{"id":9181,"date":"2023-06-26T09:22:37","date_gmt":"2023-06-26T09:22:37","guid":{"rendered":"https:\/\/www.bitnovo.com\/blog\/?p=9181"},"modified":"2022-05-14T08:56:08","modified_gmt":"2022-05-14T08:56:08","slug":"what-is-yield-farming-of-cryptocurrencies","status":"publish","type":"post","link":"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies","title":{"rendered":"What is Yield Farming of cryptocurrencies?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Alternar tabla de contenidos\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#what_is_cryptocurrency_yield_farming_and_what_is_it_for\" >What is cryptocurrency Yield Farming and what is it for?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#history_of_yield_farming\" >History of Yield Farming<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#how_does_yield_farming_work\" >How does Yield Farming work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#yield_farming_typologies\" >Yield Farming Typologies<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#advantages_of_cryptocurrency_yield_farming\" >Advantages of cryptocurrency yield farming<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#disadvantages_of_cryptocurrency_yield_farming\" >Disadvantages of cryptocurrency yield farming<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-yield-farming-of-cryptocurrencies\/#platforms_for_yield_farming\" >Platforms for Yield Farming<\/a><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span><h2><span class=\"ez-toc-section\" id=\"what_is_cryptocurrency_yield_farming_and_what_is_it_for\"><\/span><b>What is cryptocurrency Yield Farming and what is it for?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>After having talked about\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-defi-o-decentralized-finance\/\">what decentralized finance is<\/a>, what are\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/main-defi-platforms\/\">the main DeFi platforms<\/a>\u00a0and what are the\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-defi-o-decentralized-finance\/\">DeFi use cases<\/a>\u00a0it is time to analyze\u00a0<strong>what is cryptocurrency Yield Farming<\/strong>\u00a0and what is it for.<\/p>\n<p>When we talk about Yield Farming (or yield farming) in the crypto universe, we are not only talking about one of the latest trends in the field of decentralized finance but also about a process that\u00a0<strong>allows users to automatically search for the best return on investment among the various DeFi<\/strong>\u00a0platforms and get a return on invested capital.<\/p>\n<p>Put another way,\u00a0<strong>cryptocurrency Yield Farming<\/strong>, also known as liquidity mining,\u00a0<strong>is the practice of betting cryptocurrencies with the expectation of higher rewards<\/strong>\u00a0by moving assets within DeFi platforms in search of the group that offers the highest return.<\/p>\n<p>So the cryptocurrency, instead of staying locked in an exchange or wallet, is lent through DeFi protocols and made through the Ethereum network, in order to earn a return.<\/p>\n<p>This is a strategy\u00a0<strong>similar to stacking<\/strong>, as funds are locked in a cryptocurrency wallet to enable a transaction on a blockchain network. A digital asset held in a wallet can generate funds and these funds can be staked in a pool of liquidity that are held by liquidity providers.<\/p>\n<p>Investors receive interest for lending their tokens.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"history_of_yield_farming\"><\/span><b>History of Yield Farming<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>The Yield Farming story begins in early\u00a0<strong>summer 2020<\/strong>, when the\u00a0<strong>COMPOUND and Aave<\/strong>\u00a0platforms first introduced this service into the DeFi ecosystem.<\/p>\n<p>COMPOUND\u2019s strategy was to offer users a small portion of transaction fees as a reward for contributing liquidity to Uniswap or Balancer applications. Both services proved to be a huge success and many, many other platforms entered the market and started rewarding users with native tokens instead of ETH. This made Yield Farming become one of the most popular trends in the DeFi industry.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"how_does_yield_farming_work\"><\/span><b>How does Yield Farming work?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Yield Farming works through liquidity providers (LP) that add funds to liquidity pools.<\/p>\n<p>A liquidity pool is a smart contract containing cryptocurrency funds (usually USD-pegged stablecoins such as\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-dai-the-complete-guide\/\">DAI<\/a>,\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-tether-usdt-the-complete-guide\/\">USDT<\/a>, USDC).<\/p>\n<p><strong>In exchange for providing liquidity to the pool, liquidity providers get a reward<\/strong>\u00a0in the form of commissions generated by the underlying DeFi platform.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"yield_farming_typologies\"><\/span><b>Yield Farming Typologies<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>There are several\u00a0<strong>types of Yield Farming<\/strong>\u00a0that differ in the type of risk:<\/p>\n<ul>\n<li aria-level=\"1\">The \u2018<strong>normal<\/strong>\u2018 rate consisting of the collection of commissions that provide liquidity;<\/li>\n<li aria-level=\"1\">The\u00a0<strong>speculative<\/strong>\u00a0(high risk) based on \u201cLeverage\u201d, a process by which the borrowed liquidity is used as collateral to generate very high APY (Annual Percentage Yield). In this typology tokens are moved from one platform to another to receive, in addition to commissions, also newly minted tokens.<\/li>\n<\/ul>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"advantages_of_cryptocurrency_yield_farming\"><\/span><b>Advantages of cryptocurrency yield farming<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>Yield Farming attempts to solve some major problems affecting the finance and cryptocurrency market today. Primarily,\u00a0<strong>Yield Farming offers new users of the crypto world an easier alternative to earn passive income<\/strong>\u00a0and represents a safer alternative to cryptocurrency trading for those users who are inexperienced.<\/p>\n<p>The other advantages of Yield Farming are as follows:<\/p>\n<ul>\n<li aria-level=\"1\">They offer new strategies for cryptocurrency holders to\u00a0<strong>earn returns at least a hundred times higher than what a traditional bank would offer.\u00a0<\/strong><\/li>\n<li aria-level=\"1\"><strong>It offers higher returns than any other traditional investment channel<\/strong>.<\/li>\n<\/ul>\n<p><strong>Yield farmers accelerate their profits<\/strong>\u00a0with liquidity extraction as they get tokens as a reward for lending funds, as well as high interest on their loan.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3><span class=\"ez-toc-section\" id=\"disadvantages_of_cryptocurrency_yield_farming\"><\/span><b>Disadvantages of cryptocurrency yield farming<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"is-divider divider clearfix\"><\/div>\n<ul>\n<li aria-level=\"1\"><strong>Coding risks<\/strong>\u00a0are one of the major disadvantages of Yield Farming. In fact, incorrect and faulty coding can cause major vulnerability issues to\u00a0<strong>hacker attacks<\/strong>, causing major problems for a platform and its investors.<\/li>\n<li aria-level=\"1\">Another issue that carries major concerns is t<strong>he highly volatile nature of DeFi tokens<\/strong>. Most investments in this sector are purely speculative and carry higher risks for the platforms.<\/li>\n<\/ul>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2><span class=\"ez-toc-section\" id=\"platforms_for_yield_farming\"><\/span><b>Platforms for Yield Farming<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div id=\"row-725220981\" class=\"row\">\n<div class=\"col small-12 large-12\">\n<div class=\"col-inner text-center\">\n<div id=\"image_1646064767\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img fetchpriority=\"high\" decoding=\"async\" class=\"attachment-large size-large ls-is-cached lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu%C3%A9-es-el-Yield-Farming-de-criptomonedas-1-1024x701.jpg\" sizes=\"(max-width: 1020px) 100vw, 1020px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-1024x701.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-300x206.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-768x526.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-1536x1052.jpg 1536w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-2048x1403.jpg 2048w\" alt=\"plataforma de yield farming Bitnovo\" width=\"1020\" height=\"698\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-1024x701.jpg 1024w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-300x206.jpg 300w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-768x526.jpg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-1536x1052.jpg 1536w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-2048x1403.jpg 2048w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/01\/Qu\u00e9-es-el-Yield-Farming-de-criptomonedas-1-1024x701.jpg\" data-sizes=\"(max-width: 1020px) 100vw, 1020px\" \/><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<p>As we have already mentioned, in\u00a0<strong>Yield Farming<\/strong>\u00a0the search for the best performance is done in t<strong>he most known protocols<\/strong>\u00a0such as Compound, Uniswap, Curve Finance, MakerDAO, AAVE, Synthetix (SNX), Balancer.<\/p>\n<p>There are several DeFi projects currently involved in Yield Farming.<\/p>\n<p>Below I will tell you about the most used platforms to take advantage of this tool.<\/p>\n<p>AAVE: is a platform that allows users to lend and borrow a number of cryptocurrencies. It is the largest project in terms of value locked in smart contracts.<\/p>\n<p><a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-compound-the-complete-guide\/\">Compound<\/a>: is a decentralized blockchain-based protocol that allows its users to lend and borrow cryptocurrencies. Its token \u201cCOMP\u201d has a supply of 10 million.<\/p>\n<p><a href=\"https:\/\/www.bitnovo.com\/blog\/en\/uniswap-2020-guide-the-most-used-dex-of-ethereum\/\">Uniswap<\/a>: is a decentralized exchange protocol built on Ethereum for automated liquidity provision. Its native token is \u201cUNI,\u201d and it has a supply of 1 billion.<\/p>\n<p>Curve Finance: is a decentralized exchange designed specifically for exchanging stablecoins with low fees and slippage.<\/p>\n<p>MakerDAO: is a platform that, through the Maker Protocol, allows users to take loans using as collateral a wide variety of cryptocurrencies deposited in smart contracts.<\/p>\n<p>Yearn.finance: It is one of the main platforms used by Yield Farming. Its goal is to move users\u2019 funds between different lending and liquidity protocols (Compound, Aave) to obtain the best interest rates. Yearn.finance\u2019s native token is YFI and has a supply of 30,000.<\/p>\n<p>Synthetix (SNX): is a token exchange platform that enables the creation of new crypto assets that mimic both real-world assets (such as the US dollar ) and crypto assets (such as Bitcoin).<\/p>\n<p>Balancer:\u00a0A second-layer platform built on top of Uniswap that allows users to earn fees by contributing to the platform by providing liquidity using multiple tokens.<\/p>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span>What is cryptocurrency Yield Farming and what is it for? After having talked about\u00a0what decentralized finance is, what are\u00a0the main DeFi platforms\u00a0and what are the\u00a0DeFi use cases\u00a0it is time to analyze\u00a0what is cryptocurrency Yield Farming\u00a0and what is it for. When we talk about Yield Farming (or yield farming) in the crypto universe, we are not [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":8280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[185],"tags":[],"class_list":["post-9181","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blockchain-en"],"_links":{"self":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/9181","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/comments?post=9181"}],"version-history":[{"count":0,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/9181\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media\/8280"}],"wp:attachment":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media?parent=9181"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/categories?post=9181"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/tags?post=9181"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}