Being a new one in the DeFi space might be tricky. That is why we are here to introduce you to one of the most popular and profitable features — Yield Farming.
Have you ever been to real farms? There are lots of similarities. For example, you plant sprouts to bring a big tasty harvest later. Crypto farms are made exactly in the same way. The only difference is your yield is measured in cryptocurrency.
Let’s figure out everything about Yield Farming and how to make it profitable.
What Is Yield Farming? | Explore the Basics
To put it in crypto terms, Yield Farming involves locking up your assets to get rewards. It’s when you put the crypto you hold to work, or in other words, “stake it” and earn passive income.
Yield farmers use DApps (Decentralized applications), like Biswap DEX, to put their coins or tokens in the liquidity pools.
Remember the terms:
- Liquidity provision — the process of providing your crypto assets to the DEX.
- Liquidity providers (LPs) — those investors who do it.
- Liquidity pools — smart contracts that contain locked funds.
- Smart contract — a kind of digital agreement between seller and buyer that operates on the blockchain and powers most of the cryptocurrencies.
When you provide liquidity into the liquidity pool, you get the LP tokens in return as a reward for letting the platform use your funds to lend, borrow, or exchange tokens by other users.
How Does Yield Farming Work? | Explained in the Simple Words
Now that you know the main terms let’s dive into the details of the Yield Farming mechanisms.
When you’re farming, it means choosing a particular pair of tokens or coins to provide liquidity and then taking your multiplied profit. Here are the steps that take place to enable Yield Farming:
- Creation of crypto assets pools. Firstly, the liquidity pool for a specific farm is created. It relies on the smart contract that facilitates all investing and borrowing.
- Deposit of the assets. Investors are staking their crypto funds in the specific liquidity pool. In other words, adding liquidity to the chosen farm pair. It’s something like depositing in the bank.
- Start of the smart contract work. Now that the previous steps have been made, the smart contract can start several processes, such as adding liquidity or lending.
- Payment of the rewards. Depending on the DApp and yield farms, LP rewards will be paid to the investor. It can be done regularly or at a specific time in the future.
- Activation of the Farm. You can stake your LP tokens in the particular farm. Thus the farm is enabled, and interest begins to accrue. Now you can earn rewards in the native tokens or coins of the DEX.
Types of Yield Farming | Discover the Differences & Similarities
Several types of Yield Farming can be met across the DeFi. The similar thing is that the investor must deposit cryptocurrency in a smart contract. However, the main difference is in the type of the smart contract.
💸Liquidity Pool or LP Farms
Users provide liquidity to a Decentralized Exchange (DEX) in two different tokens or coins. Liquidity providers receive a small fee from the two tokens swapped on the exchange.
Crypto holders can lend their assets to borrowers via the smart contract and earn yield from interest paid on loan.
It’s the mechanism that allows users to increase theirprofits by borrowing funds. It helps to multiply the yields. To put it simply, you borrow to be able to invest more and, therefore, earn more. However, you will have to pay interest on the extra capital borrowed.
Let’s get to the most exciting part. In a second, you will know why.
Calculate Your Earnings | Learn about APR & APY on Farms
We are all here to make some profit. Being competent in calculating your income is a fundamental thing. Two indicators used to do it are APY and APR. Both also affect how much you will gain for saving or lending crypto assets.
APR — Annual Percentage Rate
APR doesn’t consider compound interest. In other words, the user stakes a particular number of crypto assets at a certain rate of return. In this way, the user’s income is accumulated separately from the principal amount.
📚For example: the user staked 1000 LPs under 50% APR. That means that at the time of calculation, your income for 1 year can be calculated as follows:
1 000 LPs (the invested sum) x 50% (APR) = 500 LPs — your 1-year income.
In this case, the user’s 1-year total sum potentially can be:
1 000 LPs (the unstaked sum) x 500 LPs (the income in APR) ~ 1 500 LPs.
APY — Annual Percentage Yield
Unlike the APR, the APY takes into account compound interest. It means that the specific amount of crypto assets the user staked increases every payout period, adding the earlier earned interest to the invested sum. Depending on how often the APY is compounded, it changes.
📚For example: A user has staked 10 LPs of $1000 value at 50% liquidity provider APR. This means that at the time of calculation, his 1-year income can be calculated as follows (without taking into account an impermanent loss):
$1000 (invested amount) x 50% (APR) = $500 - income for 1 year.
In this case, the user's total for 1 year could potentially be:
$1000 (the unstaked sum) + $500 (the income in APR) = $1500
But keep in mind that the amount of LP tokens is still 10. That happens because your earnings as a liquidity provider are automatically added to your LP tokens.
Things to Note | Pitfalls of the Yield Farming
Yield Farming is profitable yet kind of a complicated process. As on any path, you will also encounter situations you need to know about before starting. So, what are those pitfalls you may face?
🔹Volatility of the Market
Volatility is the change of crypto value in one or another direction. It means that your locked assets’ price can swing over a short period of time. It can drop or rise, so you can’t fully control or analyze the profit you’ll get. In other words, investors might experience impermanent loss.
There are periods when the volatility of the market is high. At this time, the liquidity providers can get through the impermanent loss. So, this is when the liquidity provider temporarily loses his funds.
So, if you decide to withdraw your funds from the volatile trading pair, the value of one of the tokens can be worth less than it was deposited.
Find out more about Impermanent Loss here:
It is a form of scam that occurs when developers collect the investors’ funds to produce the project and then leave it without paying those investors back.
Remember that doing your own research is a necessary process before investing.
Farming on the Biswap DEX | Multiply Your Crypto Easily & Safely
Biswap is a TOP 2 DEX on the BNB Chain with low trading fees starting from 0.1%, a unique Multi-type Referral Program and other lucrative features. Moreover, Biswap was audited by CertiK for being safe and trustworthy.
Earn via Profitable Biswap Farms | Up to 100% APY
Biswap Farms are LP farms that give an incredible opportunity to gain passively with high APYs by providing liquidity to a chosen pair of tokens.
As the Biswap team continually expands the ecosystem and establishes new partnerships with prospective projects, there are already 72 Farming Pairs with TOP crypto and up to 100% APY, such as:
🔥84.85% for PAE-BNB
🔥50.77% for BNB-BSW
🔥10.31% for ETH-USDT
Find these and more pairs HERE:
Experience the Benefits of Yield Farming on Biswap
Besides the fact that farming on Biswap is easy and safe, there are other perks for investors:
💎 75% of the trading fee
💎 A passive income in BSW — the native token of Biswap
💎 Pairs with the leading crypto, like BNB, ETH, USDT etc.
Start Earning with Biswap Farms
You read the whole article, became familiar with the basics and made your analysis. Now it’s time to multiply your crypto assets! You’re a few steps away from making a big profit:
1️⃣Choose the pair
3️⃣Stake LP tokens to enable Farm
5️⃣Start earning BSW in return
Visit Biswap Education Hub to read and watch the full guide:
Yield Farming is the way to multiply your crypto using the DeFi. It occurs by providing liquidity to some pair of tokens or coins and getting rewards in return. Farming is a complex process which may come with some pitfalls like volatility and rug pulls. So, analysis and education are the keys to success.
You’re welcome to experience the Yield Farming on the Biswap DEX with TOP pairs and high APYs. Raise your income!
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