Crypto Yield Farming – Brief Explanation
Crypto Yield Farming refers to the action of locking your crypto assets for the long-term while earning interest in the form of rewards once the accorded yield duration has been completed. By staking your resources in a DeFi market, you are set to earn both variables and fixed interest.
Platforms such as Binance have an extremely well established crypto yield farming solution that reflects the market and where you can stake on a wide range of different assets.
To understand it better, the process consists of lending your crypto assets on a network like the Ethereum for different DeFi actions and expect a compensation at the end. This normally involves adding your funds to a liquidity pool, which is a chain of smart contracts that contain funds.
These liquidity pools power a financial ecosystem where users can exchange, borrow, or lend assets. Once you’ve added your assets to a liquidity pool, you’ve officially become a liquidity provider. In exchange for locking up your assets in the pool, you’ll be rewarded with interest generated from the platform of your choosing.
The main advantage of crypto yield farming is the amount of profit you can make compared to the interests a traditional bank could potentially provide. Furthermore, new coins and projects are being frequently launched, which makes it very attractive to stake on a new pool and liquidate your assets once the project value increases.
Also, take note that crypto yield farming has an extremely volatile interest rate and it’s therefore tough to predict future movements. It can go up and down in a heartbeat, therefore, make your project due diligence before investing.
Make sure you go long-term, always.