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Decentralised finance (DeFi), a growing financial technology that aims to get rid of intermediaries in financial transactions, has exposed multiple avenues of greenbacks for investors. Yield farming is one such investment strategy in DeFi. It demands lending or staking your cryptocurrency coins or tokens to acquire rewards as transaction fees or interest. This is somewhat similar to earning interest from a checking account; you're technically lending money to the bank. Only yield farming might be riskier, volatile, and sophisticated unlike putting cash in a bank.

2021 has turned into a boom-year for DeFi. The DeFi market grows so fast, and even hard to follow all the changes.

Why's DeFi stand out? Crypto market provides a great opportunity to earn more money in several ways: decentralized exchanges, yield aggregators, credit services, and also insurance - you'll be able to deposit your tokens in all of the these projects and acquire a treat.

But the hottest money-making trend have their own tricks. New DeFi projects are launching everyday, interest levels are changing on a regular basis, a number of the pools disappear completely - and it is a big headache to help keep an eye on it however you should to.

But note that investing in DeFi can be risky: impermanent losses, project hackings, Oracle bugs and volatility of cryptocurrencies - these are the problems DeFi yield farmers face continuously.

Holders of cryptocurrency possess a choice between leaving their own idle in the wallet or locking the funds inside a smart contract to be able to give rise to liquidity. The liquidity thus provided may be used to fuel token swaps on decentralised exchanges like Uniswap and Balancer, as well as to facilitate borrowing and lending activity in platforms like Compound or Aave.

Yield farming it's essentially the method of token holders finding strategies to using their assets to earn returns. For the way the assets are employed, the returns usually takes variations. For example, by in the role of liquidity providers in Uniswap, a ‘farmer’ can earn returns in the form of a share in the trading fees every time some agent swaps tokens. Alternatively, depositing the tokens in Compound earns interest, because they tokens are lent out to a borrower who pays interest.

Further potential
But the potential for earning rewards will not end there. Some platforms also provide additional tokens to incentivise desirable activities. These extra tokens are mined from the platform to reward users; consequently, this practice is called liquidity mining. So, by way of example, Compound may reward users who lend or borrow certain assets on their own platform with COMP tokens, what are the Compound governance tokens. A lending institution, then, not just earns interest but also, in addition, may earn COMP tokens. Similarly, a borrower’s interest rates may be offset by COMP receipts from liquidity mining. Sometimes, for example when the price of COMP tokens is rapidly rising, the returns from liquidity mining can more than atone for the borrowing rate of interest which needs to be paid.

For those who are ready to take additional risk, there is certainly another feature which allows much more earning potential: leverage. Leverage occurs, essentially, whenever you borrow to take a position; for example, you borrow funds from the bank to purchase stocks. While yield farming, an illustration of this how leverage is produced is you borrow, say, DAI in the platform for example Maker or Compound, then utilize borrowed funds as collateral for more borrowings, and repeat the process. Liquidity mining can make mtss is a lucrative strategy once the tokens being distributed are rapidly rising in value. There's, obviously, the chance that doesn't happen or that volatility causes adverse price movements, which may bring about leverage amplifying losses.

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