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What is Yield Farming?

Another interesting form of investment in the DeFi world that has been talked about a lot lately is ‘Yield Farming’, which has a lot of projects that have been happening and that are happening very quickly. Including the trend that is popular until it drives the relatively high Gas Fees.

What is Yield Farming?

Basically, Yield Farming is another form of profitability in the DeFi world by letting our deposit assets work and generate maximum returns. The assets deposited in the system will be used for real, becoming ‘liquid’.

To make this clearer, Yield Farming is a return by depositing Crypto assets or coins that we have in DeFi Platform’s Liquidity Pools or Decentralized Exchanges (DEXs) to generate returns. Along with adding liquidity to the DeFi Platform that chooses to invest

Investors will get a return from the fees generated from the exchange on Liquidity Pool and most investors will receive Governance Token or fixed token of that DeFi Platform or DEXs, each platform has different conditions and details. go together

What makes Yield Farming so special and interesting?

The main benefit of Yield Farming, to be honest. Is a good return for those who come into the project from the beginning. Investors receive rewards or ‘Token Rewards’ that can increase in value rapidly, sell the Rewards at a profit and can be used or reinvested.

Currently, Yield Farming can offer higher returns than traditional investments. But there will be a greater risk as well. Including the rate of return may fluctuate. It’s hard to predict what the awards will be like next year.

Yield Farming is important because it can help projects get more liquidity initially It is also useful for both lenders and borrowers. which makes the world of issuing loans easier

for investors who have received a large number of returns Most will have a lot of capital. But for those who want to take out a loan have access to cryptocurrencies or cryptocurrencies.Cryptocurrency with very low rate of return This can sometimes be as low as 1% APR. Borrowers can also easily lock up funds in high-yield accounts.

However, even yield farming has many advantages. But it is still an investment that is still somewhat controversial or divisive in the crypto world, because not all communities consider Yield Farming important and some in the Crypto community have even advised people to stay away. There are even some farm projects that have been criticized by Ethereum developers for being extremely risky. Moreover, Ethereum co-founder Vitalik Buterin posted in 2020 that he would stay away from investing in Yield Farming.

Who is Yield Farming for?

Entering into Yield Farming can be difficult for someone who has no prior experience in the crypto world, so interested parties should have some experience with DeFi Protocols or crypto projects currently available. or many protocols that try to make it more accessible to everyone.

Additionally, the trend and popularity of Yield Farming has driven relatively high gas fees on the Ethereum network, so most of the big payouts from Lending are those who have a lot of capital to start. early investment

Yield Farming Risks

Yield Farming at some angles is complex and carries significant financial risks for both borrowers and lenders. Generally, high gas fees are required, and they only become worthwhile when large sums of money are prepared as capital. Users also risk ‘Impermanent loss’ or temporary loss of funds and ‘Slippage’ or inaccuracies in the price of the trading point when the market is volatile.

Another of the most noticeable risks of Yield Farming is the high risk of hacking and fraud due to potential vulnerabilities in smart contract protocols. It comes from the fierce competition between Protocols, each of which is a matter of time. including new contracts and features that most often are not reviewed enough. or sometimes copied from pre-existing or copied from competitors.

And as we all know, DeFi Protocols running on Blockchain are a form of Permissionless or everyone has the right to freely access the network and data. and rely on multiple applications to run smoothly. Therefore, if any application has been Exploited or exploited by hackers. or unable to work as intended It may affect the entire ecosystem of applications. And it can also result in permanent loss of capital.

Moreover, due to the nature of Blockchain, it cannot be changed. As a result, most DeFi losses are permanent and irreversible. Therefore, it is advisable that those who wish to use it should understand the risks of Yield Farming well and should do their own research first.

What is the future of Yield Farming?

It is almost impossible to accurately predict the future of Yield Farming. Because it is an area that is volatile and fast. however There is a common and somewhat consensual opinion that bubbles tend to burst at some point in time.

In addition, the current level of advertising and expectations. This can put too much strain on the network. and cause various problems that comes with congestion any price correction This may result in some Yield Farmers being unable to pay off their assets. This could affect Yield Farming’s overall confidence.

However, yield farming is still a high-risk, high-reward investment approach. that might be worth it If there is enough study to find the necessary information Including careful risk assessment in advance.

This article is for educational purposes only and is not intended to provide advice on finances, investments, etc.

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