A Beginner’s Guide to Yield Farming Crypto
Yield farming crypto is a new industry that has taken the world by storm. There are a wide variety of cryptocurrencies that could be yield farmed, and even though many people are unsure on how to go about doing it, it is still a lucrative idea. In this article, I will be discussing the basics of yield farming crypto, how it works, and the top 5 cryptocurrency projects you should consider using to yield farm.
1. What is Yield Farming Crypto?
Yield farming is a method of investing in cryptocurrency to generate a passive income. This is done by investing in the coins that will be used as a form of decentralized financing (DeFi) for projects. By depositing your cryptocurrency into a pool with other users, investors can earn interest or a yield. Those yields can be as high as 100% returns per annum and so therefore are considered high risk. This is a great way to earn some extra money without having to trade on the market. But, you must be cautious because it is a volatile market. In order to make this work, you must find a reliable project that will safeguard your holdings as best as possible.
2. How does Yield Farming Crypto work?
In yield farming, the various projects accept your coins as a deposit and use the coins to provide liquidity or capital for the various things they are trying to achieve. For example, this could be to provide infrastructure for transactions to occur whereby the project earns perhaps a transaction fee on all the buying and selling activity within the project. Projects like gaming platforms where players can buy upgrades and unlock features or metaverse platforms where users can buy and sell virtual land or products.
Smart contracts – the technology used to achieve all of this is the same as in the cryptocurrency space. Smart contracts are computer codes designed to store and automictically execute legal and financial agreements. Therefore, they are perfect for executing these yield contracts. Al the terms and requirements are written into the code and executed automatically thus allow these transactions to happen quickly and efficiently. Interest, bonuses, and rewards all handled by blockchain smart contracts.
3. Top 3 cryptocurrency projects
So now that we understand these yield farms and how they work, the real question now becomes which ones to get into. This where things get really complicated. Projects can be in gaming, metaverse, finance, literal farming, wine production, you name it. Each with different conditions for placing your money, how to convert to their coins, various ways you can stake or commit the coins, etc.
All of that vastly complicates the process of getting start as a beginner. As such, below are the projects we like the most based on ease, simplicity to understand, and relative safety for the high returns.
YieldNodes – is a service that lets you invest in creating and running MasterNodes for Proof-of-Stake blockchains. In essence you are financing the technology that verifies new blocks and performs special roles in governing blockchains.
DRIP – DRIP is an interesting project. It works like a high-yield certificate of deposit whereby they will give a return of 1% per day. That’s right 365% per year. These are extremely high returns, so obviously you have to be even more cautious. The DRIP Network is for all intents and purposes is a pyramid network. They use incoming funds to be able pay high returns on a monthly basis (1% per month in fact). This sounds like it could crash at any time, however it has been around for a while, and actually charges a 10% tax on transactions and a 5% tax when compounding. Between the inflow of funds, them holding your funds for a duration, and them charging the various taxes, they are able to sustain the payouts thus far. The DRIP Network has been sustained for some time now and the liquidity has been steady. People can purchase DRIP directly on their website.
Horde – Horde Games is, you guessed it, a gaming project that features a third person shooter game where players can collaborate with their friends and unlock levels, etc. As you can imagine, this is how the project makes money to pay out the yield. You are essentially financing their game project and in turn they are paying you from the revenues generated.
4. Conclusion
Yield farming is risky business. Projects come in many shapes and sizes, have different business models and conditions you have to consider and may default on you (called a “rug pull”) without much warning.
However, if you diversify the projects you enter and stay abreast on the different happenings occurring with each, then you can mitigate a lot of the risk. Then hopefully the rewards will be high enough to make the occasional losses more than worth it.