Cryptocurrency Yield Farming: What, Why, How and Risks

Cryptocurrency yield farming, also known as liquidity mining, is a process that can yield significant amounts of crypto. However, it’s not easy to do and there are risks involved. In this article, we’ll explore yield mining on Ethereum, Binance Chain, Polkadot and other blockchains. We’ll also discuss what yield mining is, how it works (and why), the profitability of yield harvesting and how to get started with yield farming!

TALK TO US: TWITTER | TELEGRAM | DISCORD

What is Yield farming?

The yield farming process is a relatively straightforward one. You buy up the coins you wish to yield farm, and all that’s left is waiting for them to “mature” in your wallet so they can be harvested with no risk of losing any of their accrued interest. At the inception of yield farming, many protocols were offering double digit % yield, but the underlying price of the tokens was very volatile so users are hedging their risk of the underlying asset price dropping with the yield they are generating. As more entrepreneurs launch new DeFi products and yield farming matures, the volatility and yield rates should eventually taper out.

What does yield mining entail? The main beauty about cryptocurrency yield mining is its simplicity: after buying up crypto assets like Compound or Curve — ones which accrue interest over time — it’s just a matter of holding onto them until they mature enough for yield harvesting. This is very similar to staking, however staking also serves the purpose of maintaining network security as it does on Polkadot, and Ethereum 2.0. However, yield mining is not without risks, as we’ll explore shortly.

How does Yield farming work?

How does yield farming work? It’s a relatively straightforward process which involves waiting for your coins to mature before harvest time so you can reap their benefits (and avoid risk). The main beauty about yield mining is its simplicity; all that’s really required is purchasing some coins and holding onto them until maturity while avoiding any major market dips or tough regulatory environments like those in China: this latter consideration might be difficult given the tumultuous nature of cryptocurrencies but it remains an important one nonetheless.

There are three types of yield farming on DeFi: Protocol usage, Network tokens, and leverage demand

Protocol usage: yield farming or yield mining involves the process of harvesting through a protocol. You need to purchase tokens from that particular protocol, wait for them to mature and then harvest your yield

Network token: yield farming is also possible with network tokens. The main difference? With this type of yield mining you’re not just limited to waiting until maturity; instead there are yield harvesting periods during which you can harvest yield otherwise known as rewards.

Leverage demand: the third type of yield farming is with leverage demand — it’s similar to protocol usage, except that instead of owning tokens from a particular network or having them in your wallet, you simply borrow capital for a short period of time and then pay back what you borrowed.

One common concern people have when approaching yield-farming is yield-mining’s “risk” factor.

What are the risks of Yield Farming?

What are the risks of yield mining? As alluded to earlier, yield-farming is not without its own set of downsides: namely, the risk that your yield will disappear if you don’t harvest it in time and there are also hacking concerns.

Loss of funds: If yield farming is successful, then the yield-farmed tokens will be sent to a wallet of your choice. However, if you don’t harvest that yield within a certain period of time (30 days) it could disappear!

The good news is that this risk can be mitigated by setting up an automatic harvesting script on Metamask or MyEtherWallet and only running transactions manually when there’s been enough yield mined in order to cover transaction fees.

This technique also helps prevent users from sending their funds out into cold storage wallets and forgetting about them… which leads us to our next point: hacking concerns.

Hacking: Yield-farming is a very tempting target for hackers because yield-farmers are moving funds from one account to another, which makes it easy to intercept yield-farmed funds.

Phishing yield-farmers is a common tactic, whereby yield-farmed funds are intercepted via fake websites (usually in the form of an email or Telegram. To avoid phishing, yield farmers should use different passwords for each yield farming account and always verify the website URL before logging in.

popular wallets like Metamask allow users to install a browser extension like Metasafe to help prevent phishing sites from hijacking their yield mined funds. MyEtherWallet’s latest update includes an anti-phishing filter.

Comparing yield farming tokens

Some of the most popular yield farming tokens are: SUSHI and Venus (XVS). On Polkadot, Yield farming is done by connecting to ETH and BNB yield farms via PolkadBridge

SUSHI: Sushi is a community-driven organization built to solve the liquidity problem in crypto by connecting many decentralized markets and instruments which include a decentralized exchange, a decentralized lending market, staking derivatives and yield instruments

Venus (XVS): Venus is a yield bearing Binance chain (BNB) crypto asset and market protocol. Like other market protocols, lenders and borrowers are not directly matched, instead lenders provide liquidity by depositing idle assets to earn interest, while borrowers access these assets by providing collateral.

Polkabridge (PBR): Polkabridge is decentralized exchange which allows users to swap tokens on polkadot directly with other blockchains through a yield-farming contract. A yield-farming contract is an agreement to receive a fixed amount of yield from the issuer as long as they maintain their ownership of yield-farmed tokens.

Yield mining with Polkadot requires that you first purchase tokens at market rate and then connect a wallet to one or more yield farms through Polkabridge. Other projects on Polkadot like PinkNode($Pnode) are enabling liquidity mining on Polka centric farm aggregator like UniFarm where you can stake PNODE and earn tokens from other Polkadot projects like Kylin($KYL), Polkafoundry($PKF), PolkaBridge($PBR), and Unifarm($UFARM). You can read more about it here.

Conclusion:

In conclusion, yield farming is a strategy to diversify your crypto portfolio and make passive income from the utility of crypto assets. Yield farming is not without its own set of risks: namely, the risk that your yield will disappear if you don’t harvest it in time and there are also hacking concerns. Nothing in life is ever free.

TALK TO US: TWITTER | TELEGRAM | DISCORD

DISCLAIMER** this article was written by GPT-3 openAI API. please let us know if you see any errors so we can improve our robot writers 🤖.

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

  1. Blockchain fees. Most NFTs are issued on the Ethereum blockchain, where you have to pay for gas. NFT minting involves a complex smart contract and thus requires a lot more gas than simply sending crypto. Plus, the gas has been very expensive in the past few months, so you can expect to pay at least $50–100 in gas fees per NFT collection.
  2. Marketplace fees. While you can issue an NFT on your own, it will be hard to promote it and find buyers. That’s why most creators work with NFT marketplaces like OpenSea and Rarible. And while minting NFTs on OpenSea is technically gasless and free, there is a gas fee to initialize a seller account and accept a bid from a buyer — expect to pay around $150 in total. On Rarible, the costs can exceed $600.
  • Facebook has almost 3 billion monthly active users, giving Diem the largest potential audience of any blockchain project on earth;
  • The stablecoin will probably get integrated into transactions on Facebook, Instagram, Messenger, and Whatsapp (shopping, paying for ads, sending money to friends etc.);
  • Facebook can afford to hire the best developers and marketers, so the execution and promotion will be top-notch;
  • Diem’s programming language, Move, is safe, flexible, and well-suited for writing smart contracts;
  • It should be possible to add third-party dApps to the Diem ecosystem — think of WeChat with its thousands of mini programs, but on blockchain.

Copyright: 2020 Pontem Technology Ltd. All Right Reserved
Privacy Policy

Subscribe

Quarterly newsletter

Please tick the relevant boxes below if you agree to receive the following marketing materials:

Thank You for Joining Us!

Your have successfully subscribed to our newsletter.
Oops! Something went wrong while submitting the form.