Being a newcomer to the DeFi space might be difficult. That’s why we’re here to introduce you to one of the most popular and profitable features – yield farming.
Have you ever been to real farms? There are many similarities. For example, they plant sprouts to bring in a large, tasty harvest later. Crypto farms are created in exactly the same way. The only difference is that your earnings are measured in cryptocurrency.
Let’s find out all about yield farming and how to make it profitable.
What is yield farming? | Discover the basics
To put it in crypto terms, yield farming involves locking your assets in order to earn rewards. It is when you use the cryptocurrency you own, or in other words, “stake” and earn passive income.
Yield farmers use DApps (decentralized applications) like Biswap DEX to deposit their coins or tokens into the liquidity pools.
Remember the conditions:
- Liquidity Provisioning – the process of making your crypto assets available for the DEX.
- Liquidity Providers (LPs) – the investors who do it.
- Liquidity Pools – smart contracts containing blocked funds.
- Smart Contract – a type of digital agreement between seller and buyer that works on the blockchain and powers most cryptocurrencies.
When you contribute liquidity to the liquidity pool, you receive the LP tokens in return for letting the platform use your funds to lend, borrow or exchange tokens from other users.
How does yield farming work? | Explained in simple terms
Now that you know the key terms, let’s dive into the details of yield farming mechanics.
Farming means you select a specific pair of tokens or coins to provide liquidity and then take your multiplied profit with you. Here are the steps followed to enable yield farming:
- Creation of crypto asset pools. First, the liquidity pool is created for a specific operation. It relies on the smart contract that facilitates all investments and borrowing.
- deposit of property. Investors invest their crypto funds in the specific liquidity pool. In other words, add liquidity to the selected farm pair. It is something like a deposit at the bank.
- Start of smart contract work. After the previous steps have been performed, the smart contract can start several processes, e.g. B. adding liquidity or lending.
- payment of bonuses. Depending on the DApp and yield farms, the bonuses and LP rewards are paid to the investor. This can be on a regular basis or at a specific time in the future.
- Activation of the farm. You can use these LP rewards in each farm pair from this moment on. Thus, the farm is activated and interest begins to accrue. Now you can earn rewards in the native tokens or coins of the DEX.
Types of Yield Farming | Discover the differences and similarities
Different types of yield farming can be encountered throughout DeFi. It is similar that the investor has to deposit cryptocurrency in a smart contract. However, the main difference lies in the nature of the smart contract.
💸Liquidity pool or LP farms
Users provide liquidity to a decentralized exchange (DEX) in two different tokens or coins. Liquidity providers receive a small fee from the two tokens exchanged on the exchange.
💸Lending
Crypto holders can lend their assets to borrowers via the smart contract and earn income from the interest paid on the loan.
💸Lending
It is the mechanism that allows users to increase their profits by lending funds. It helps multiply yields. Put simply, you borrow money so you can invest more and earn more. However, you will have to pay interest on the additional capital raised.
Let’s get to the most exciting part. In a second you’ll know why.
Calculate your income | Learn about APR & APY on farms
We are all here to make a profit. Being competent in calculating your income is a fundamental thing. Two indicators used for this are APY and APR. Both also affect how much you gain for saving or lending crypto assets.
APR – Annual Percentage Rate
APR does not include compound interest. In other words, the user stakes a certain number of crypto assets with a certain return. In this way, the user’s income is accumulated separately from the main amount.
📚For example: User wagered 1000 LPs under 50% APR. This means that at the time of calculation, your income for 1 year can be calculated as follows:
1,000 LPs (the amount invested) x 50% (APR) = 500 LPs – your 1 year income.
In this case, the user’s 1-year total can potentially be: 1,000 LPs (the unspent amount) x 500 LPs (the income in APR) ~ 1,500 LPs.
APY – Annual percentage return
Unlike the APR, the APY takes compound interest into account. This means that the specific amount of crypto assets wagered by the user increases with each payout period, adding the previously earned interest to the sum invested. Depending on how often the APY is composed, it changes.
📚For example: A user wagered 10 LPs worth $1000 at the liquidity provider’s APR of 50%. This means that his 1-year earnings at the time of calculation can be calculated as follows (ignoring any temporary loss):
$1000 (amount invested) x 50% (APR) = $500 – income for 1 year.
In this case, the user’s total for 1 year could potentially look like this:
$1000 (the unsettled amount) + $500 (the income in APR) = $1500
However, remember that the number of LP tokens is still 10. This happens because your earnings as a liquidity provider are automatically added to your LP tokens.
things to consider | Pitfalls of yield farming
Yield farming is profitable but a rather complicated process. As with any path, you will also come across situations that you need to be aware of before you begin. So what are these pitfalls you might encounter?
🔹Volatility of the market
Volatility is the change in crypto value in one direction or another. This means that the price of your blocked assets may fluctuate over a short period of time. It can fall or rise, so you cannot fully control or analyze the profit you receive. In other words, investors could suffer temporary losses.
🔹Ephemeral Loss
There are times when market volatility is high. At this point, the liquidity providers can overcome the temporary loss. In this case, the liquidity provider temporarily loses its money.
So if you decide to withdraw your money from the volatile trading pair, the value of one of the tokens may be worth less than what it was deposited.
🔹Carpet trains
It is a form of fraud that occurs when developers collect investors’ funds to produce the project and then leave without repaying those investors.
Remember that your own research is a necessary process before investing.
Farming on the Biswap DEX | Multiply your crypto easily and securely
https://bit.ly/3ysUlJI
Biswap is a TOP 2 DEX on the BNB chain with the lowest trading fee from 0.1%, a unique multi-type referral program and other lucrative features. In addition, Biswap has been audited by CertiK for security and trustworthiness.
Earn via profitable biswap farms | Up to 100% APY
Biswap farms are LP farms that offer an incredible opportunity to passively win with high APYs by providing liquidity to a chosen token pair.
As the Biswap team keeps expanding the ecosystem and building new partnerships with potential projects, there are already 72 farming pairs with TOP crypto and up to 100% APY, such as:
🔥84.85% for PAE BNB
🔥50.77% for BNB-BSW
🔥10.31% for ETH USDT
Experience the benefits of yield farming on Biswap
Besides the fact that farming on Biswap is easy and safe, there are other advantages for investors:
💎 75% the trading fee
💎 A passive income in BSW – Biswap’s native token
💎 Matches the leading cryptos like BNB, ETH, USDT, etc.
Earn with Biswap Farms
You’ve read the whole article, learned the basics and made your analysis. Now it’s time to multiply your crypto assets! You are just a few steps away from hitting a big win:
1️⃣Choose the pair
2️⃣Provide liquidity
3️⃣Stake LP tokens to activate farm
4️⃣Earn BSW in return
final word
Yield farming is the way to grow your cryptos with DeFi. It does this by providing liquidity to a pair of tokens or coins and receiving rewards in return. Farming is a complex process that can come with some pitfalls such as volatility and carpet pulls. So analysis and education are the keys to success.
You are welcome to experience yield farming on the Biswap DEX with TOP pairs and high APYs. Increase your income!
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
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