Yield Farming 101: A Comprehensive Beginner’s Guide
Yield Farming: The New Trend in Cryptocurrency Investment
Yield farming has become the latest trend in the world of cryptocurrency investment. It involves lending out cryptos via DeFi protocols in order to earn fixed or variable interest. The rewards can be far greater than traditional investments, but higher rewards bring higher risks, especially in such a volatile market.
Yield farming involves lending cryptocurrency via, in most cases, the Ethereum network. When loans are made via banks using fiat money, the amount lent out is paid back with interest. 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.
Yield farming is normally carried out using ERC-20 tokens on Ethereum, with the rewards being a form of ERC-20 token. While this might change in future, almost all yield farming is currently done on Ethereum.
The rewards for yield farming can be substantial, with some protocols offering returns of up to 100% or more. However, these high returns come with high risks. The cryptocurrency market is notoriously volatile, and yield farming is no exception. Investors should be prepared to lose their entire investment, and should only invest what they can afford to lose.
Despite the risks, yield farming has become incredibly popular in recent months. Many investors are attracted to the potential for high returns, and the ability to earn passive income from their cryptocurrency holdings. However, it is important to do your research and understand the risks before investing in yield farming.
As with any investment, it is important to diversify your portfolio and not put all your eggs in one basket. Yield farming can be a great way to earn passive income from your cryptocurrency holdings, but it should be just one part of a well-diversified investment strategy.