What is yield farming?

Yield farming is a method of earning additional cryptocurrency with your existing cryptocurrency. It entails you lending your cash to others via the use of computer programs known as smart contracts, which work like magic. In exchange for your services, you receive payment in the form of cryptocurrency. While it might seem like simple terminology, there is more to it. It might be more sophisticated than you think.

Farmers that want to increase their yields will employ quite complex techniques. Because they want to optimize their profits, they shift their cryptos around constantly between different loan platforms. They’ll also keep the finest yield farming methods for increasing yields a closely guarded secret. What is the reason behind that? The greater the number of individuals who are aware of that (farming) plan, the less successful it may be. Yield farming is, in essence, a very competitive market where farmers fight for the opportunity to grow their crops in the most productive way possible.

Farming in the DeFi market

When it comes to innovation in the blockchain world, the Decentralized Finance (DeFi) movement has been at the head of the pack. What makes DeFi apps stand out from the crowd? They operate on a permissionless basis, which means that anybody (or anything, such as a smart contract) with an Internet connection and a supported wallet may communicate with them. Furthermore, they generally do not rely on third-party custodians or intermediaries for their security. So, what new applications are made possible by these properties?

The notion of yield farming is one of the more recent concepts to develop within the DeFi world in 2020. With permissionless liquidity protocols, it is possible to receive rewards with bitcoin holdings in a new and innovative way. It enables anybody to generate passive income by utilizing the decentralized network of “money legos” that has been developed on the Ethereum platform. As a result, yield farming may alter how investors hold their investments in the future. Why would you sit on your assets when you could put them to work? 

Yield Farming: passive income in the crypto world

Adding funds to a liquidity pool, which are smart contracts that contain cash, is the initial stage in yield farming. This exchange marketplace uses these pools to fuel the network. To be a liquidity provider, you should first be a financial contributor – put your money into the pool.

You’ll get payments from the underlying DeFi platform as compensation for locking up your findings in the pool. People often move their funds between different protocols to try to get greater payouts.

In more sophisticated cryptocurrency networks like ETH, yield farmers are likely to understand its intricacies and to use their knowledge to transfer funds from one DeFi platform to another to obtain the highest possible returns.