How to yield farm in DeFi | Step-by-step instructions | Get Started with Bitcoin.com (2024)

FAQs

How to yield farm in DeFi | Step-by-step instructions | Get Started with Bitcoin.com? ›

Yield farming in two steps

To start yield farming in DeFi, you'll need to connect your cryptocurrency wallet to a DeFi platform that offers yield farming opportunities. From there, you can deposit your assets into liquidity pools, stake them in protocols, or engage in other yield farming strategies to begin earning rewards.

From the perspective of a DeFi developer, yield farming is a mechanism to incentivize users to use a DeFi project by offering rewards in the form of yield. The yield generated comes from two sources: one is the core activity of the platform, token pools, lending and borrowing, staking, etc.

The process involves providing liquidity to a protocol, receiving a token in return, and then allocating that token back into the protocol to receive additional rewards. While yield farming may provide high returns, it comes with risks, including impermanent loss and smart contract flaws.

The main benefit of yield farming is self-evident: you get to hold your cryptoassets and earn some extra return on top of that. There are several risks to yield farming. The most common risks are from DApp developers, smart contracts, and market volatility. DApp developers might steal deposited assets or squander them.

Yield farming may increase the risk of low liquidity since the tokens have to be locked for a set period and can't be sold.

Key components of Defi yield farming

Although there are many yield farming strategies — both active and passive — the three major components are staking, lending, and providing liquidity. Staking occurs when platform participants purchase and lock up tokens for a given period in exchange for interest.

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Once you've identified a pool/farm of interest, start by depositing the specified crytpoassets into the pool. You will receive LP tokens, which you will then deposit into the farm. For step-by-step instructions on how to contribute to pools on the Verse DEX, use this guide.

The Anemoy DeFi Yield Fund 1 is an actively managed fund of funds designed to capture yield opportunities in decentralized finance (DeFi). This fund targets a projected 15%+ return with the flexibility of monthly redemptions.

How to farm crypto airdrops? ›

Looking for new projects: People who farm airdrops try to find new projects that might give out tokens in the future. Doing tasks: Sometimes, airdrops require users to do things like following the project on social media or joining their online groups.

Getting started

If you haven't already done so, the first thing you'll need to do is set up a crypto wallet compatible with DeFi apps, like Coinbase Wallet or Coinbase dapp wallet. Your wallet is your gateway into web3 and the ecosystem of dapps (decentralized applications) like DeFi apps.

Yield farming involves users lending or staking their cryptocurrencies in smart contracts to facilitate various financial activities, such as trading, lending, or borrowing. The yields (returns) offered by DeFi protocols during DeFi Summer of 2020 were often incredibly high, sometimes exceeding 100% per year.