What is Crypto Farming?

Have you ever thought of becoming a farmer? Now, we’re not talking about growing crops to harvest them later for profit or subsistence. What we have in mind is growing coins in pools to get a financial return in the future. If so, you’re in the right place because we’re about to explore how crypto farming works and how profitable it can be.

Defining Farming in Crypto

Crypto farming is the process of locking your cryptocurrency in a pool with other users to earn rewards or interest by lending the pooled currency. This process is also known as liquidity or yield farming, while their participants are called yield farmers or liquidity providers.

Farming is a rewards program similar to staking, a process of depositing cryptocurrency. The key differences are as follows:

  • In staking, pledged crypto is used to validate transactions. In farming, pledged crypto normally provides liquidity to decentralized finance (DeFi) lending platforms.
  • In staking, people are rewarded with new crypto created as a result of the validation. In farming, rewards typically come in the form of annual percentage yields (APY).

How Farming Works

Crypto farming works like a savings account at a bank. When you deposit money into your savings account, the bank lends it to people looking for loans or mortgages. In return, the bank pays you for the funds you deposited. Yet, interest rates at banks are much lower than the rewards from yield farming.

Yield farmers often use decentralized exchanges (DEXs) to add their funds to smart contracts, i.e. pieces of code that automate financial agreements between parties. Smart contracts run on blockchains and function as liquidity pools.

How to Start Crypto Farming

Follow these steps to take part in crypto farming:

Choose a Yield Farm.

Research and screen potential yield-farm investments. There are many scammers out there. Cryptocurrency developers collecting investor funds for a project and then abandoning it without paying the money or rewards to the investors is something that has happened on more than one occasion.

So take time to do your research! Check out stable platforms such as Wizardia (WZRD), a P2E strategy game where players get rewards by monetary investments or are paid for the time and effort invested in the game.

To contribute to their liquidity pool, crypto enthusiasts add WZRD and BUSD tokens to the pool. This way, investors earn a 0.17% trading fee on all trades made for the token pair, proportional to their share of the liquidity pool.

wizardia

You can also check out projects like Mars4, where you can purchase the game’s proprietary token, MARS4. Similar to Wizardia, Mars4 combines yield farming and gamification to entice decentralized finance investors.  

Fund Your Account with the Correct Currency.

Yield farms allow specific cryptocurrencies, so you’ll need a compatible account funded with the correct currency to participate. You can purchase or transfer the desired currency to your crypto wallet for liquidity farming using a yield farming platform (e.g. Aave, Compound, SushiSwap, PancakeSwap, etc.).

Farm Your Cryptocurrency.

When you’re connected or funded, return to the chosen yield farm and stake your funds. Your currency will be locked into the farm for a certain period.

Enjoy Your Earnings.

The earnings might come to your account automatically, or you may need to return to the yield-farm website to collect your earnings. It all boils down to your yield farm and deposit method.

Is Crypto Farming Worth It?

Crypto farmers might earn pretty impressive digits—100%, 200%, or even more in annual interest. There have also been reports on yield farming that has achieved an amazing 1,000% APY.

However, let’s be honest—participating in yield farms means accepting the risk of losing your entire investment. Hacks, scams, and losses due to volatility are relatively common in the DeFi space. Besides, farming requires more knowledge in the field, so it may not be worthwhile for many green investors.

Final Thoughts

Yield farming is simply a digital version of lending, where everything depends on how much money and effort you’re ready to put into it. It entails certain risks but also can be highly profitable if you have a thorough grasp of DeFi platforms. Just don’t forget that the first and most crucial step for anyone willing to use DeFi is to research the most trusted and tested platforms and liquidity pools.




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