Why Yield Farming is Taking the World by Storm
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Introduction
What we’ve been noticing
Yield Farming is one of the hottest topics in decentralised finance. There is a high chance you may have already heard something about the insane returns some of the yield farmers are making. If you're looking to increase your returns on your cryptocurrency investments, you may be interested in yield farming. But what is yield farming? How does it work? What are some examples of yield farming? How severe are the risks involved? We’ll walk you through all of this in this article.
But before we start, if you’re a beginner to Decentralised Finance (DeFi) you may want to read our "DeFi Explained: A Beginner's Guide to Understanding and Getting Started" article first.
Key Topics this Article will Cover:
Getting Started: What is Yield Farming?
How does Yield Farming work?
Yield Farming Returns: What you need to know
Why is everyone obsessed with Yield Farming?
Conclusion
Getting Started: What is yield farming?
Yield farming is a method of earning rewards or interest by staking and lending cryptocurrency to DeFi protocols and platforms. Similar to how you'd earn interest on depositing money in a bank, yield farming involves locking up your cryptocurrency, called staking, for a period of time. In exchange for interest or other rewards, such as more cryptocurrency.
How does yield farming work?
In many ways, yield farming works like a savings account, where you deposit money with a bank, which then pools depositor money and lends it forward while you earn interest on the funds you deposited. But instead of being converted into a mortgage, personal loan or business loan, the cryptocurrency in a yield farm is invested in smart contract applications.
Smart contracts are pieces of code that automate financial agreements between two or more parties using blockchain technology.
When people talk about yield farming, they discuss it in terms of annual percentage yield (APY). This often invites a comparison to the interest rate you might earn on a savings account at a bank. And while bank interest rates are extremely low, yield farming can produce APYs in the triple digits in some cases. Though those returns come with considerable risks and are unlikely to last long.
APY is your annual return on an investment that takes into account compound interest that is accrued on top of your initial investment. This means you’ll earn interest on the initial investment, as well as interest earned on that interest.
Watch the video below to learn more about yield farming. Don’t forget to like and subscribe so you don’t miss out on important updates and up-to-date videos.
What else did you miss?
Yield Farming Returns: What you need to know
Why is everyone obsessed with Yield Farming?
Conclusion
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Lisa JY Tan | Founder and Managing Director
E: Lisa.T@EconomicsDesign.com | W: EconomicsDesign.com