What is Yield Farming and Why everyone is Talking about it?
So the first question pops in mind after listening to this word is ‘What exactly is Yield Farming?’ In simple words, we can say that it is a process that helps users in generating more cryptos with their own cryptos in the form of passive income.
At the time of Yield Farming, Decentralized Finance (DeFi) protocols and products get leverage to earn yield or return on its assets.
Recently, the total value locked during the Yield Farming on DeFi reached an all-time high.
How Did Yield Farming Start?
The process of crypto farming started the distribution of Compound’s governance token, COMP. It has been found later, that the total value locked by the token reached over $600 million and it grabbed the topmost position on the leader board of DeFi Pulse.
Within a few hours, many o the investors started investing in USDT markets on the Compound. The market issued the COMP tokens on the basis of 50 percent song suppliers and the borrowers. The total reward on the governance token is allocated in a proportional way to each yield returns of the market.
In July 2019, a bit similar concept called protocol token rewards had been introduced by Sythetix in which is decided to reward the users in exchange for liquidity provision to the sETH/ETH pool on Uniswap V1.
Why People Are Going Crazy For Yield Farming?
Currently, many of the crypto enthusiasts in the crypto world are talking about crypto farming because this protocol has raised people’s interest in DeFi tokens. According to a blockchain consultant Maya Zehavi, with the Farming opens up new price arbitrage.
When this protocol was launched, within a few days it generated a lot of revenue which attracted more people into the project. Though some of the crypto analysts believed that soon this protocol will experience a downfall, therefore, they tried to warn the investors regarding it. Still many of them invested in this protocol and suffered a loss.
Yam Finance became the latest craze in the DeFi Sector as it promised the investors ‘equal opportunity’ staking with no premine, no founder shares, and zero value token ar launch.
The project offered an elastic supply tokens to its users which could be expanded and contracted depending on the condition of the market. This project funneled more than $500 million, till the time developers found a bug in the smart contract. Soon after that, the value of the token started declining in the market. Before the bug problem was found the value of the token reached an all-time high $167.66 per token but later, it came down to $0.97 per token.
After suffering a loss a lot of people complained about its codebase which according to them, was not audited. The developers of the project tried to loc 160,000 YAM and found that the smart contract was bunk.
While apologizing for the loss the investors had to suffer, the co-founder of YAM Finance has said, “I’m sorry everyone. I’ve failed. Thank you for the insane support today. I’m sick with grief.”
How To Farm Cryptocurrency?
The farmers use the most basic approach of lending cryptocurrency to do farming. The borrowers who get tokens from the farmers earn reward .i.e., COMP token from Compound for their everyday participation. The platform also offers them interest and other fees. At the time of farming cryptocurrency if the token rewards by Compound are appreciated then borrowers will earn more return on it.
What Is Yield In Cryptocurrency?
Yield is basically the return or the reward which the users get after the crypto farming process if completed. When the Yield Farming protocol was launched, it became the latest meme in the environment as it excited a lot of investors in the crypto world.
Conclusion
Though in the starting, the Yield farming generated a lot of revenue, within a few days it market came down and this happened because of a bug in the protocol. Its investors suffered a huge loss due to this collapse.