While this might change in future, almost all current yield farming transactions take place in the Ethereum ecosystem. Yield farming is normally carried out using ERC-20 tokens on Ethereum, with the rewards being a form of ERC-20 token. With yield farming, the concept is the same: cryptocurrency that would otherwise be sitting in an exchange or in a wallet is lent out via DeFi protocols (or locked into smart contracts, in Ethereum terms) in order to get a return. When loans are made via banks using fiat money, the amount lent out is paid back with interest. Simply put, yield farming involves lending cryptocurrency via the Ethereum network. More specifically, it’s a process that lets you earn either fixed or variable interest by investing crypto in a DeFi market. What is yield farming?Īt its core, yield farming is a process that allows cryptocurrency holders to lock up their holdings, which in turn provides them with rewards. So what is yield farming and what does it mean for the world of crypto? Without further ado, let’s dive in. One of the latest ones you may have come across recently is yield farming-a reward scheme that’s taken the decentralized finance (DeFi) world by storm during 2020.Īrguably one of the main reasons people are drawn to the DeFi world, yield farming has seen inexperienced investors get burned and tech-savvy capitalists making their fortunes.Īs with most things related to blockchain and cryptocurrency, the concept of yield farming can be intimidating at first, but fear not-we’re going to cover everything you need to know below, kicking off with what it is, how it works, and why you might be interested to explore it further. It’s impossible to sail the crypto seas without constantly navigating through new trends and buzzwords. The rewards can be far greater than traditional investments, but higher rewards bring higher risks, especially in such a volatile market.
It involves lending out cryptos via DeFi protocols in order to earn fixed or variable interest.Yield farming lets you lock up funds, providing rewards in the process.
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