HOW TO PREPARE FOR A BULL MARKET
HOW TO PREPARE FOR A BULL MARKET
Yield farming: all the facts you need to know
Coo! It’s your beloved Crypto Owl! Today is the middle of the week, so let's take a break from the daily news and talk about things that matter all the time.
On Today’s Menu:
⏳ Estimated reading time: 3 minutes
🍳 SCRAMBLED EGGS: Yield Farming in a nutshell
🥓 BACON: “Did you know?” series
YIELD FARMING: IN A NUTSHELL
Passive income is a great way to make (a lot of) money with little effort. And, yield farming is exactly one of the methods to do so.
Let’s don’t waste your time, and use this bear market to your advantage. Shall we?
What is Yield Farming?
So, yield farming is not about crops, as you already know. “Yield” in the crypto world means the earnings that you make by investing, over a specific period of time. Usually, it is expressed as a percentage based on the invested amount.
Yield could be an interest or dividend received from a particular investment;
Yields can be fixed, or they can fluctuate depending on different variables (e.g., the value of the security you’re invested in);
Yields farming is a specific term to invest in cryptocurrency, specifically in DeFi (decentralized finance) platforms or exchanges;
Yield farming is a synonym for liquidity mining, because as you earn a yield, at the same time you provide liquidity by adding funds to the liquidity pool. Using pools, people can lend, exchange or borrow crypto.
Why does Yield farming matter?
You generate profits similarly as you’d with banks, but the key difference is that banks will never offer such favorable and gainful interests (with yield farming you can make 8%, 10%, 12%, or even more);
Yield farming helps crypto projects to gain liquidity;
Yield farming easies borrowing-lending system, as you can do this without third parties involved.
Yield farming problems and solutions
Problem: Crypto protocols aim to build networks.
Solution: Most old and reliable networks subsidize early projects and networks; once the new network reaches its own liquidity, subsidies are removed.
Problem: Yield farmers are eager to maximize their yields.
Solution: Some networks (e.g. Robinhood) subsidize new networks with bonuses.
Problem: People who truly believe in yield farming, want to have ownership of some part of the networks they build.
Solution: WEB3 is offering user-owned networks.
Crypto Owl’s favorite Yield Farming protocols:
AAVE → open-source liquidity protocol for earning interest, borrowing assets, and building applications;
Curve → exchange liquidity pool for stablecoin trading (with a late very 90’s vibe website);
Compound → interest-bearing lending pools, and as they say: the most secure protocol for money;
SushiSwap → community-driven platform to swap, borrow, lend, stack yields, and earn;
Uniswap → decentralized crypto trading protocol for swapping, earning and building.
Some examples of great yield aggregators:
Yearn.finance → yield optimizer;
Harvest finance → yield optimizer with an interest-bearing token called iFarm;
Pickle Finance → yield aggregator which compounds yield from other protocols.
…and some examples of tools:
Zerion → a tool for trading, building, and managing DeFi’s and NFTs’ portfolios;
Argent → wallet for storing, staking, and sending crypto on Ethereum Layer 2;
DeBank → tool for tracking portfolios, analyzing risks and comparing interest rates.
Risks and drawbacks of Yield Farming:
Yield farming is based on Ethereum Network; Ethereum is based on smart contracts; sometimes smart contracts have bugs in them; so, there is a risk of being hacked.
Rug pulls: developers behind the project can steal the funds.
Volatility risk: crypto market fluctuates all the time, so tokens’ prices which make up your yield can also change.
Crypto Owl’s takeaways: yield farming is definitely one of the best ways to generate passive income. I strongly believe that after a bear market, long-term investors will use yield farming more and more often.
DID YOU KNOW?
Cryptocurrency total market cap dropped by 12% and since November 2021 peak seen more than $2 trillion losses.
There are more than 9,500 cryptocurrencies in existence!
Crypto scams are on the rise, draining more than $1 billion last year. Recently, hacker (or a group of hackers) took over the Twitter and Youtube accounts of the British Army to promote fake crypto giveaway schemes.
CUP OF COFFEE
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Disclaimer: This newsletter is strictly educational. None of this information is intended to be financial advice. Always do your own research and act responsibly with your profits.