Everything that you need to know about DeFi Yield Farming for Crypto

While still being in its nascent stage, the Crypto world has seen several new trends that improve its magnetism. The adoption of DeFi technology in the crypto world has opened up new channels for advancement in all aspects of the crypto industry. It is also responsible for the widespread appreciation and adoption of DeFi yield farming among several marketplaces.

 

DeFi Yield farming is the process of utilizing crypto assets by locking them up to yield rewards. Its popularity is contributed by the fact that the industry has seen several crypto-asset holders leverage their holdings to increase their holdings. 

What is Yield Farming?

Yield farming is the process of leveraging your crypto assets to earn variable or fixed interest by investing them in a DeFi platform. Just as is the case with investing fiat money in a bank to earn interest, you can invest your crypto assets in a protocol to earn rewards in the form of a fee or a native token. 

What are the different types of Yield Farming?

Yield farming has shown promising results in 2020, where several lenders made a fortune by yielding their assets. However, there is more than one way to earn the rewards by lending your assets.

Liquidity Mining

In liquidity mining, lenders offer liquidity to DeFi exchange platforms to create a pool for traders to exchange tokens. This way, traders can exchange tokens more selectively and quickly. Lenders, however, benefit from this process by receiving fees on every transaction or trade that happens on their liquified assets. 

Token Farming

Token farming works on the same principle as liquidity farming, but with one significant difference. Instead of earning rewards in the form of a fee, lenders receive native tokens from the platform that they can further liquify to earn more rewards. 

How does Yield Farming work?

The first step for the lenders is to liquefy their assets into a pool that are smart contracts on a marketplace. These marketplaces then can use these assets to perform financial services such as borrowing, lending, and exchanging. 

In return, the lenders are rewarded with the fees for the transaction or native tokens depending upon the smart contract. To improve the returns, lenders shift between different marketplaces and leverage their holdings. To earn higher rewards, the initial investment must also be comparatively large. 

How to calculate Yield Farming returns?

Defi yield farming returns are calculated annually using two metrics, APY (Annual Percentage Yield) and APR (Annual Percentage Rate). APY is slightly more accurate as it includes the effect compounding while calculating the yields. 

 

However, none of these metrics are highly accurate as the DeFi yield farming industry is highly volatile for even short-term purposes. 

Why should you care about Yield Farming?

DeFi yield farming can essentially replace the fiat investment system by providing a decentralized and more efficient solution. It can help lenders and traders alike by creating a platform to perform affordable and profitable financial services.

Marketplaces such as Zionodes are leveraging this technology to provide their users with a one-stop marketplace for all lending and borrowing needs. For more information, you can visit Zionodes.