How does cross-chain yield farming work in crypto?

Yield farming allows Web3 users to sweat out their excess assets by providing liquidity to decentralized protocols. And this is one of the most important trends in all of DeFi.

That’s because yield farmers help run liquidity pools, DeFi’s answer to 20th-century order book trading. Traders can hop in and out of these pools to buy and sell at any time of the day without the need for a human trading partner. By filling these pools with proprietary assets, liquidity providers render traditional financial institutions obsolete.

However, providing liquidity is just one form of yield farming. You can also earn passive rewards by lending your assets to other traders, lending assets with collateral, and using your assets on blockchain networks to earn validation fees. The concept is meant to be agile and dynamic, with farmers constantly moving their funds in and out of different opportunities (something that was extremely difficult with Fiat).

The only catch is that crypto, at least in its original version, isn’t really designed for this kind of fluidity.

As we said in RhinoLearn, all blockchains are islands. They have their own rules embedded in their code, as well as their own mechanisms for validating transactions by consensus. It is not easy to move between them.

This is a problem for yield farmers who want to spread their strategy across different blockchains. For example, if you want to invest in pools hosted on Ethereum, Polygon, and Arbitrum, you need to create wallets for each of these chains, and it can be frustrating when you want to quickly move your wealth to take advantage of a new opportunity.

This is why cross-chain is so important to yield farming.

Cross-chain innovation is a direct answer to blockchain interoperability challenges and has obvious benefits for yield farmers. crypto Users can seamlessly transfer data or value from one blockchain to the next and contribute to the growth of the entire blockchain ecosystem by pushing liquidity to where it’s needed most.

Bridges were the “1.0” version of cross-chain technology, allowing users to lock their tokens on one chain and create new versions on another. The bridge is controlled by either a human oversight committee or a smart contract trained to trigger the crossing when the user meets certain conditions.

Here is a very simple guide on how cross-chain bridges work:

1. The user sends the assets from their originating network and the funds are locked (to prevent double spending or fraud).
2. The bridge verifies the transaction and generates a hash (or proof) of the locked assets.
3. The bridge sends the hash to the target network as a trigger to release the appropriate assets.
4. The other network verifies the hash, the assets are released, and the transaction is confirmed on both networks.

While bridges are great for certain things (and we still use them on rhino.fi), they’re not great for yield hunters who want to maximize their rewards and quickly seize new opportunities.

For one thing, bridges can be complex to use. Second, you have to switch networks when you cross the bridge, which can be time-consuming. And most importantly, you have to pay a native gas fee (in other words, a fee in the blockchain’s native token) on each side of the bridge.

A generation of DeFi projects is now developing better solutions for cross-chain yield farming.

These solutions vary from project to project. In the case of rhino.fi, we post liquidity on different chains and allow users to access that liquidity using smart contracts. StarkWare, our scalability partner, serves as the central router in the system: instead of crossing a bridge, you transfer your assets to and from StarkWare, which does the rest of the journey for you.

If you want an analogy, imagine you’re in the Himalayas and want to barter unwanted goods at a market across a gorge. Instead of crossing the bridge yourself, hand your unwanted goods over to a Sherpa when you reach the bridge. The Sherpa will take care of it for you, visit the market, buy your desired goods and then bring them back to you – all on your express orders.

So there is no need to cross the bridge yourself and pay the local petrol fees. In other words, you can pursue yours Cross-chain yield farming strategy on many different chains simultaneously without leaving your self-custody control center on rhino.fi.

OK that’s great. But what are the risks of cross-chain yield farming?

The risks of running a Cross chain yield farming Strategy is the same as risk when spreading your investments across many different networks.

We’ve written about them elsewhere, but here are the ones to look out for:

• market risk. Yield farming rewards are often paid in volatile cryptocurrencies, especially when providing liquidity to a pool hosted on a new or emerging blockchain.
• Smart Contract Risks. Although security on the blockchain is constantly improving, a very small number of smart contracts have been hacked.
• Inconstant Loss. This is a different type of opportunity cost. The liquidity pool is essentially a closed circuit isolated from valuation changes in the “outside world” and it is possible for the value of one of the tokens to increase faster outside than inside. In this case, arbitrage traders can rush into the pool to snag the token at a cheaper price, reducing the amount you can eventually recover; Additionally, simply HODLing your tokens can be more profitable than investing them in the pool (this is a very complex topic and we will write a full explanation soon).

However, by adopting a dynamic strategy and moving your funds quickly, you can mitigate these potential downsides.

Right, I’m curious. How do I cross-chain yield farm on rhino.fi?

We build one Cross-chain yield aggregatorwhich opens up the best passive income opportunities just like we did with active trades and swaps.

Our cross-chain yield portal is brand new and we have a handful of carefully curated showcase opportunities.

To celebrate the arrival of cross-chain earnings on rhino.fi, we’re even offering a 7% premium on our launch opportunity, Stargate USDT (hosted on LayerZero). That means we’re increasing the regular return on our launch partner Beefy Finance by 7%.

The offering went live in early March and the enhanced yield is in the 12-15% range – meaning it’s far more lucrative than many of the other USDT opportunities you’ll find.

Take the opportunity or see what else our Cross-chain yield aggregator has to offer, just click below.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers