HODL Farming has the same basic concept of HODL Staking but instead of the base token being the project’s native token, in HODL Farming the base token is the project LP token!
But what if a project wants to take the same concept and use it in way that would also encourage their investors to provide liquidity to their token?
Introducing… HODL Farming!
Before we explain how the HODL Farming contract works and why it is more beneficial than regular Farming (also known as Yield Farming), let us explain briefly how traditional farming works.
By default, every Decentralized Exchange (DEX) relies on liquidity providers for a smooth trading experience. Liquidity providers (or LPs for short) send an equal amount of the two tokens that make a trading pair into the trading pair pool. In return, they get LP tokens that represent their proportion of ownership in that pool. Any time someone makes a trade for that pair, the DEX charges a commission and part of it goes to the LPs based on their ownership stake in the pool.
In essence, an LP token is a token that is combined from the 2 tokens in the pair.
As an example, in Optimus we have liquidity in PancakeSwap for the pair $BNB / $OPTCM.
Farming is a way to further reward the LPs by giving them an additional token reward for locking their LP tokens.
However, traditional farming has some disadvantages. The main one is that the APR (Annual Percentage Return) is usually very dynamic and can increase but also decrease based on the farmers activity.
The HODL Farming Advnatage
Projects will have the ability to use their own token or any other token as rewards for HODL farmers.
The reason for that is, a project can have the reward token in a different token than the ones making the LP tokens, and if the reward token decreases in value it can affect the $ value of the rewards, resulting in a lower USD value APR.
Any EVM Project Can Launch A HODL Farming Contract
Projects will have the ability to launch a HODL Farming contract using their own token or other tokens as rewards!
The Optimus Team