With cryptocurrency, one must keep abreast of new developments or risk obsolescence. Among the latest trends in crypto is yield farming crypto, a reward system taking the crypto world by storm. Yield farming is attracting both experienced and novice crypto investors in DeFi. But what exactly is DeFi yield farming? How does it work? What is the best platform out there? I answer these questions and reveal strategies to maximize yield next.
Cryptocurrency yield farming is a DeFi process that allows you to use your cryptocurrency holdings to earn passive income. Essentially, yield farming enables you to lend out your crypto in exchange for earning interest.
The concept of lending out holdings in exchange for interest is not a new one. This is one of the main ways that centralized finance (CeFi) works. Banks use the money that is deposited into savings accounts to make loans to other people or businesses. In return, the bank pays the savings account holders a portion of the interest. In the United States, the average savings account earns an annual percentage yield (APY) of around 0.06% per year.
Cryptocurrency yield farming works much in the same way. Users deposit a portion of their cryptocurrency holdings into liquidity pools used to give out loans to borrowers. The primary difference between CeFi and DeFi, other than the use of fiat currency vs. cryptocurrency, is that some DeFi projects offer much higher APYs, sometimes as high as 100% per year.
Best Strategies for Maximum DeFi Yield Farming Profits
Profiting from Yield Farming is mainly dependent on the risk one is willing to take. The goal is to gain maximum APY from the liquidity provided. Here are some of the best strategies liquidity providers can us
1.Yield farming using low-risk pairings.Platforms have different coin pairings to match market demand. One of the safest ways to earn a decent APY with limited risk to losses is by using a dual stablecoin pairing. Because both coins are pegged to the USD, there is minimal price fluctuation, limiting exposure to impermanent los
2.High-risk yield farming for maximum profits. For higher APY, liquidity providers are exposed to increased risks. Most high-risk pairings involve new tokens with unstable coin prices. With a proper assessment of market factors, risk-reward scenarios, and a bit of luck, liquidity providers gain maximum yields from these kinds of pairings
3.Shifting assets amongst pools. A key strategy for professional yield farmers, shifting assets amongst different pools may lead to the highest APY. However, liquidity providers must be wary of the cost of moving around cryptocurrencies and keep an eye on gas costs to increase yield
4.Identifying a suitable platform. Many platforms provide yield farming, with the majority having low to moderate APY returns. Identifying the right platform for your intended token pairing is one of the best ways of getting maximum APY from your portfolio. Depending on your yield farming level, your platform of choice will play a pivotal role in determining your yield farming success. Here I would suggest Yield Yak.
How to get started
Here's the process to farm crypto for the first time:
1.Choose an exchange and a liquidity pool.
2.Obtain the crypto needed for the pool you chose. You can trade other crypto for it on the exchange's site. You may also be able to buy it on one of the major cryptocurrency exchanges.
3.Connect your wallet to the exchange. Each exchange has a button you can click to link your wallet and deposit crypto.
4.Go to the pool you want and click on the button to add liquidity.
5.Decide how much crypto to deposit and approve the transaction.
The most important part is choosing an exchange and a liquidity pool. Research the reputation of the exchange and the crypto you'll be lending. Even though you'll be earning interest, you still want a crypto that has the potential to grow and won't crash in value.
I hope you guys have a clear understanding about what is yield farming. So here's the best platform with which you can get started on your yield farming journey.
What is Yield Yak?
Autocompounder
Yield Yak is an easy-to-use tool to earn more yield from defi farming on the Avalanche network.
Community-driven
Yield Yak is a community-driven project. Our community has built and maintained the best, cheapest and most diverse autocompounder on the market.
Self-sustaining
Yield Yak is largely self-sustaining. Our community compounds rewards, suggests new strategies, proposes key configuration updates and contributes to development. Yield Yak farms can run forever, without the team's involvement.
How does Yield Yak work?
Yield Yak auto-compounds yield farm rewards.
Each farm is a pool of deposits from Yield Yak users
Farms earn reward tokens (like $PNG)
Farms reinvest all rewards, compounding everyone's deposits
All depositors benefit from the very high frequency of Yield Yak compounding.
Why use Yield Yak?
Save Time and Earn More Yield
Many defi protocols pay rewards to users in the form of tokens (farming rewards). Farmers who claim rewards often and compound their deposits maximize their rewards and farming yield. However, most farmers do not reach an optimal level of returns for two reasons:
Prohibitive gas costs to claim and compound farming rewards
High time commitment to frequently compound
Yield Yak helps all farmers earn more yield by pooling assets and socializing the costs of compounding. This means much more frequent compounding, which happens automatically.
Reduce Variance on Reward Asset Prices
Popular Yield Yak farms compound every few minutes or hours. Reward tokens are converted into deposit tokens on behalf of all users in the pool many times per day, providing users with a blended price exposure to reward assets.
Consider an example: A farmer stakes $50 of LP tokens into a farm. The farmer receives rewards worth 0.05 AVAX per day. That means, on average, the farmer only generates enough value from claimed rewards to pay the gas costs by waiting for days or weeks.
During this period where the farmer is waiting for the rewards to be worth claiming and compounding, they are at risk of the reward asset price shifting.
Farmers who use Yield Yak instead, will earn the average price for rewards over the period while enjoying compounding effects on their deposits.
How do I get started?
Before you start using Yield Yak, you will need:
1.MetaMask
2.AVAX on the Avalanche C-Chain subnet in your MetaMask account
Final Thoughts
Yield farming is a process that allows users to provide liquidity to various DeFi projects in exchange for earning interest. For now, DeFi liquidity building through yield farming is one exciting way to participate in the cryptocurrency space. However, as a relatively new sector, DeFi, and therefore yield farming, faces some risk so it is important to be cautious when participating.