As cryptocurrencies began their rise to prominence, several other blockchain applications also came to the forefront. Of these, the DeFi movement has been the most prominent. With the goal of reinventing traditional finance through permissionless networks, DeFi has been revolutionary since its inception. In recent years, yield farming in decentralized finance has gained significant traction throughout the world.
In fact, yield farming has become one of the most popular trends in 2021, offering investors the opportunity to substantially improve their profits. Let’s have a look at this innovative concept that is currently the biggest growth driver of the still-nascent DeFi sector.
What is yield farming?
The process of yield farming entails staking or lending one’s crypto assets in order to generate significant returns in the form of more cryptocurrency. Basically, yield farming allows you to lock up your cryptocurrency for a period of time in return for interest or other rewards, similar to how you’d receive interest on money in a savings account.
To accomplish this, yield farming protocols encourage liquidity providers to stake or lock up their crypto assets in a liquidity pool, a smart contract containing funds. These liquidity providers are then incentivized for supplying liquidity to the pool. Typically, such rewards originate from the underlying DeFi platform’s fees or as interest from lenders. Some liquidity pools also provide returns in the form of multiple tokens. These reward tokens can then be put into other liquidity pools to receive more rewards, and so on.
Estimated returns are usually calculated in terms of an annual percentage yield (APY), which is the rate of return on a certain investment over the course of a year. Also, compounding interest is computed regularly and applied to the amount in the APY. Sometimes, returns are also calculated based on the annual percentage rate (APR), which does not include compounding. Investors should note, however, that as more investors contribute funds to the relevant liquidity pool, the value of the issued returns falls.
Yield farming is usually done on the Ethereum blockchain with ERC-20 tokens, and the rewards are usually also ERC-20 tokens. But of course, as blockchain technology advances, it’s certainly possible that DeFi applications will become blockchain agnostic in the future. As a result, they could run on other blockchains that support smart contracts.
Advantages of yield farming
Although it involves considerable risk, yield farming offers several advantages, the most prominent of which are listed below.
- It is a great alternative to storing your cash in savings accounts since yield farming allows farmers to earn significantly more interest than they might from a traditional bank.
- It provides greater profits than traditional investments like real estate, stocks, bonds, etc.
- It allows people to earn passive income on their crypto holdings. Holders with extra funds can invest in DeFi technologies to generate more cryptocurrencies.
- It gives users the opportunity to vote on DeFi protocol decisions through governance token rewards.
- It also aids users in gaining DeFi literacy, which provides a foundation of knowledge that will allow them to grasp future DeFi developments.
Start your Yield Farming journey with Delta Exchange!
If you’re looking to get started with yield farming, look no further than Delta Exchange, the world’s leading crypto derivatives exchange. Delta offers several features that allow investors to make exceptional returns on their crypto holdings. In fact, the liquidity mining program on Delta Exchange consists of Robo Trading strategies, as well as Yield strategies, which allow users to invest their capital into automated crypto trading strategies that generate returns over time.
The various Robo Trading and Yield Farming strategies available on Delta Exchange are as follows:
ROBO TRADING STRATEGIES
- Top 2 Momentum
The Top 2 Momentum strategy trades in BTC and ETH – the top 2 cryptocurrencies based on market capitalization.
- Top 20 Momentum
This strategy looks to trade in the top 20 cryptos.
- DeFi Momentum
DeFi Momentum strategy trades in the top DeFi assets based on market cap.
- BTC Momentum
BTC Momentum strategy allows investors to trade only in BTC inverse perpetuals.
- ALTBTC Momentum
This strategy only trades in top altcoin pairs.
- Large Cap AMM
Large Cap AMM provides liquidity on the books of cryptos with large capitalization – BTCUSDT and ETHUSDT – and makes profits out of it.
- BTCUSD AMM
BTCUSD AMM strategy provides bids and offers on BTCUSD inverse contracts.
- Cash Future Arbitrage
This strategy allows the premium in BTC and ETH futures to be captured over the spot market prices of Bitcoin and Ethereum.
- Delta Neutral Option Selling
This strategy sells weekly 20 Delta put and call options.
YIELD FARMING STRATEGIES
- Enhanced Yield BTC
This strategy sells BTC upside beyond the strike price on the expiration date to generate a higher yield on BTC holdings.
- Enhanced Yield ETH
Through writing monthly call options, this strategy generates ETH yield.
- Enhanced Yield USDT
Through writing monthly put options, this strategy generates stablecoin yield in USDT.
Click here to learn more about Delta Exchange and each of these strategies.