Yield farming is the advanced form of farming which generates cryptocurrency as their earning using the liquidity protocols. In return for the service you provide, you get the capital in return when you put it into productive use. Thinking it is that easy? Well, not that much.
The process of making money is very complicated. They forward their crypto to different lenders in the marketplace to increase their return. For their help, the DeFi platform provides incentives to grab more capital. There are providers who are known as liquidity providers who are there to add the funds to their pool called liquidity pool. Now you would be asking what the liquidity pool is. A liquidity pool is a contract that has funds. In return to which the providers get the reward. These rewards are deposited from one to another to earn extra. The general idea about the liquidity pool is that they deposit the fund into it and get to earn the rewards in return.
The yield farming is done with the tokens called ERC-20tokens on Ethereum and in return gets the same as a reward.
How the working of yield farming is done?
This generally involves liquidity providers and liquidity pools. It is somewhat related to AMM which is Automated Market Maker. Now we will study how the working of yield farming is carried out.
The liquidity pool gets the deposit funds by the liquidity providers. The pool then holds a high place in the market where the clients or the users can exchange, borrow, or lend tokens. The foundation of AMM works in a way where for doing the practice for their tokens the users have to pay the incurs fees according to their share of the liquidity pool to the liquidity provider.
How the calculation is done in the returns?
The estimated return of yield farming is calculated over the course of a year. The calculation is done by some metrics and the common metrics that are used is (APY) that stands for Annual Percentage yield and the other is (APR) that stands for Annual Percentage Rate.
The main difference between the Annual Percentage Rate and Annual Percentage Yield is that the effect of compounding is not taken into APR, on the other hand, APY does the compounding. The term compounding states for the fact that it directs reinvesting profits to generate for the increase in return. However, both the Annual Percentage Yield and the Annual Percentage rate can be interchangeably used. These are the only projections and the estimations that are being done.
Discussion on types of yield coins
It went from a strange aggregator to a $390 million DeFi powerhouse of the hottest trend at the center in the Industry.
The Yearn has conceptualized its token by convincing the yield farming and has dominated one. Yearn has a cryptocurrency token-operated on the Ethereum platform. Currently, it has a supply in the circulation of 30,000 with 29,962.629.
DFI money declared is the transition to $DFI from $YFII. The former name of DFI money is YFII. The DFI has also declared that it is only a branding upgrade not for the token swap. YFII finance is a YFI fork with a YIP-8 execution.
YF link is an engrossing alternative of Yearn Finance. It mainly enhances the liquidity of the LINK tokens and the utility at the same time. Since the time of the deployment of the link, the projects have functioned conventionally without any exploits or bugs.
The impressive accumulation of TVL that stands for Total Value Locked is been done in a very short duration of time span. For the rewards in the future for people, it can even become the go-to protocol looking for the stake Link tokens.
YFFI finance operates on the Ethereum platform and is a cryptocurrency token. The end price that is known for the YFFI finance is $102.63 and D is 88.77% up over the last day.
YFV (YF value) is a Yearn stimulated governance token rewarded to cryptocurrency Yield farmers who are known as liquidity miners.
The YFV releases a ‘Vault” like the product that deploys the strategies in many ways to farm DeFi yields and function as a DeFi yield aggregator. $YFV is a coin of governance on the platform which is then used on Decentralized Autonomous Organisation (DAO) decisions to vote. There are two elastic supply coins that function the same as Ampleforth for rebasing functionally.
What coins are involved in Yield Farming?
The compound is the largest and current service that has $550 million funds that were launched in June according to tracker DeFi Pulse. There are many players in this game but the major too called the harvesting of liquidity are Synthetix, Curve, Ren, and Balancer. There are funds of millions which are called locked user funds and are used in lending.
What is TVL (Total Value Locked)?
The Total value Locked measures how the crypto is tied in DeFi lending and the other types of market places for money.
It is the liquidity in the liquidity pool. TVL is the index that is used to measure the health of the Yield farming market and DeFi as a complete. It is a metric that helps to compare the market share of the protocols of different DeFi.
The idea of the current state of yield farming and its position in the platform is track by the Defi Pulse, where you can track with the platforms that have crypto assets that are locked in DeFi or the ETH with the highest amount.
The more the yield farming is going on according to the value locked. It is worth considering the measurement of TVL in USD, BTC, or ETH. Each has a different and variant outlook for the state of money markets DeFi.
What is new about the Yield farming?
People have their interest by lending their currencies for many years with the help of apps like BlockFi, as a part of the fashion of DeFi, or decentralized finance, to which the bankers are put back with the protocols of apps which are automated.
The new venture compound is different from the other because they are the tokens that are handed to the borrowers and the lenders, with the rights of cash flow in the future.
Why is Yield farming currently hot?
There are a couple of reasons for the yield farming to be hot right now.
- There are many yield farming harvested products that are launched this summer, are offering high tokens as their rewards and the backers like Polychain and AndreesenHorowtiz are boosting for the high profile.
- Amid the Covid-19, all the currencies viewed are not related assets in the term, and have been seen as the urge of volatility in the light of many assets.
What started the yield farming reverberation?
The launch of the governance token of the Compound Ecosystem Finance has a strong interest in Yield Farming. There are governance rights with the governance token holders.
But there is a way to decentralize the token to make the network. The best and the common way is to distribute the governance tokens with liquidity incentives, algorithmically. By which the liquidity provides are attracted to invest in the farm for the new token to the protocol by providing liquidity.
When the yield farming was not invented, the compound ecosystem to boost the popularity gave these kinds of token distribution models.