, also known as yield farminghas become a hallmark of DeFi, or decentralized finance, since the summer of 2020. DeFi is a group of protocols that replicate financial services formerly provided by banks, such as extending credit and providing interest on user deposits — all in a decentralized manner Blockchain Networks like Ethereum.
DeFi protocols require user funds in the form of cryptocurrencies or dollar-pegged stablecoins to perform their financial functions and typically use a “Governance Token”like 1INCH in this case, are held by members of the community to make decisions about the development and future of the application.
Yield farming programs distribute these governance tokens which can then be traded on the open market to raise funds for their respective protocol and to try to match token holders with those who understand the application and long-term want to support.
Many DeFi protocols have implemented yield farming schemes, including this largest decentralized exchange by volume, Uniswapand Credit Protocol Compound, the sparked the yield farming craze in June 2020.
Yield farming also quickly grew in popularity at a time when cryptos like Bitcoin and Ethereum were growing slowly or not at all. It offered an opportunity to earn profits with unprecedented annual returns of hundreds or thousands of percent when simply waiting for Bitcoin to reach the moon seemed a less viable strategy.
DeFi returns in the high double or even triple digits can be tempting, but of course it takes a year of consistent returns to fully realize annualized returns, and DeFi isn’t exactly known for being low risk over the long term. With Bitcoin Prices Surging More Than 100% only in the last five weeksit is perhaps not surprising that potential yield farmers reap these gains instead.
Still, according to 1inch’s press release, the liquidity mining program brought farmers an average annual yield of 300%.
Although the yield farming craze may have taken a back seat to other crypto events, the expanded 1-inch program shows that sky-high yields are still possible and that liquidity mining is going nowhere.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.
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