Cryptocurrencies Explained: What is Yield Farming?
Yield agriculture, Spanish translation of the English expression Yield farming , is a way to get more cryptocurrencies thanks to your cryptocurrencies. It is a system of investment and lending of cryptocurrency assets to generate large income or rewards in the form of additional cryptocurrency.
It is also an innovative Decentralized Finance (commonly known as DeFi ) application that has recently gained in popularity thanks to other innovations such as liquidity mining . mining in English).
Yield farming is currently the main growth driver in the decentralized finance sector, having grown from a market capitalization of $500 million to $10 trillion in 2020, a figure that is expected to grow in 2021 .
Liquidity providers deposit funds into a liquidity pool. That reserve is the source of a market where users can lend, borrow, or trade currencies. The platform charges fees to users that are paid to liquidity providers, and the amount each provider receives depends on the amount of liquidity they contribute.
Yield farming protocols imply that a provider’s income is based on an annual yield called an annual percentage yield (APY), which rises or falls based on the number of investors in the liquidity pool.
Yield farmers liquidity typically uses the most stable currencies and runs on the ETH network. The best decentralized finance systems use the ETH network to offer governance coins for what is known as liquidity mining. Coins are then farmed into those liquidity pools in exchange for the liquidity they bring to decentralized exchanges ( DEXs ).
The governance coins that a yield farmer earns when engaging in liquidity mining can usually be traded on large decentralized exchanges like Binance and on DEXs like Pancake Swap.
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If you are interested in the subject and want to expand your knowledge about the exciting and complex world of cryptocurrencies, we invite you to read our introductory article How Does Bitcoin Work?