DeFi Yield Farming; Changing Our Global Financial System

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Coinmonks

2 min readApr 21, 2022

Just like how we regularly save money in savings accounts in regular banks and earn some percentage annually, this also exists in Decentralized Finance through a concept called Yield Farming.

In basic terms, yield farming in DeFimeans, you put them to work and earn more instead of holding and leaving your crypto idle.

But diving further into how Yield Farming works, it gets more complex.

It works mostly on Decentralized apps. DApps don’t need any third parties, anyone that has an internet connection and a supported wallet can interact with them.

These Decentralized Apps need to make it easier for tokens or coins to be converted to each other easily, meaning there have to be waiting reserves of these currencies.

In context, if you have made the best shoe in the world and you’re on a deserted island, getting buyers will be difficult. This is known as Liquidity.

People add funds to a smart contract that contains funds. These people are known as Liquidity providers and those smart contracts are known as Liquidity pools.

Yield Farming works with Liquidity providers who add funds to Liquidity pools and earn rewards for doing so.

Making transactions on DApps incurs fees. These fees can be used as rewards.

The returns to this are calculated as annualized but can be withdrawn at any time.

Annual percentage yield (APY) and Annual Percentage Rate (APR) are commonly used.

APR calculates rewards without the effect of compounding while APY calculates rewards with the effect of compounding.

Yield Farming is not completely risk-free.

To be successful, you need to do a lot of research.

Pools are updated regularly and can be removed at any time.

You don’t need to pull so much muscle to get started with Yield Farming.

You can get started via a DApp in your favorite ecosystem.

Here are links to some DApps you can look into;

For Binance Smart Chain; Pancakeswap

For Ethereum Network; Uniswap

For Polygon Network; Quickswap

For Fantom; Spookyswap

For Avalanche; TraderJoe

Many DApps run Yield Farming and there will be many new concepts and projects in the future.

This article simplifies yield farming. Make further research to gain an in-depth understanding.

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DeFi Yield Farming; Changing Our Global Financial System

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Written by Chizuru Onwukwe