The DeFi industry has been gaining momentum since 2020, offering a new perspective on finance and a new way for investors to make money.
Essentially, DeFi, also known as Decentralized Finance, is an ecosystem of applications and services built on top of public blockchains.
Yield farming and staking are currently gaining momentum in the DeFi market.
Farming, but with yield
Yield farming, often referred to as “liquidity mining,” is a lucrative way to make money from the cryptocurrency you already have.
Simply put, you lend your crypto assets to a decentralized platform via smart contracts and without intermediaries, and get rewarded for doing so.
This process is what is called an Automated Market Maker (AMM) model, but in crypto: it involves liquidity providers, users who deposit their assets, and liquidity pools, all assets available for trading on decentralized exchanges.
In most cases, liquidity providers receive governance tokens in exchange for escrow of their crypto assets.
This process is similar to how bank loans work: the bank lends money to a person and expects to pay it back with interest. In yield farming, crypto investors act like banks.
DeFi doesn’t always mean secure
While DeFi is a great way for investors to make money, especially if they use complex strategies like borrowing money from decentralized platforms and putting it somewhere else at a lower percentage than their returns, it’s not as sure how you might think.
Because this technology is decentralized, a single technical error could jeopardize the entire blockchain, the so-called “domino effect.” Because blockchain transactions are irreversible, you can lose all your wealth.
Another important issue is volatility. During spikes in volatility, the money you borrowed from the smart contract may be liquidated leaving you with nothing.
Use of stablecoins
This is why DeFi companies are eyeing stablecoins for their liquidity pools.
Stablecoins are pegged to the value of the dollar or a commodity, making them much less volatile than other trading pairs. Stablecoins could be a safer way for newcomers to try leveraged yield farming.
And some companies offer both — digital currencies and stablecoins, expanding the potential investor base and adding security to liquidity pools.
One such company is Kalmar, a DeFi bank with a range of products including leveraged rates and NFT fundraising.
Kalmar utilizes leveraged stablecoin farming using funds provided by other users, which the company says yields between 40% and 90% interest per year.
The platform offers the possibility to use leveraged yield farming products with Binance Coin (BNB) or with its stablecoin equivalent BUSD, or both.
According to Kalmar, investors can maintain control over their private keys by integrating browser wallets such as Metmask, Math Wallet, WalletConnect, Binance Chain Wallet, SafePal APP Wallet, and Trust Wallet.
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