Most people know of only one way to invest in cryptocurrencies and that is trading, that is, buying and selling cryptocurrencies for a profit. However, the chance of making good profits from trading cryptocurrencies is very slim.
Moreover, this type of investing is fraught with risks and you could lose all your hard-earned money in crypto. What if I tell you there is a better, less risky and more profitable way to invest in cryptocurrencies? Actually there are two possibilities.
Staking and yield farming are two passive methods of investing and making money in cryptocurrencies. Both methods involve holding or blocking your tokens for a period of time in order to earn interest, free tokens, or other benefits.
The best thing about the above two methods of passive investing in cryptocurrencies is that there is almost no risk involved. Here’s everything you need to know about crypto staking, yield farming and which one is best for you.
What is yield farming in cryptocurrencies?
Yield farming is the process of increasing your crypto holdings by lending your tokens to those who need them and earning interest in return.
The process essentially involves users lending their coins to create or grow the liquidity pool on a DeFi (decentralized finance) platform, which is then used to lend crypto to others who wish to trade or use it.
The platforms typically pay interest to lenders who deposit their cryptos in the liquidity pool. The interest can be paid in the form of tokens or special tokens, so-called LP tokens.
For example, you can start with the Pure Oxygen coin. The platform allows you to lend your Pure Oxygen Coins to earn interest. The same is used to create a liquidity pool for crypto traders. You can stake your coins and participate in Pure Oxygen Coins yield farming for maximum benefit.
What is staking?
Staking is a method of validating transactions on a blockchain that uses the Proof of Stake (PoS) mechanism. Unlike Proof of Work, the PoS mechanism allows people to stake their tokens to set up nodes and validate transactions. This method is much more efficient in terms of energy consumption and setup costs.
Staking does not require you to invest in an expensive hardware setup like mining. All you need are tokens, which you can stake (make the contract), which allows you to act as a validator to validate the upcoming transactions on the network and get the verification fee as a reward.
Staking vs Yield Farming: What to do?
Yield farming allows you to increase both the number and value of your crypto. You earn interest on crypto, which gives you more tokens, and your contribution to the liquidity pool allows many others to trade the token, increasing its value over time.
Staking also allows you to make money from your crypto. Depending on the tokens you own, staking can easily earn you an annual return ranging from 7% to 12%.
Another benefit of staking is that you can help protect the environment by not engaging in cryptocurrency mining, which is a more energy-intensive and costly process to generate new cryptocurrencies.
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