The cryptocurrency environment is partly about opportunities to make money through innovation. It would seem that the only way to make a real profit is through trading, or long-term investment. However, it turns out that there are other, equally interesting ways. One of them is offered by DeFi environment.
What is DeFi- and how do people make money with it
DeFi in short is so called decentralized finance. They consist in providing a number of financial services based on blockchain and, what is important, without the participation of intermediary institutions. We managed to explain DeFi in the article under the title “What is Ethereum (ETH)“. If you haven’t read it yet, we encourage you to take a look there, as Ethereum is the main ecosystem of DeFi. It is based on the king of altcoins that the vast majority of projects currently operating in this segment were created.
It is understood that DeFi was founded in 2017 and was a response to the increasing centralization of the cryptocurrency sector. This trend is steadily gaining ground. Among other things, it supports the emergence of decentralized exchanges, anonymous payments, as well as loans and credits. DeFi also provides an opportunity to earn in a non-standard way, namely through yield farming.
Yield farming – gaining rewards through cryptocurrencies
The idea of yield farming is, in simple terms, to earn cryptocurrencies by borrowing them. These operations take place on the basis of smart contracts functioning in the DeFi space. Thanks to them we are able to lock our funds in liquidity pools, feeding them to the market, which has the right to use them.
On this basis, we can take profits. All operations in the space are connected with transaction fees and they generate funds which finally go to our wallet. Another way of rewarding the “farmers” is also the distribution of new tokens. This option seems to be equally lucrative. The mentioned profits we can draw in many different coins. What is important, after obtaining them, nothing stands in the way of us adding them to the next pool of liquidity and, consequently, continuing to earn.
In order to make funds available for yield farming, we need to register on one of the platforms that allow for this kind of activity. The most popular ones include Compound Finance, MakerDAO, Synthetix, Aave, or for example Uniswap described by us in one of the articles and gaining in popularity.
Yield farming – is it worth it
You are probably reading this article wondering if yield farming is profitable. Well, it depends on many factors. First of all it depends on the opportunities offered by the various platforms. Good research is the basis of success here. However, you should also remember to determine the right strategy. Yield farming is a relatively young field that allows you to make profits by growing your crypto assets. Undoubtedly, its possibilities will be constantly expanded. Therefore, it is worthwhile to monitor the market on an ongoing basis and adjust the strategy. In this way we can count on the highest possible optimization of profits.