- Yield farming is a way to earn rewards by depositing your cryptocurrency or digital assets into a decentralized application (DApp).
- Yield farming is a good strategy to increase liquidity and allows people to maximize their returns on their holdings.
What is Yield Farming?
Yield farming is a way for people to earn rewards on deposited cryptoassets by providing liquidity to a DApp. Projects offer these rewards to people in order to temporarily use their assets, typically to increase liquidity.
Yield farming allows people to maximize their returns on their holdings and enables new projects to jumpstart their liquidity.
How Does Yield Farming Work?
DApps issue rewards for deposits to attract people’s cryptoassets. When someone decides to deposit, they send cryptoassets to a smart contract that will hold the assets and keep track of rewards earned. The smart contract issues the depositor a token that acts as a kind of receipt, used to realize any outstanding rewards and to withdraw cryptoassets from the smart contract.
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How it works?
👉 Lend tokens to farming pools, boosting liquidity for decentralized trading. 💧📈
👉 Traders pay fees on swaps, and as a liquidity provider,… pic.twitter.com/Gr4OjiZZ9s
— Iotabee (@iotabee) May 2, 2023
Common Types of Yield Farming
There are three common types of yield farming: liquidity providing, staking, and lending. Liquidity providers contribute cryptoassets to a DEX and receive a percentage of exchange fees from trades. Staking is usually a limited time opportunity to earn extra yield for being a liquidity provider (LP).
Lending allows people to borrow cryptoassets from a pool of lenders, with lenders receiving yield from the interest borrowers pay.
The Benefits and Risks of Yield Farming
The main benefit of yield farming is earning extra returns on your cryptoassets while still holding them. However, there are several risks to yield farming, including DApp developer risks, smart contract risks, and market volatility risks. The best way to mitigate these risks is to research projects before depositing anything and to stick with projects that have a long track record.
Verse Farms: A Non-Custodial Yield Farming Platform
Verse Farms offers non-custodial yield farming to those looking to earn additional rewards on top of the trading fees earned by providing liquidity. By depositing select liquidity pool tokens into Verse Farms, users can earn additional rewards on top of the yield earned for providing liquidity. This allows for twice the yield – first for providing liquidity in a pool and second for staking LP tokens on the DEX.
In conclusion, yield farming is a strategy that allows people to earn rewards by depositing their cryptoassets into a DApp. By providing liquidity, yield farming increases liquidity in the market and enables new projects to jumpstart their liquidity. While there are risks associated with yield farming, careful research and sticking with projects that have a long track record can help mitigate these risks.
Verse Farms is a non-custodial yield farming platform that offers additional rewards on top of earned trading fees, providing users with twice the yield potential.