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What is yield farming? Understanding DeFi’s Passive Income Strategy with Crypto Assets!

Read Time:2 Min, 11 Sec

To understand how to farm, you need to learn the concept of staking. When factoring in the price of multiple tokens, there are exponential returns to be earned for trading in harvested governance tokens. Yield Farming doesn`t mean you are a farmer, this represents users putting their capital to work to earn returns on an endless number of different DeFi protocols using their trust wallets. The early you start, the higher opportunity you get to leverage your capital. At one time I turned $1,000 worth of $VVS token on the Cronos blockchain to $8000 in less than 30days when the value of a token rapidly rose. In essence, Yield farming is the cryptocurrency equivalent of earning an annual percentage yield on deposits with banks.

Maintenance-free passive income

The cherry on top is that you earn passive income assuming the token value continues to increase. As investors continue to watch the growth of exciting new financial primitives, we’re beginning to witness an ever-growing trend of users being able to share in the upside of a protocol’s growth. Please note that as with any investment opportunity, there are inherent risks.

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What are the risks?

Cryptocurrencies come with risks factors, there are many opportunities to earn massive amounts of cash in the defi space. Unfortunately, hungry scammers have followed the money. While there are many legitimate yield farming protocols, some yield farming protocols come from scammers to lure in unsuspecting crypto holders. It is important to do your analysis. Other risks include entering a staking pool or yield farm as the token is trading high, it is possible that the value of the token can drop. You will still earn passive income but the amount you get in passive income can drop as the pooled value of your token drops too. If you were to then remove your funds from the farm and sell your tokens, you would be selling the tokens for a loss, since the token value had dropped. It’s important to look at it as an investment.

How to start yield farming?

There are several yield farming platforms in the DeFi space, and more pop up all the time.

Each of these platforms offers a unique set of rewards–and each one carries its own set of risks. Before choosing a platform to farm yield on, make sure you understand the possible vulnerabilities that the platform carries and the safeguards that it has against those exposures. As I am not a financial advisor, I will be unable to recommend a platform at this time. Please farm with extreme caution.

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Last Updated on 12/09/2021 by Emmanuel Motelin

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