OneArt

<h2 id="header-0"><strong>What’s yield farming?</strong></h2><p>Yield farming implies lending or depositing cryptocurrency in return for a reward: interest, tokens, more cryptocurrency, etc.</p><p>That is, you can invest your cryptocurrency and then get passive income from it. This is similar to how you get interest from your savings account at the bank. The only thing is that farming doesn&#39;t operate in a banking system, but in the DeFi system. Instead of bank employees and administration, the fundamental role of management within such systems is given to smart contracts (code).</p><p><strong>There are two key concepts involved in the yield farming strategy:</strong></p><ul><li>Liquidity providers (LP)</li></ul><p>These are users who add assets to the liquidity pool and thereby provide its liquidity. LPs receive rewards for this.</p><ul><li>Liquidity pool</li></ul><p>Technically, it&#39;s a smart contract that DeFi operates on. This pool contains assets. You can think of it as a kind of common container in which liquidity providers (aka lenders) place their cryptocurrency.</p><h2 id="header-1">How does it work?</h2><p>❗️In fact, there are many schemes for making a profit from holding cryptocurrencies through <a href="https://oneart.digital/en/tokenomics" rel="noopener noreferrer nofollow">yield farming</a>, but they are often difficult to carry out for those who are new to the cryptocurrency market.</p><p>However, the basic idea is that a liquidity provider deposits money into the liquidity pool of a DeFi exchange, for example, and gets paid in return. On that exchange, ordinary users can lend, borrow, or exchange tokens. For using such services, they are charged a certain fee — a commission. The lion&#39;s share of the commission is then distributed among the liquidity providers. The amount of profit from the commissions depends on their share in the liquidity pool. Usually, stable US dollar-linked coins (USDT, USDC, DAI) are added to the liquidity pool, but this is not a common requirement.</p><p><img src="https://academy-public.coinmarketcap.com/optimized-uploads/95dc3664678548a98bf17c8e166d9543.jpeg" /></p><p>You can imagine that it is a kind of market, where a pool of liquidity ensures its efficient performance.</p><h2 id="header-2">2 main incentives to put coins into the liquidity pool</h2><p>&#x1f4a5;Commission yield is one of the incentives for LPs to invest their coins.</p><p>&#x1f4a5;The second popular incentive is the distribution of a new token.</p><p>For example, tokens that have recently appeared on the market are usually in small amounts and are rarely available on open markets. The use of the token in farming can help its accumulation with a potential positive impact on its distribution.</p><h2 id="header-3">Why is it so booming?</h2><p>Yield farming became especially popular among avid crypto-engaged in 2020, taking over the world of DeFi projects. Today, it is also used as a rewards program. However, the popularity of the scheme emerged not because of DeFi hype, but because of the opportunity to earn a profit (coupled with a certain degree of risk).</p><p>Interest rates on traditional bank savings accounts are quite low, while farming offers participants a higher return.</p><h2 id="header-4">Risks and disadvantages of farming</h2><p>So, is crypto farming worth it? It is up to you to decide whether or not to get involved. Just remember that there are benefits as well as risks. For example, among the disadvantages of farming, there are three main ones:</p><p>☝The lack of experience</p><p>To be honest, working schemes of this kind of investment are complicated and tricky. Often, more experienced crypto users, as well as crypto whales who own significant amounts of cryptocurrency, are more actively involved in farming.</p><p>☝Vulnerability of smart contracts</p><p>With the popularity of DeFi, quite a few projects developed by small teams with limited budgets have started to appear. There is always a risk to make a mistake in the code, which can cause its hacking and, therefore, the crypto-filled pool can be looted.</p><p>☝Cryptocurrency volatility</p><p>Cryptocurrency storage itself also has its own risks, because their price is usually quite volatile. You simply may not get the percentage of return on your pool investment that you hoped for.</p><h3 id="follow-official-oneart-channels-to-find-the-latest-info-and-updates">Follow official OneArt channels to find the latest info and updates:</h3><ul><li><a href="https://twitter.com/art_wallet" rel="noopener noreferrer nofollow">Twitter</a></li><li><a href="https://t.me/art_wallet" rel="noopener noreferrer nofollow">Telegram Group</a></li><li><a href="https://t.me/artwallet_official" rel="noopener noreferrer nofollow">Telegram Announcements</a></li><li><a href="https://coinmarketcap.com/community/profile/OneArt" rel="noopener noreferrer nofollow">CoinMarketCap Community</a></li><li><a href="https://www.linkedin.com/company/oneart/" rel="noopener noreferrer nofollow">LinkedIn</a></li><li><a href="https://www.youtube.com/&#64;oneart5089" rel="noopener noreferrer nofollow">YouTube</a></li></ul>

Сrypto Yield Farming Explained: Simply & Briefly

Table of Contents

OneArt

Other articles published on Dec 14, 2022

Will Whales Propel the Dogecoin Price Beyond $0.1?

STARBUCKS INTRODUCES THE ODYSSEY NFT REWARDS PROGRAM

Crazy For Crypto Punks? Check out The Next Level CUBIX Punks!

Why did Kevin OLeary invest in FTX? | CZ’s Version

Blockearth, B.o.M Group strategic partnership agreement

Planet Sandbox 1st Anniversary Event — Who will be the Best Birthday Cake Collector?

Join our free newsletter for daily crypto updates!