Cryptocurrency has been growing since its first establishment. Also, its ecosystem is slowly heading toward the traditional financial systems. The number of cryptocurrency users has grown up to 66 million users between 2018 and the end of 2022. Both private and public sectors have also started to consider adopting cryptocurrencies for their financial dealings, such as payments, value storage, and investment.
People have done plenty of things to ensure they gain as much interest as possible from their cryptocurrency. One of which is through crypto yield farms. In this article, we are going to thoroughly discuss what crypto yield farming and whether it is actually safe and profitable.
Yield farming is one way to make idle cryptocurrency holdings generate interest. The process uses decentralized finance or DeFi to maximize the generated returns. In this platform, users borrow or lend crypto to earn cryptocurrency for the services they give.
Crypto yield farming can be profitable; however, there are too many variables to determine how profitable it can be. It depends on the value of the digital tokens being invested and received.
The main idea of crypto yield farming is to earn attractive APY and check the value of the token increase in the marketplace. When the value is up, you can gain a lot of profit. However, if the token value goes down during crypto yield farming, your investment value will be lower and you may not receive as much at the withdrawal time.
Before diving into crypto yield farming, here are four types of yield farming you need to know about.
In yield farming, users provide trading liquidity by depositing two coins to a DEX. Exchanges will swap the two tokens for a small fee in the form of liquidity pool (LP) tokens. This fee is then paid to the liquidity providers.
Related Article: What Is Liquidity Pool and How Does It Work?
Users that want to farm or are referred to as farmers use tokens as collateral and receive loans from other users. Then, they yield farming using the borrowed coins. By doing this, their initial holding will be safe as they don’t use it and may increase in value over time. Meanwhile, at the same time, they earn interest from their borrowed coins.
Users that hold coins or tokens can also lend their cryptocurrency to borrowers. A smart contract is used for this process and the user can obtain profit from the interest paid on loan.
There are two types of staking in DeFi for crypto yield farms. The first one is on proof-of-stake blockchains; the second one is staking LP tokens. In the first type, user pledged their tokens to the network to provide security and received interest in return.
In the second type, users stake LP tokens they received from supplying liquidity to DEX. This way, users earn yield twice, from providing liquidity in the form of LP tokens and when they stake it to gain more yield.
Related Article: Best Staking Coins for A Successful Long-Term Investing
There are plenty of crypto yield farms platforms available. However, make sure that you only use those that are reliable and safe. Here are the five best platforms that you can consider.
If safety is the top priority for you, then eToro is the right choice for you as it is regulated by SEC, ASIC, FCA, and CySEC. Although it doesn’t offer conventional yield farming services, you still can earn passive interest using this platform via an automated staking tool.
This platform offers crypto staking services for Cardano, Ethereum, and Tron. Since the tools are flexible, you don’t need to lock your tokens for a certain minimum period to generate interest.
Aqru is considered the overall best yield farming crypto platform for 2022. With this platform, you can earn interest up to 7% with a reliable claim on Bitcoin and Ethereum.
In this platform, you don’t need to lock away tokens for a minimum amount of time. You can even withdraw your coins anytime, except for USDC Maple products. The lock-in period for USDC Maple products is 90 days. However, the annual rate for USDC Maple products is more than 7%.
Aqru is an excellent platform for you who is just starting to dive into crypto yield farms since you can start earning even if you don’t have digital tokens yet. It also has mobile crypto apps both on iOS and Android so that you can always access your account anytime.
The interest rate on this platform is up to 75% APY on DeFi coins with 1-year lock-in. For a 30-day lock-in period, it offers a 30% APY interest rate. Despite being a relatively new platform, DeFi Swap has become one of the top platforms for coin farming in 2022.
This platform offers exchange and DeFi service which makes it fully decentralized. Users can easily convert most cryptocurrencies into DeFi coins. The platform is available online and as a decentralized app. By connecting your wallet to this platform, you will see the staking options available and the interest rates.
If you want the highest interest rate possible, then Crypto.com is the right option. It offers services for more than 250 digital currencies that yield interest, most of which are those considered outside the stablecoin arena.
The APY you can earn with this platform is up to 14%. However, certain variables will apply to determine how much APY exactly you will be paid.
Last but not least is YouHodler, which is a worldwide exchange that also offers yield farming features. It provides attractive lending options, smooth and clean interface, as well a transparent nature.
YouHodler has excellent security where your funds are secured in hot and cold wallets. It also has a Ledger Vault technology that offers users plenty of custodial options. When users have more than $10K in their accounts, they can opt for ‘3-factor authentication’ to ensure their accounts’ security.
The interest offered for the top 50 cryptocurrencies is up to 15%. Meanwhile, stablecoins can yield up to 12.3%, while Bitcoin is up to 6.8%.
Just like any other investment, crypto yield farms are not only potentially profitable it also possesses risks. It is essential to consider the risks before diving into this pool to ensure you’re not losing too much when the value of the coins goes down during the yield farming.
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