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In Crypto Globe, the mechanism through which one can earn more cryptocurrencies using cryptocurrencies is known as Yield Farming or Liquidity Mining. This is the process that lets you earn crypto rewards by staking your cryptos on your cryptocurrency wallet.
Yield Farming is similar to the concept of Cryptocurrency Staking, which provides rewards for your crypto capital investments.
Each and every industry and Business become inescapable from the process of evolution. The rate of growth of a sector depends on the rate of new trends and technologies emerging in that field to make them grow and build a better economy.
We are now here to discuss the most intensifying term in DeFi Space - Yield Farming.
With our great grip, let us swoop into the hottest topic in crypto globe "DeFi Yield Farming".
What Is Defi Yield Farming?
DeFi Yield Farming, short for Decentralized Finance Yield Farming, is a strategic practice within the world of decentralized finance (DeFi Development) where cryptocurrency holders can earn passive income by providing liquidity to DeFi platforms.
In essence, it involves depositing digital assets into decentralized lending, borrowing, or trading protocols to receive rewards.
These rewards can come in the form of interest, fees, or additional tokens and are distributed based on the amount of liquidity contributed and the duration of participation. Yield Farming has become a popular way for crypto enthusiasts to make their assets work for them while participating in the DeFi ecosystem's innovative and decentralized financial services.
How Does DeFi Yield Farming Works?
Yield farming referred to as Automated Market Maker, is nothing without the involvement of liquidity providers and liquidity pools.
Here let us look at the working process of yield farming.
Selecting a Platform: Users begin by choosing a DeFi Yield Farming platform they want to engage with. These platforms can include decentralized exchanges (DEXs), lending and borrowing protocols, automated market makers (AMMs), or other DeFi applications.
Providing Liquidity: To participate in Yield Farming, users need to provide liquidity to the chosen platform. This typically involves depositing pairs of cryptocurrency tokens into liquidity pools. These pools serve as a foundational element for various DeFi services, such as trading and lending.
Receiving LP Tokens: In return for providing liquidity, users receive LP (Liquidity Provider) tokens, which represent their share of the liquidity pool. These tokens are unique to each platform and are used to track the user's contribution to the pool.
Staking LP Tokens: Users often need to stake their LP tokens within the platform. Staking involves locking up these tokens in a smart contract, which secures the liquidity pool and provides the user with access to rewards.
Monitoring and Managing: Users can monitor their rewards and LP token holdings through the platform's user interface or a blockchain explorer. They can also add or remove liquidity as desired, although doing so may affect their reward earnings.
Exiting the Platform: Users can exit the platform at any time by unstaking their LP tokens and withdrawing their assets from the liquidity pool. Keep in mind that some platforms may impose lockup periods or fees for withdrawals.
How Are Returns Calculated in DeFi Yield Farming?
The Estimated returns in Yield farming are calculated on an annual basis. The most important metrics in the calculation of returns in yield farming are Annual Percentage Rate (APR) and Annual Percentage Yield (APY).
The common difference between both APY and APR is that APY accounts for the effect of compounding while APR does not. Compounding refers to reinvestment profits to generate more returns.
Annual Percentage Yield (APY)
The annual rate of return charged on borrowers and paid to providers subsequently refers to Annual Percentage Yield.
Annual Percentage Rate (APR)
The annual rate of return imposed on borrowers and paid to the investors is termed as Annual Percentage Rate. Since APR and APY come from legacy markets, DeFi should find its own metrics for the calculation of returns in yield farming.
This is how the returns are calculated in the DeFi Yield Farming.
Popular DeFi Yield Farming Platforms
There are many yield farming platforms and protocols available in the DeFi market. Each platform has their own rules and risks with different yield farming strategies.
Listed here are the some of the top DeFi Yield Farming Platforms
Compound Finance
Compound, the core protocol of Yield Farming Ecosystem.Compound is a popular DeFi based protocol that allows users to lend and borrow assets. Any user with an Ethereum wallet can supply assets to liquidity pools of compound and earn the rewards.
Yearn.Finance
A decentralized platform that converts funds to yTokens and rebalances to maximum profit periodically. It is a lending platform that farmers use which automatically chooses the best strategies.
Uniswap
A DeFi based DEX platform offers trustless token swaps due to its frictionless nature and it is used mostly for yield farming.
Aave
Aave, a heavily used lending platform by yield farmers in which the interest is adjusted based on current market conditions automatically.
Balancer
Balancer is an important liquidity protocol in yield farming strategies, as it provides more flexibility in liquidity pool creation.
There are a lot more DeFi platforms in the market to provide yield farming services. You can also contact the best DeFi Development Company to build your own DeFi platform with Yield Farming.
Launch DeFi Yield Farming Platform With Bitdeal
We Bitdeal - Leading DeFi Yield Farming Platform Development Company offers the best DeFi-based yield farming development services across all borders. By deeply understanding the purpose of DeFi and Yield Farming in the future, our experts started providing the best solutions to launch your own new DeFi yield farming like Compound, Yearn Finance, Aave, and more or integrate DeFi based yield farming protocols in your existing platform.
Talk To Our Experts
Mail: [email protected]
Call: +919677555651
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