Yield farming has experienced a Cambrian explosion of sorts over the last few months, thanks in part to the emergence of various decentralized finance protocols. In its most basic sense, yield farming can be thought of as a process where users provide liquidity to DeFi protocols and are rewarded with a yield/return, usually in the form of the platforms native token offering.
The concept was first made popular by Compound, which gave COMP tokens to users who supplied and borrowed tokens on the platform. The yield offered is usually high and serves as an incentive for users to provide liquidity to bootstrap the financial resources of a new DeFi protocol.
That being said, this novel token distribution method has gained so much traction recently — partly because the returns are so exorbitant — that a number of copycat projects, as well as random protocols, have started to abuse this practice since smart contracts for yield farming distribution are open-sourced, and there are a number of efficient decentralized applications that can be copied by almost anyone with the right amount of engineering expertise.
However, Bobby Ong, the chief operating officer and a co-founder of CoinGecko — a cryptocurrency tracking platform — believes that the high yields are temporary and not practically sustainable. He also believes that as more people become aware of the technology and start to provide liquidity to various protocols, the rewards will become increasingly more diluted with the average yield eventually being driven down, adding:
Liquidity providers are rewarded in the form of the DeFi protocols native tokens. To receive the actual yield in USDT, the liquidity provider will need to sell the native token to USDT for example, thereby driving down the native token price and yield further. How to take advantage of yield farming
When discussing the concept of yield farming, it is essential to understand that there are three avenues through which one can harvest a yield — namely money markets, liquidity pools and incentive schemes.
Simply put, crypto owners can earn a profit on their existing holdings by lending tokens via a decentralized money market such as Compound, M ...
Disclaimer: The content and views expressed in the articles are those of the original authors own and are not necessarily the views of Crypto News. We do actively check all our content for accuracy to help protect our readers. This article content and links to external third-parties is included for information and entertainment purposes. It is not financial advice. Please do your own research before participating.