What is Yield Farming/Liquidity Farming?

What many people don’t realize when it comes to the crypto world is the fact that it isn’t all that different from the traditional market that we’ve all gotten used to by now. As we all know, the crypto market has pretty much revolutionized the way we look at financial activities, but in fact its foundation lies at the basis of the traditional financial market.

This is why for this week we want to focus on an aspect of crypto trading that a lot of people are still not familiar with, and yet they should be considering how similar it is to a concept that they’ve been making use of for quite a few years now.

What is it?

We’re talking about yield farming, or liquidity farming and everything that comes with it. Essentially speaking, yield farming represents a relatively new means of earning interest on your assets, which is actually very similar to how you’d earn interest on and earn interest on the money that you own on your savings account.

So, how does yield farming actually work? Well, it’s really simple actually, you just take your cryptocurrencies and you lock them up for a while, as you wait for it to increase in value over time.

This method is also referred to as “staking” and it is a staple of the cryptocurrency market simply because it allows the shareholders to reel in their profits and not have to get through the process of having to check whether you’re making a profit or not every day of the week.

As we mentioned previously, you may be familiar with this method as it is actually very popular in the traditional money market as well. Take for instance loans made through banks, you essentially find yourself taking a certain sum of money from the bank and you end up paying it back by the end of the term with interest.

In this example, through yield farming you essentially become the bank institution, as you allow your cryptocurrency to be used by other people and as soon as the term is done, you will receive your crypto back with that aforementioned interest.

Instead of actually having to check whether you’re making a profit or not you can maximize your chances of coming out on top by giving the crypto coins to someone else.

The process of staking is currently at its peak because of the safety factor that comes with it. This works directly through the blockchain itself, dictating that the holders need to actually pay back the interest by the end of the term.

Why Is Yield Farming Gaining Popularity

Yield farming has proven itself to be quite a valuable asset in making a profit through cryptocurrencies, which is actually quite interesting considering the fact that it only began in 2020. Through it, the users (also known as yield farmers) have managed to multiply their initial investment by simply staking their unused cryptos and taking that special interest from the people that needed the cryptos to begin with.

The only real problem with it is that you also need to factor in the potential risks that come with owning and staking your cryptocurrencies. For example, you need to take into consideration the volatility of the coin and of course the potential rug pulls.

Rug pulls are always going to be scary to deal with, but the good news is that they’re generally easy to spot when getting yourself up to speed with the project and the people behind it. When you’ve done some research, chances are that you already know how to spot one such bad deal.

But alas, there will always be risks when working through the crypto market. As far as risks go though, yield farming has proven to be one of the safest ways to make a profit as of 2021 though.

In simpler terms, the reason as to why it works is because it is not all based on a trust system, it is actually fully supported by the decentralized apps.

It works because the process of liquidity has already proven to be worth the investment in the crypto world, and by using the staking process you are making sure of the fact that you will be making a profit by the end of the ordeal.

The investors, or loaners if you will, are locking up their coins, meaning that they don’t actually get to use these coins anymore and instead they are up for grabs for anyone that needs them. After the whole process is done, the investors will be getting their cryptos back plus the special interest that we mentioned previously.

How To Get Into Yield Farming?

If you want to get into it then all that you really need for it is a good platform to back up your staking. As mentioned previously, the only risk you’re taking while leaving your cryptos up for potential clients is at the basis of the platform itself, so by using a trustworthy platform you’ll have a safer time staking.

If you’re looking for a good platform that will help you and ensure that the native coins you’re purchasing are legit then you can always do it on Guardarian. Guardarian offers you the opportunity to buy the staking platforms’ coins directly with fiat, without actually having to go through the process of creating an account in a user-friendly manner. Here’s some of coins we recommend:

• AAVE (Aave) — a decentralized lending protocol which uses liquidity pools to ensure the loaners that their funds will come back with interest.
• FARM (Harvest Finance) — an automated yield farming protocol which allows the investors to make a profit through high-producing farming investment prospects.
• UNI (Uniswap) — an automated market maker that uses different pairs of tokens all through the liquidity pools.
• COMP (Compound) — an Ethereum based token which uses the decentralised interest rates for the supply and borrowing of the tokens.

Conclusion

So, now you should have a better understanding of what yield farming is and why it’s such a good concept for any potential investors out there.

If you do have a few too many cryptos in your wallet and you don’t have any intention of using them anytime soon then why not leave them up for staking and make a profit in the process? Check out the coins for the platforms we mentioned above and get started with yield farming. As always, Guardarian offers the easiest customer experience for acquiring crypto.

Overall, this is a fairly low-risk system as long as you pick a good platform to make sure that they’ve got your back all throughout the process. Make sure to do your own research into the projects and platforms and get yourself up to speed about what you’re getting in to. An informed decision is a good decision.