With the farming of crypto-coins, high profits can be made. (Photo: Shutterstock / Scharfsinn)
How does crypto work -Farming?
The concept of yield farming is closely linked to the development of decentralized financial markets (DeFi), which in turn is based on the Blockchain technology. A special permit is not required to participate in these marketplaces, the existence of a wallet with crypto currencies is sufficient. There are no intermediaries here and they are not required. This simplified interaction and the use of blockchains enables new applications such as yielding.
Farming can take place in different ways. For example, it is possible to use DeFi platforms and lend tokens there. Anyone who borrows the crypto currencies has to pay interest for it. The interest rate depends on the platform and is variable. There are various approaches to optimize the generation of interest on the DeFi platforms.
Farming on platforms such as Pancakeswap support different crypto currencies and DeFi projects. (Screenshot: Pancakeswap / t3n)
There are fees for the use of the platforms, which are passed on to the participants who provide the liquidity. So whoever pays money into the so-called liquidity pool receives these fees according to his share in the pool. The specific design of corresponding marketplaces can be very complex and is currently changing.
Which tokens are popular for crypto farming?
High interest rates can often be observed on pancakes swap. Pancakeswap is a decentralized crypto exchange on which BEP20 tokens can be exchanged on a Binance Smart Chain. The use of the Binance Smart Chain is special as most similar exchanges use Ethereum. Pancakeswap attracted attention with the performance of its token: the price rose over 900 percent at times. The exchange supports liquidity mining and token staking to generate returns. The token is popular with cryptocurrency users for performing the yielding described here. Many yielding strategies are therefore based on pancake swap.
(Graphic: t3n)
How can I use crypto farming for my investments?
Whoever wants to participate in the yielding must pay into one of the available liquidity pools. To do this, you connect your wallet to the pool, provide the desired liquidity and then receive your reward. The reward is in the form of tokens that represent your share of the liquidity pool. For every swap made in the pool, you will then receive further rewards. In order for this to work, the tokens must first be staked. The platform must use protocols with the appropriate functionality for this. Of course it is always possible to break the stakes again.
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