The term Decentralized Finance or DeFi has been in the news for the past two years. It refers to a fledgling technology that focuses on removing intermediaries in financial transactions. By making use of blockchain technology, it removes third-party entities for payments and transactions. Undoubtedly, this has led to the emergence of multiple streams of revenue generation for investors. One such revenue stream is yield farming
What is Yield farming?
Yield farming refers to staking and lending cryptocurrency-based assets to generate rewards in the form of additional cryptocurrency. Due to further innovations like liquidity mining, this volatile DeFi application has skyrocketed in popularity especially in the last 2 years. Several yield farms have cropped up such as Bnbxfarmer, which enables cryptocurrency investors to take advantage of this lucrative investment scheme. Liquidity providers are incentivized to stake or lock up their crypto assets in a smart contract liquidity pool.
There are two main categories of yield farming – Liquidity Mining and Token Farming
- Liquidity Mining
Here, users provide liquidity to DEXs via their crypto assets. This allows other traders to switch tokens quickly. The users are rewarded with tokens and fees based on their inputs.
- Token farming
This is another, more recently popular form of yield farming that has replaced the mundane fee-based reward structure for liquidity providers. Instead, it includes a protocol token giveaway. Users earn native tokens after supplying liquidity to pools. The payout rate is greater when the size of the liquidity pool is smaller, which entices other users to join the pool.
