YOU MAY HAVE SEEN MANY ADVERTISEMENTS RELATING TO CRYPTOCURRENCIES DURING THE SUPER BOWL. YOU MAY HAVE FOUND THEM WEIRD, DEEPLY DYSTOPIAN.
Nevertheless, you may believe the blockchain has untapped financial potential and wish to invest, or you may already have money invested in cryptocurrencies via companies such as Coinbase and FTX that were advertised during the Super Bowl.
What then? Monitoring the price fluctuations of Bitcoin, Ethereum, and other crypto coins and actively trading on these fluctuations can be a full-time occupation. Entry into NFTs, the digital baubles you can mint, purchase, or sell.
For many crypto traders in the medium to long term, staking and yield farming on DeFi networks are additional ways to make money on cryptocurrency just choosing the digital wallet app development. “DeFi” is merely an umbrella term for “decentralized finance”—all the blockchain-based services and tools for currencies and smart contracts.
Staking cryptocurrency and yield farming are similar at their most fundamental level. Investing in a cryptocoin (or more than one) and collecting interest and transaction fees from blockchain transactions.
Staking vs. Yield Farming
Staking is simple. It typically entails keeping cryptocurrency in an account and allowing it to accrue interest and transaction fees as funds are sent to blockchain validators. The fees generated when blockchain validators facilitate transactions are partly distributed to stakeholders.
This type of hold-for-interest has become so popular that even major cryptocurrency exchanges, such as Coinbase, offer it. Some tokens, such as the highly stable USDC (pegged to the US dollar), offer about 0.15 percent annual interest rates (similar to placing your money in a low-interest checking account at a bank). In contrast, other digital currencies may earn you 5 or 6 percent annually. Some services require staking to lock up funds for a certain period (meaning you cannot deposit and withdraw at any time) and may require a minimum amount to accrue interest.
Agriculture based on yield is a little more complicated but not that dissimilar. Typically, yield farmers add funds to liquidity pools by pairing multiple types of tokens. For example, a liquidity pool that combines the Raydium receipt with USDC could generate a combined token with an annual percentage rate of 54 percent (annual percentage rate). This seems ludicrously excessive, and it gets stranger: There may be yield farms offering hundreds of percent APR and 10,000 to 20,000 APY for relatively new tokens and highly volatile (APY is like APR but takes into account compounding).
The rewards accumulate 24 hours a day and are typically distribute as harvestable crypto tokens. These harvest coins may be re-invest in the liquidity pool and add to the yield farm for greater and more rapid rewards, or they may be withdrawn and convert to fiat currency.
Yield farming is riskier than staking. The tokens with the highest interest rates and fee yields are more susceptible to a sharp decline if the underlying ticket loses a substantial value. Permanent loss is refer to as “permanent loss.” If you made a fortune on fees, your initial investment in a yield farm might be worth less when you withdraw.
Some DeFi services provide leveraged investments, which are even riskier. By adding a 2X, 3X, or greater multiplier to your yield farming investment, you are essentially borrowing one type of token to pair with another and paying collateral that you hope will be recoup by a high APY. Bet incorrectly, however, and the entire holding can be liquidate, with only a portion of the initial investment return.
Those who are inexperience with yield farming should avoid low-liquidity pools. This is measure in the world of DeFi as “TVL,” or total value lock, which indicates the total amount of money invest in a particular liquidity pool, currency, or exchange.
Moreover, as with any digital network, DeFi services are susceptible to hacking, poor programming, and other bugs and issues beyond your control. Good, consistent yields may require more work than you’re willing to do for “passive” income; monitoring the value of tokens and switching from one type of yield farm to another can produce good results, but it’s analogous to timing the stock market. It can be quite dangerous and may require more luck than skill.
Where to Start
If you want to begin staking or yield farming, you should determine whether the cryptocurrency exchange you already use offers these features. Binance, FTX, Coinbase, TradeStation, Kraken, and other cryptocurrency wallet development services may provide currency staking, including Ethereum, Tezos, Polkadot, and Solana.
On the yield farming side, PancakeSwap, Curve Finance, Uniswap, SushiSwap, and Raydium offer the ability to swap tokens, add to liquidity pools, and invest in yield farms, among other services. Typically, they are access through crypto wallets that connect to the service and permit you to deposit and withdraw funds.
Gains on yield farms can be wildly unpredictable, and the emergence of new tokens with astronomically high APY rates can frequently entice new yield farmers into pump-and-dump pools. However, many investors who hold crypto funds for the long term find staking and yield farms with more stablecoins to be an additional tool for earning a return on their holdings.