TL;DR: You lend your crypto to DeFi projects liquidity pools, which increases the trading volume of the token, which in turn gives you a return based on the crypto you borrow. The more you borrow, the more you will be rewarded.
OK. In the Web 3.0 space, you may have heard about DAO, Blockchain, D-Apps and more…
Here’s another term yield farming What’s this new fad?
It’s not a fad. Web 3.0 opened Pandora’s box. You learn something new every day.
Yield farming grows your crypto wealth by lending your current tokens to DeFi farms, which add those tokens to their liquidity pools. The tokens provide liquidity to the DeFi projects they lend to, resulting in high returns.
Differences between stake and yield farming
When staking a token, you lock your token to ensure the security and operation of a blockchain, for which you are rewarded. In yield farming, this means temporarily lending your tokens to DeFi projects to generate the highest yields.
risks
DeFi projects in the Web 3.0 pantheon are decentralized and fully managed by their smart contracts. Therefore, there is a higher risk of rug pull in yield farming. if you do not know which projects you are involved in. However, while staking is comparatively safer and better, check the lockup period of the cryptocurrencies you are staking as you won’t be able to withdraw your tokens due to the lockup period.
Diploma
Yield farming and staking is what Bitcoin and Ethereum are all about… two completely different worlds with different goals, with “greater power brings greater responsibility” so the choice should really be based on the risk you can take or on the search after a no-lockin staking pool, wager your tokens for a stable return and leave whenever you want.
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